Great article at http://ow.ly/8F4RA, with some extracted points below:
- The simple answer to what brought Egypt’s economy to its knees: a mismanaged and slow transition.
- The long-winded version: Unwillingness on the part of the ruling powers to meet peoples’ demands in a manner that does not disrupt national economic affairs for prolonged periods of time. Coupled with haphazard decisions, unclear policies and a series of crisis management failures on the political and economic fronts, while creating a state of fear and chaos, this has caused uncertainty among investors and set off a domino effect of negative economic repercussions, all made worse by an extended and murky transition to civilian rule.
- It’s convenient to blame the mass protests for that, but logistically speaking, it was the measures taken by Mubarak’s regime that made it impossible for many sectors to function.
- The telecom cut, internet blackout and stifling curfews meant to put pro-democracy activists in the dark disrupted the regular work flow by handicapping communication, shortening operational hours and hampering the transportation of goods.
- The overall economy, beyond the volatile realm of speculation on listed stocks and the value of the currency, was more or less crippled by the government itself.
- government’s closure of banks and the stock market proved detrimental to capital flow.
- showed how the government’s confused hesitation and indecisiveness can cause unnecessary panic and uncertainty
- owever, they promptly closed days later after protests by workers in the public sector banks. Why all banks, public and private, around the country had to shut down for a whole week remains a mystery, but the move prompted more wariness about access to liquidity. Local businesses had trouble paying employees’ salaries.
- For almost two months the stock market remained closed despite frantic resounding calls by local and foreign investors, analysts and asset managers to open for trading and deal with the inevitable nosedive. What’s worse was the lack of clarity about the reasons behind the decision.
- “The greatest obstacle for investors at the start of 2011 was the restriction of capital flow, initially because of the closure of the banks, but chiefly in the unjustifiably long period during which the stock market was closed,” Roelof Horne, Africa fund manager at UK-based Investec Asset Management, told Daily News Egypt.
- “As long term investors…we took a view from the start that a peaceful uprising in Egypt calling for democracy and accountability was a reason to be more excited about the country, not to capitulate,” he said.
- The night Mubarak stepped down, Beltone Financial’s Angus Blair told DNE, “The army [council] has to realize that there has to be good microeconomic governance of Egypt.”
- Throughout the year, much of the reserves went to propping up the pound instead of letting it gradually devalue to its real rate.
- “Foreign reserves have dropped because they’ve burned through the reserves to prop up the currency. But if they stop doing that, then the value of the Egyptian pound nosedives and basic food prices will rise, that’s very sensitive politically,” Sabra said.
- Beltone Financial reported in the last quarter of 2011 that foreign investors began dumping Egyptian debt as a result of increasing concern over the country’s widening deficit, also citing a messy political transition.
- Selim, however, said that compared to costs incurred by Eastern European economies during their political transformation, “the pressure on the exchange rate and the depletion of reserves, as well as pressure on external and public finances — such costs in the short-term were not too drastic.”
- The result? Stagnant and murky economic policies that left investors, both local and foreign, scratching their heads.
- “The current interim government seems confined by its ‘care-taker’ status. Foreign tourists still don’t know if the country is safe. Investors fear reprisal actions against companies that could lead to shareholder losses.”
- This counters the propagated idea that protests are bad for the economy and slow down the mythical “wheel of production.”
- “It’s convenient for the military, using powerful tools such as state media, to portray protests as slowing down the economy…even if there is no real connection between the two,” said Eurasia Group’s Sabra.
- Expectedly, tourism numbers dropped drastically in early 2011, looked like they may recover by mid-year, but then faltered again after violent crackdowns on protests in October (Maspero), November (Mohamed Mahmoud) and December (Cabinet).
- While Cairo tourists are scarce, the Red Sea resorts performed better throughout the year.
- All the while, investors, both domestic and foreign, have repeatedly said that all they were looking for in 2011 was a clear timetable for the transition to an elected civilian power — they are still waiting.
- Similarly, Sabra said that the “biggest obstacle [to foreign investors] is lack of clarity about politics — investors by and large prize predictability above everything.”
- “It’s not for nothing that you’re now seeing the IMF engage more, because the military now has cover — there’s a parliament and transitional government so they can start to withdraw to the power behind the scenes and have the people up front taking those decisions,” he added.
- But lack of transparency around this issue is only fueling concerns.
- If confidence in the state to provide the most basic and most socially sensitive goods falters, analysts believe Egypt will see unrest of a different kind this coming year.
- The fundamentals of Egypt as an investment destination remain unchanged: a massive consumer market of mostly youth, skilled labor with a lot of unrealized potential, a strategic geographic location — as well as control of the vital trade route through the Suez Canal — and ample touristic treasures.
