Official statements have drawn a sometimes alarming picture of Egypt's economy, but they do not tell the whole story, finds Sherine Abdel-Razek "They say that Egypt won't have any money to buy wheat in three months' time, which means we'll all be starving by Ramadan. God help us through these black days," said Safiya, a 45-year-old cleaning lady who has been the main breadwinner for her three children after her husband lost his job in a privatised company some time ago. Safiya, who is not able to read and write with fluency, said her husband had read in the newspapers that Egypt was on the verge of bankruptcy, something she believes is true. "Have you seen the lines in front of petrol stations to get diesel," she asks. "The government isn't able to provide fuel for poor people to run their cars," Safiya added, referring to the diesel shortage that has affected Egypt in recent weeks. People like Safiya and millions of other Egyptians share similar pessimistic feelings, as they are bombarded by media reports about the drainage of resources, rising prices and increases in unemployment. However, "there has been intentional exaggeration in describing how badly the economy is doing," said one economist from a local investment bank, speaking on condition of anonymity. Some of the bleak economic reports are political manoeuvres on the part of the Higher Council of the Armed Forces (HCAF), de facto ruler of the country after the resignation of former president Hosni Mubarak in February, intended to shift attention from demonstrations and political demands to day- to-day concerns, he said. Ismail Hassan, former governor of the Central Bank of Egypt (CBE), puts things more subtly. "There has been stress on negative indicators as a means of encouraging people to focus on production during the difficult time," Hassan said. Last week, a representative of the HCAF announced more bleak economic figures, putting the country's budget deficit, the difference between state revenues and expenses, for the current year at LE1,250 million, despite the fact that overall expenses are half this figure. He also said that the poverty rate, the most pessimistic estimate being around 40 per cent of the population only three months ago, had reached 70 per cent and that foreign direct investment (FDI) in the economy was now equal to zero, though the figure for the fiscal year ending in June is forecast to be $3.2 billion. Figures from the Central Agency for Public Mobilisation and Statistics (CAPMAS) also suggest that many new companies were set up using foreign investment in March and April. While state bodies released further statements correcting these figures later in the week, Hassan says that even these more accurate figures were presented out of context. While it is true that Egypt lost some $8 billion in foreign reserves over the past four months, reducing the country's total reserves to $28 billion, "this is not necessarily bad news, as the purpose of holding these reserves is to use them when sources of foreign currency decline. We must use the reserves to support the Egyptian pound," Hassan said. "Even if we have to withdraw an additional $10 billion from the foreign reserves over the coming four or five months as a measure to support the pound until foreign currency from investment, exports and tourism rebound, this should not be unduly worrying," the former central bank governor said. The recent political events in Egypt have hit the main pillars of growth in the economy hard, notably private consumption, investment and exports. The decline in hard currency earners such as tourism and investment has also weighed on the Egyptian pound, increasing the cost of imports to bring about growth. International tourist arrivals declined by 45 per cent in the first quarter of 2011 and FDI fell by 33 per cent, compared to the same quarter in 2010. According to a report released this week by Beltone Financial, a local investment bank, these things have "interrupted economic growth in the short term and undermined growth potential in the medium term." The government expects the growth rate for this year to be 2.5-3 per cent, compared to 5.6 per cent in 2009-2010. The Beltone report said that a two per cent growth rate for this whole fiscal year, compared to a rate of 5.6 per cent last, meant that the rate had fallen by some 3.5 per cent. Other countries that had had political revolutions had fared worse, the report said, with "Indonesia's economy contracting by 12 per cent in the year of that country's revolution." "We are not in a really grave situation yet, but growth for a country with high unemployment and poverty rates is not a luxury. It is a must, and in order to achieve growth we have to start attracting investment again." Yet, for Shafik Gabr, a veteran businessman and chair of Artoc Group, an industrial concern, such indicators are not the best measure of Egypt's economic status. "The negative business environment and the distorted image of businessmen in the minds of Egyptians after the revolution are just as threatening to the economy as these not so encouraging figures," Gabr said. "Declining corporate credit levels, money transfers taking 5-10 days, suppliers' refusals to provide producers with commodities except after receiving their full value in advance, and instability in the currency market are only some of the daily pains that business people have had to deal with on a daily basis, making it very hard to work and invest." Gabr said the rise in legal cases filed against businessmen and arbitration cases with Arab investors threatening to take action against the Egyptian government constituted negative publicity that could deprive the country of much-needed investment. Many leading businessmen have been either imprisoned or have had to face travel bans as a result of allegations of profiteering from close relations with the former regime. Moreover, Arab businessmen have threatened to go to international arbitration after the government annulled contracts they had signed before the revolution. These include the Anwal Group, owners of Omar Effendi, the UAE's DAMAC group and Saudi businessman Al-Walid bin Talal. Yet, while he admitted that the indicators were poor and the sentiment was negative, "we have seen worse times," Hassan said, recalling that in the late 1980s the country's budget deficit stood at around 20-25 per cent of GDP, inflation rates were in the neighbourhood of 20 per cent, and Egypt was not able to repay its debts. "Now we are in a much better position, and countries are willing to lend to us because we have good potential," Hassan said. On Tuesday, the World Bank said it planned to make $4.5 billion in loans available to Egypt over the next 24 months, hours after Qatar said it would be making $10 billion available in investments and days after Saudi Arabia revealed a $4 billion support package for Egypt. While analysts say that this news is proof that the international community is confident about prospects for the Egyptian economy, Gabr sees such moves as driven by recognition of the importance of the stability of Egypt as a main broker in the region. He expressed fears of the burden such loans could put on the country's balance of payments, as well as the fact that "we still don't know what the attached conditions are for providing these loans." The country's budget deficit, expected to increase to 10 per cent of GDP, is not especially poor by international standards, and nowhere near as bad as some have made out, Hassan said. According to figures released by the European statistics agency Eurostat, three of the EU's 27 member states have budget deficits exceeding 10 per cent of GDP, starting with Ireland at 32.2 per cent and followed by Greece at 10.5 and the UK at 10.4 per cent. The Beltone report also predicted a quick revival in private consumption, a main engine of economic growth. "Sixty-three per cent of Egyptian consumption patterns are directed towards food, rent and healthcare, all constituting basic consumption needs that are unlikely to be reduced," the report said. "We expect consumer spending to rebound over the next three months of 2010/2011 and into 2011-2012." Recently released figures from consumer product companies bear out such predictions. Sales figures released by Juhayna Food Industries, for example, the producer of dairy products and juices, grew during the first quarter of the year. While the value of passenger car sales for Ghabbour Auto, the country's largest carmaker, declined by 49 per cent in the first quarter of this year compared to 2010, sales of the companies three-wheeler tuk tuk vehicle were up by 49 per cent, making the quarter the second-best in the company's history and proving that lower-income buyers have been quite resilient despite the economic fears. On a positive note, yesterday all tourism exporting countries lifted the ban on travelling to Egypt. (see pp.8-9)
