In 2013, investments in Egypt are expected to drop, the depreciation of the Egyptian pound will continue and inflation rates will increase, leading to a rise in prices of both commodities and services. These predictions were put forth by a panel of American University in Cairo (AUC) faculty members who discussed the future of the Egyptian economy during a roundtable titled 'Egypt's Economy: Predictions for 2013.' Ahmed Kamali, AUC associate professor of economics, predicted that if the political conditions remain the same this year, the pound will continue its slide and reach LE7 per dollar, while economic growth would slip below 2.5 per cent. “Egyptians, as a result, would feel the intensity of the economic crisis and poverty will increase,” he said. Kamali said he believed that with the rise in the cost of living and with the absence of a clear vision on wages and salaries, protests and sit-ins will increase and will be more intense in the coming period. Speakers at the roundtable anticipated that the government will impose austerity measures to combat the budget deficit, including levying indirect taxes on consumer goods. “This would lead to a decline in economic performance and investments, as well as a drop in the growth rate,” Kamali said, adding that indirect taxes would be a burden on the poor. Kamali is for the application of property tax as a more equitable form of increasing government revenue. According to Samer Atallah, AUC assistant professor of economics, the government squandered opportunities to deal with economic problems over the last seven months, as “it was preoccupied with issuing the protests law to restrict what the Egyptian people gained through the revolution.” For Galal Amin, professor emeritus of economics, the economic crisis is rooted in politics and lack of security which has reflected in a drop in tourism and waning confidence in the government. He noted that it is difficult to predict Egypt's economic future, but suggested that the past could offer some clues as to what is coming. In the last 50 years, he explained, Egypt faced three crises of the same intensity. The first was in 1967 when Egypt lost control of the Sinai Peninsula, the Suez Canal was closed and foreign direct investment plummeted. Egypt overcame these difficulties after oil-rich Arab countries pledged financial support. The second crisis was in 1975, when wheat prices skyrocketed and President Anwar Sadat took loans at a high interest. At the time, the US, under president Richard Nixon, offered Egypt financial assistance. And the third crisis was when in 1987 Egypt failed to repay Sadat's debts and the International Monetary Fund (IMF) intervened so that the payments would be postponed. “Egypt always relied on foreign and Arab aid and loans to resolve crises,” Amin pointed out. “I expect the same thing to happen now; the United States and Arab countries, such as Saudi Arabia and Qatar, will give Egypt money. However, every time there is an economic crisis, there were conditions and a price to pay. This price was never economic; it was always political.” Amin explained that in 1967, the price was the abandonment of Arab nationalism and the adoption of the open-door policy. In 1978, the peace accord was signed between Egypt and Israel, whereas in 1990, the IMF imposed a structural adjustment agreement requiring the implementation of free-market policies such as privatisation, deregulation and weaker trade controls. Amin expected the political price this time could be the sale of public utilities via Islamic sukuk (Sharia-compliant bonds). Amin expressed his bewilderment over a draft law implementing sukuk, describing it as hasty and unclear. He added that in 2009, the same idea was introduced by Mubarak's former minister of investment Mahmoud Mohieddin under the name “popular sukuk,” but was never put into effect. The plan stipulated that 30 or 40 industries would be publicly available for anyone over 17, regardless of his or her nationality, to buy shares in. “I'm afraid the current project is the same as Mohieddin's, just with the word ‘Islamic' added to it. Such an initiative would allow foreigners to own our public utilities. Did the IMF ask for the sukuk?” Amin speculated, adding that the conditions of the proposed $4.8 billion IMF loan were never made public. Looking ahead, Monal Abdel-Baki, AUC assistant professor of economics, argued that it is easier to make long-term predictions than short-term ones, pointing out that while some emerging economies such as Turkey and South Africa had a short transitional period guided by a strong leader, Egypt is in for a longer period of uncertainty. “There are other countries, such as those in Eastern Europe, which experienced long and exhausting transitional periods,” she said. “Egypt belongs to this group. The nation is divided and there is no leader.” Abdel-Baki suggested that Egypt follow the example of China where in 1978 “five politicians drew a road map for the economy until 2050,” with the goal that China would by then be the world's economic power. Abdel-Baki was cautiously optimistic. “The Egyptian economy has a lot going for it, including a young population, a large consumer base and solid capital markets, but the country needs an economic coalition to prepare a road map for the next 30 to 40 years."
