How will the Taba bombing affect the Egyptian economy? Al-Ahram Weekly sounds out insider reactions In economic circles, the most common reaction to news of the Taba bombing was "Not again." The bombings rekindled unfortunate memories of the 1997 terror attack in Luxor, which many blame for some of the serious woes suffered by the Egyptian economy over the past six years. The attack hit tourism, Egypt's main hard currency earner, hard, and subsequently had a negative domino effect on all other sectors of the economy. Coming just as the economy seemed to be in the midst of a turnaround, the Taba attack was thus particularly alarming. Thanks to the new cabinet's aggressive economic reform agenda, businessmen and economists alike had just begun to look to the future with more optimism. The drastic modifications recently undertaken by the customs regime, and the tax reform currently in progress, were both seen as steps in the right direction towards making Egypt a more investment-friendly destination. The fear, then, was that the events in Taba would set that momentum back. Things, however, look to be different this time around, with initial signals indicating a "business as usual" attitude. Investment Minister Mahmoud Mohieddin, addressing the German Arab Chamber of Industry and Commerce (GACIC) earlier this week, said that the slight, four per cent drop in the stock market index was "very much expected". In fact, on Sunday, during the first session of trading after the blast, there was only a relatively mild retreat in the market indices, mainly due to individual investors liquidating their positions in fear of a sharp decline in stock prices later on. "There was a selling spree by individual investors. [These types of] investors usually panic [during] such incidents, and rush to sell," said Joseph Iskandar, an investment analyst at Prime Securities. Another factor encouraging them to sell, he said, was the rise in stock prices that had previously been catalysed by impressions of an improving business environment. The sell-off resulted in a decline in the prices of a number of blue chips, pushing the index for the stock market's 30 most actively traded companies (CASE30) down by four per cent. This dip is expected to be short lived. "It will only last until the end of this trading week," predicted Iskandar. "The prices of the blue chips will soon regain ground thanks to government statements stressing the blast's minimal effect on the economy, and a Tourism Ministry plan to contain the blast's effect by targeting new markets." The Egyptian Global Depository Receipts (GDRs) traded on the London Stock Exchange were also mildly affected, with thin transaction levels on Friday, the day following the attack. The 0.7 per cent decline in CIB's GDR price was the highest loss among the eight traded GDRs. Mohieddin praised the positive attitude of institutional and foreign investors, who were net buyers during Sunday and early Monday trading. Although only representing half of the volume of individual investor activity on those days, it saved the market from a sharp decline in share prices. Arabs showed an increased interest in buying, on Sunday, a holiday in non-Arab markets, as well as on Monday. Arab transactions accounted for 21 per cent of Sunday's overall activities. The overall turnover was LE148.4 million. While both government and business commentators agreed that it was still too early to evaluate the incident's effect on both the foreign exchange market and tourism, a positive sentiment is prevailing. Mohieddin, for one, is optimistic that tourism will rebound, just like it did before. "This incident," he said, "should merely be considered a hiccup." Others share Mohieddin's optimism. American University in Cairo economics professor Samir Makari said the incident would not be affecting tourism as a whole, but rather Israeli tourism to the Taba area. And since, Makari said, Taba is not in the heart of Egypt, it will therefore not have a significant effect on tourism in other areas. Nonetheless, he said, "it is tough to make a solid forecast now." On the currency exchange market, Mohieddin pointed out, the dollar-pound exchange rate witnessed no unusual fluctuation, with the dollar continuing to be traded at around LE6.25. The wildly fluctuating forex market had only settled down a few months ago, with the gap between the official and parallel black market rates narrowing steadily, until it had been almost completely eliminated. The fear here was that any effect on Egypt's foreign currency revenues would mean renewed pressure on the pound. A number of business entities, meanwhile, are trying to hedge against any possible negative aftermath by providing proof that the Red Sea area is still safe. The National Bank of Egypt, for instance, announced it was planning to hold its annual conference in Sharm El-Sheikh in December. This week, the Businesswomen Association also organised a conference in Hurghada on the problems facing tourism sector investors.
