Today, Egypt is in the grips of a serious economic crisis. Investors are fleeing the Egyptian market and the tourism sector is in stagnation. With the GDP retreating considerably and the stock market experiencing one fall after another,
Today, Egypt is in the grips of a serious economic crisis. Investors are fleeing the Egyptian market and the tourism sector is in stagnation. With the GDP retreating considerably and the stock market experiencing one fall after another, the question that begs an answer is whether Egypt can find a way out of the grave situation crisis. Watani took the question to Fouad Shaker, the economist and financial consultant and former secretary-general of the Union of Arab Banks.
Egypt is facing a grave economic crisis given the fall in foreign currency reserves to EGP18 billion.
We should not be preoccupied with fears over the fall in foreign currency reserves. This is no more than one of the symptoms of a deeper illness. The real threat is the ongoing state of political instability. If the current turmoil is to come to an end, the economy will go back to normal in a few months.
Is there a way to restore stability?
There needs to be a transformation in the relationship between the three main forces: the Supreme Council of the Armed Forces, the caretaker government and the Advisory Council on the one hand, and the Egyptian public on the other. These forces should assure the public that security will be restored and social justice will be attained. People, for their part, should go back to work and embark on production.
Is there a prescription to solve the problems?
The prescription is the formation of a government, the appointment of a strong Interior Minister and the end of pickets and strikes.
The sweeping victory the Islamic current has achieved in the People’s Assembly elections has heightened fears, given the Islamists’ repeated announcements regarding the changes expected to affect the banking system and the transformation of the Egyptian economy to cope with the provisions of Islamic sharia law.
Islamists are well aware of the suspicion over their intentions and I think they will not commit the mistake of introducing drastic changes to the economy. Perhaps they could do so at a later stage, after restoring economic stability, but not in the meantime. The Muslim Brothers are professional politicians. They are too intelligent to take any moves that imply a change in the identity of the present economic and banking systems.
The people are worried about accepting foreign loans. The Minister of Finance has announced that Egypt will borrow USD3.2 billion from the IMF. Do you see any danger in foreign loans?
I do not find any reason for apprehension. Rather, the conditions set by the IMF are usually reasonable. It has to be borne in mind that Egypt lacks fixed resources and suffers from a chronic public deficit. Today, the deficit has reached USD431 billion. The situation is extremely bad and foreign borrowing is now indispensable for economic recovery.
Is there a way to revive the tourism sector and attract foreign investment?
We have to exert effort to restore investors’ confidence through achieving stability in markets and legislation. The case of the Damietta MOPCO fertiliser plant is indicative. The plant is among the most environmentally friendly, and the Egyptian market badly needs fertilisers. The investment expected to be poured into this factory amounts to USD1.25 billion. After the start of production and export, the Damietta residents demonstrated to close the factory on the grounds that it was having a harmful effect on people’s health. I would like to stress here that among fertiliser plants working in Egypt, MOPCO comes first as far as abiding by environmental standards is concerned. I think a democratic approach to solving this problem is necessary. Leaders of municipalities should talk to the people and convince them of the worthiness of the project.
Could partnerships with Arab countries help alleviate the crisis?
The problem is that partnerships with Arab investors have already caused huge problems. Over the past few months, the court annulled three contracts to sell public enterprises to Arab investors on the grounds that the process involved acts of corruption. It seems that the former regime had committed grave mistakes in this respect. But this situation poses such a major threat that if this problem remains unresolved, it will be impossible to restore investor confidence in the Egyptian economy.
Do you see any role for the Ministry of Planning?
We are not in need of any planning at the moment. It looks as though the Egyptian economy has been lying in the intensive care and nobody knows whether there is any way out.
How do you evaluate the performance of the Central Bank of Egypt?
More reasonable and satisfactory than anything else.
Do you expect banks to stumble due to investor inability to repay loans?
I don’t think so. The situation of the banking system is reassuring and banks have plans to face emergency conditions.
What do you think of the issue of bonds?
This is the best way to attract investment now given the appalling state of domestic markets. In the course of 2011, 826 factories closed down and we have to make up for these losses.
How do you view the internal debt?
This is an everlasting problem. The more we resort to internal debt, the deeper the economic crisis will be. The only way to economic recovery now is foreign borrowing.
How to stop the bleeding of the economy?
First, security has to be restored so that Egyptians would feel safe. Then monetary and financial balances should be achieved. Once we manage to stop the bleeding, we should direct our attention to the real economy, that is production. Then comes the significant issue of social justice. Instead of subsidising basic commodities, job opportunities should be created and the huge gap in pay between the best-paying and least-paying jobs should be treated. It is inconceivable that the compensations of a minority of officials should run into the millions, while those of the majority of employees should be in the hundreds. Along with the minimum wage, a maximum wage has to be defined.
How do you evaluate the stock market now?
The stock market is the mirror of the economy. I think ups and downs will continue until the country has attained stability.
BOX
Economic indicators:
Internal debt: EGP6 trillion
External debt: USD907.8 billion
Foreign currency reserves: EGP18 billion
Contraction in tourism: around 80 per cent
Balance of payment deficit (from January to July 2011): USD10.3 billion
Balance of trade deficit: USD23.8 billion
Budget deficit: USD431 billion