The government is putting on a brave face despite the figures, reports Niveen Wahish The week started off with a set of negative figures. Growth rate during the second quarter of fiscal year 2008/09 fell to 4.1 per cent, a sharp decline from 7.7 per cent this time last year. A fall in growth had been expected. It is the extent of the decline that was not foreseen, with even the most pessimistic analysts predicting it would decline to around five per cent. Unemployment figures also rose, from 8.6 per cent during the second quarter of fiscal year 2008/09 to 8.8 per cent while revenues from the Suez Canal grew only 1.4 per cent in the quarter compared to 22 per cent a year earlier. Still the government managed a brave face. Addressing the sixth Economist Roundtable on Monday Prime Minister admitted that financial indicators gave cause for concern but stressed that Egypt's economy remained resilient. The most pressing question is for how long. Nazif expressed surprise at the lower than expected growth rates, not least because "Egypt's economy is only 20 per cent globalised and 80 per cent driven by the local market which is still growing". "We have a consumer who, given the right environment, will spend," the prime minister argued. He is not the only person banking on the continued robustness of domestic markets. "The percentage of exports to GDP in Egypt is not like China, Japan or Germany," says Philippe Joannier, BNP PARIBAS head of Territory for Egypt. "You can concentrate on your internal market." That Egypt has relatively limited exposure to outside markets means, argues Joannier, that unlike, say, the US, the internal market in Egypt is intact and should not be shrinking. But while "smaller exposure to external markets and a non-collapsing internal market means you are better off," Joannier stressed that it is up to the government and business community to keep morale up. That may be easier said than done. The January 2009 issue of Business Barometer, produced by the Egyptian Centre for Economic Studies (ECES), revealed few reasons for celebration among businessmen. The Barometer reported negative expectations among respondents asked about prospects for the next six months, with a growing number of firms anticipating a decrease in economic growth compared to the earlier surveys. Far more firms are now pessimistic about their own production, domestic sales and exports. The Barometer survey reported that 38 per cent of firms surveyed expected lower production levels while just 21 per cent expected to maintain the same production levels. Forty one per cent said they hoped to increase their production during the first half of 2009 compared to 68 per cent during the last six months of 2008. Business Barometer canvassed 474 large companies on the overall performance of the economy as well as their own activities during the second half of 2008, and asked what they expected from the first six months of 2009. Participants in the survey were drawn from the manufacturing, construction, tourism, transportation, communications and financial sectors. Simon Kitchen, senior economist at investment bank EFG-Hermes, believes flagging short-term sentiments are natural. "There is not much that can be done when the short-term outlook is not good," he told Al-Ahram Weekly. "This negative sentiment is as significant as the financial shock and it will not disappear easily." His worry is that growing pessimism could cause companies to revise their plans and infect consumer willingness to borrow and spend. Joannier of BNP PARIBAS is more hopeful. While the businessmen he meets with, particularly those belonging to international business groups, say they are not over optimistic about 2009 they still believe prospects in the Egyptian market are better than abroad. It is on just such a view the government hopes to capitalise. Nazif pointed out that Egypt could emerge as the "safe haven" that many investors are searching for in these hard times. He assured listeners that Egypt would not compromise its reform programme even if it suffers a little in the process. "We might be losing a little bit of pace but we are not changing direction," he said, before promising further reforms, including liberalisation of the energy and transport sectors, designed to tease the appetites of potential investors. Nazif also pushed his government's LE15 billion stimulus package, saying that the objective is to create jobs. The cost of the programme will be met from savings made on subsidies occasioned by falling commodity prices with any shortfall met by government borrowing. He added that while the government would be unable to reduce the budget deficit as it has done over the past three years it remained committed to ensuring it did not expand. Kitchen thinks the government investment programme, combined with falling inflation and a cut in interest rates, may improve investor confidence and have a positive effect on growth. But he is not over confident that dependence on the internal market provides any real panacea. "The domestic economy might grow but the economy will still suffer a shock because of the drop in external demand," he says, adding that manufacturers will have to adjust their production to be able to market it locally and even then not all items produced for export will be saleable at home. The government's own package will need to be supplemented by the banking sector to optimise any stimulus. The crisis, says Joannier, provides the perfect opportunity for the banking community to show it behaves responsibly. "We have to continue to develop and expand in terms of hiring as well as lending. Because there is a crisis we have to be more cautious but must continue to expand."
