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Egypt Sounds Alarm on Economy

Emad Mekay

CAIRO, Jun 1 2011 (IPS) - Egyptian officials are warning that the country, just emerging from a popular uprising that ousted the regime of former President Hosni Mubarak, could be facing a major economic crisis with lagging international aid and foreign investment.

General Mahmoud Nassr, a member of the Supreme Military Council, which is running the country’s interim government, told an economic conference in Cairo last week that foreign direct investment (FDI) has come to a standstill while Western rating agencies race to downgrade the country’s sovereign credit rating. The poverty rate has also worsened to 70 percent, Nassr added.

The General Authority for Investment and Free Zones (GAFI), whose job is to attract foreign businesses, says FDI in Egypt fell by 500 million dollars in the first quarter of 2011 – down to 1.2 billion dollars from 1.7 billion the previous year.

The country’s Finance Ministry also forecast at least a 9.4 percent budget deficit this year, while growth was seen slowing to less than 2 percent – down from a 5.8 percent growth forecast before the revolution.

Egypt’s spending on food and energy subsidies will increase by 40 percent this year from last year, further straining the budget, the government says.

Other ominous indicators include the withdrawal of 8 billion dollars from the country’s foreign currency reserves during the past three months alone. The reserves now stand at 28 billion dollars, down from 36 billion in December – enough only for a few months’ supply of imported staples such as sugar, wheat and vegetable oil. The country’s 86 million people are heavily dependent on imported food.

Since the start of the year, the Egyptian pound dropped 2.5 percent in value.

The country is also witnessing revenue declines especially from tourism, and expatriate remittances. Before the start of violence in neighbouring Libya, the 1.5 million Egyptians who were working in Libya were sending millions of dollars home to Egypt every year. Because of slow industrial activity, the country is exporting much less and consequently earning less.

Egypt’s once booming tourism industry is losing one billion dollars per month as a result of tourists staying away from the country in the wake of the Jan. 25 revolution.

“The effects have been drastic,” said Omayma El-Husseini, spokeswoman of the Egyptian Tourism Ministry, told IPS. Egypt was forecasting 16 million tourists for 2011 before the Jan. 25 uprising, she said. But in just a few days, a million tourists packed-up and fled the country, vacating the usually bustling hotels and restaurants in Cairo, Luxor, Aswan and the Red Sea resorts of Hurghada and Sharm El-Sheikh.

Egypt received 14.5 million tourists in 2010 – making tourism the second largest revenue source after expatriate remittances, government figures show.

“It is obvious we are in a bad economic shape,” said Rashad Abdou, Professor of Economics at Cairo University. “The political turmoil led to blows coming nearly from every direction.”

To lure back foreign investors spooked by sweeping corruption investigations, the government has said that it will make it easier for foreign companies to set shop in the country.

Ahmed Al-Saman, spokesman of the Egyptian Cabinet, also announced that the Justice Ministry is preparing a bill that would penalise former government officials involved in corruption, while absolving foreign investors who were coerced into corrupt deals.

The law will be controversial but if passed would allow foreign investors to keep their projects, properties or lands they obtained in illegal transactions as long as they “adjust their situation with the new government” perhaps through paying modest fines, he said.

Mamdouh Al-Wali, managing editor of the business section of the Al-Ahram newspaper, the country’s largest daily, said the new incentives were not enough and that the main fault of the current government was its neglect of the security situation and of the political atmosphere.

“Foreign investors look first for political stability, safety and the rule of law,” Al-Wali told IPS. “These haven’t yet been fully established after the revolution.”

Egypt has been affected by a wave of crimes and street violence after heads of the police force under Mubarak let loose thousands of convicts from prisons to penalise the public for their support of the revolution. Thousands of criminals remain loose intimidating the people here.

“This is now a country run by the military and it is without a president and parliament,” said Al-Wali. “When the country improves politically, we can talk about the next wave of incentives and of reviving the economy.”

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