Road to recovery a long one for Egypt

Months after the revolution that overturned the government, the Egyptian economy is stuck in a quagmire. For the immediate future, uncertainty is the only constant.
Egyptian economic growth is predicted to be about 1 per cent this year with the tourism industry decimated by the unrest. Peter Macdiarmid / Getty Images
Egyptian economic growth is predicted to be about 1 per cent this year with the tourism industry decimated by the unrest. Peter Macdiarmid / Getty Images

Egypt's economy may have moved on from the revolution's most chaotic days. But the impact of the unrest continues to be felt.

Telecommunications, for example, still faces an ongoing drop in revenues.

Khaled Hegazy, Vodafone Egypt's director for external affairs, offers a snapshot of the initial impact. "We had over 900 base stations that were completely shut down and looted," he says. "Six branches, including our flagship store, were completely destroyed. We incurred a massive hit over a short period of time."

But the violence and protests of the revolution are just one of many forces that have conspired to suck the life out of businesses in every quarter of the economy.

Revenues are shrinking "because there are less tourists coming, because the Egyptian economy is shrinking, because foreign direct investment is shrinking, because investors are afraid to pump money into sectors like real estate and tourism", Mr Hegazy says.

Before the revolution the information and communications technology sector had been growing at a rate of more than 13 per cent a year. It had also been one of Egypt's leading generators of new jobs.

According to the ministry of communications and internet technology, an extra 14,150 people were employed by the sector in the year to January.

Vodafone says it will keep hiring this year - but at nowhere near the levels it had anticipated.

It is a scenario Egypt can ill afford. Even before the revolution, youth unemployment was about 25 per cent, according to the IMF.

The previous government used to talk about the need of GDP growth of more than 6 per cent just to keep pace with each year's 650,000 new entrants to the job market.

This year, growth is predicted to be about 1 per cent. With industrial capacity down and the tourism industry decimated, it's a safe bet unemployment is going to rise.

Ahmed Heikal, the chairman of Citadel Capital, Egypt's largest private equity firm, paints a dispiriting picture. "I think, for a while, the Egyptian economy will undergo serious bumps, there are no two ways about it," he says. "If you look at all serious macroeconomic indicators the Egyptian economy is going to suffer. Investment will be less forthcoming. I think unemployment will rise significantly over the next couple of years."

Foreign investors are unlikely to return to Egypt until they get some sense the country is stable. In May the Financial Times reported the military government announcing that foreign direct investment had "plummeted to zero". Things may have begun to improve since then: Electrolux's US$410 million (Dh1.5bn) purchase of Olympic Group demonstrated ongoing international interest, but as long as the government continues to tinker with its budget decisions confidence is unlikely to be restored. Nor did turning down a loan from the IMF help matters.

"It wasn't a good idea because of the message it gave," says Angus Blair of Beltone Financial. "The loan didn't come with many conditions. It was a very low interest rate. To raise similar amounts in the local market, Egypt is going to have to pay out a higher yield."

The elections have been postponed, with a definite date yet to be announced. The protesters, too, are back in Tahrir Square with the message that this time, they are not moving until their demands are met.

There is little doubt the country's business leaders want them off the streets - maintaining that the protests, broadcast on international television, are holding back the economy. A charge the activist Mahmoud Salem, who blogs as "Sandmonkey", regards as ridiculous. "I think it's funny how economic development is held up by one square," he says.

Mr Heikal is also worried about the social impact of the deteriorating economy on a country where 40 per cent of the population already lives below the poverty line, according to the UN. "If you have very high unemployment and very high inflation it is like putting fire next to a bush - a dry bush," he says.

And when the military government finally decides to let the people vote, how they will vote is still a matter of conjecture. But it seems certain that the Freedom and Justice Party will do well.

The party has yet to unveil any detailed economic plan, but the noises from senior members suggest that if they have their way, Egypt's economy is not going to continue on its recent path of liberal reform.

It seems that for at least the considerable future, the only certainty in Egypt is that the uncertainty will continue.

Published: July 25, 2011 04:00 AM


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