Only time will tell how hard Egypt's economy will be hit by the financial crisis. Niveen Wahish seeks expert opinions Ever since the outbreak of the global financial crisis, we have been hearing statements asserting that the Egyptian economy is on solid ground and the damage incurred is nowhere near that which took place in Western economies. Officials and experts have also said that Egypt will not suffer a financial crisis, but an economic crisis as a by-product of the global slowdown. A paper issued by Beltone Financial Research estimates that in the short term economic growth will slow down to 4.8 per cent in fiscal year (FY) 2008/09 and 4.2 per cent in 2009/10. This will be caused, experts say, by lower tourism and Suez Canal revenues, shrinking foreign direct investments, slower exports and stagnating, if not lower, remittances. Although the 2009 Research Yearbook by EFG-Hermes expects tourism revenues to fall by just five per cent in FY 2008/09, it says that arrivals will be badly hit in the first half of 2009 falling by 15 per cent in FY2009/10. The same report estimates remittances to fall by five per cent in FY 2008/09 and by double that figure the following year. According to the yearbook, growth in remittances from oil- exporting Gulf Cooperation Council countries will stagnate, while remittances "from Europe and the US will fall in 2009 while these economies are in recession." However, the yearbook also saw an opportunity that returning expatriates would repatriate their accumulated savings. And it forecast FDIs to halve in 2009. It estimates that "FDI flows will fall to $7 billion in FY2008/09 and $6 billion in FY2009/10 from $12 billion in FY2007/08," the yearbook read. While these figures shed some light on the scale of the problem at hand, former chairman of the Capital Market Authority Hani Sarie- Eldin says that the real extent of the crisis will only show when unemployment figures and company fourth quarter results are released. Taking part in a panel discussion titled, "Crisis or no crisis: Make up your mind!" held on the fringes of the Cairo ICT, Sarie-Eldin said that in his view the crisis is "huge and unprecedented". He urged that solutions should likewise be as huge and unprecedented in order to ease the likely negative social repercussions. What the government has offered so far in terms of solutions is a stimulus package of LE15 billion to be spent during the first six months of 2009. And this week it committed itself to doubling that amount to LE30 billion for the whole year. Beltone Financial Research has said that "the government's reaction to the crisis and its speed have been somewhat better than in previous incidents." This has mainly stemmed from the fact that, for a change, the government has been forthcoming with the idea that the Egyptian economy will be negatively affected by the domestic, regional and global developments. Prior to the government's announcement that it is doubling the stimulus package, Beltone had said that the package was relatively low. However, they said that the force of the package would emanate from it being spent in a short period of time. The report added that the fiscal stimulus package appears to be "the rational response to the expected decline in the external and private domestic spending on projects that are more labour intensive than others and would have numerous linkages in terms of economic activity to create a ripple effect from the fiscal expansion." It said that "the main challenge facing the government in its endeavour is its ability to expedite the execution of the projects, which the stimulus package will be used to finance, to achieve its purpose of injecting cash into the economy." But Sarie-Eldin wants more. He is very concerned about crisis-caused unemployment. He invited participants and the government to "think outside the box" calling upon them to view the experiences of other countries such as France which promised tax benefits to companies who will refrain from laying off employees. The EFG-Hermes yearbook expects that "falling investment growth, the entrance of around 700,000 people into the labour force each year and the potential return of expatriate Egyptians from overseas" will likely lead to rising unemployment rates in 2009. For his part Sarie-Eldin stressed to Al-Ahram Weekly that facilitating lending to small and medium sized businesses could help ease this problem by helping those expats who do not have a job to go back to, to set up their own businesses or professional practice. Mahmoud Abdel-Latif, chairman of the Bank of Alexandria San Paolo, speaking at the same panel discussion, is optimistic that "crisis or no crisis, we have a future." He likes to consider that 2009 will be a year for adjustment. "We had reached unprecedented price levels in all sectors. This could help to bring prices down to normal levels." During the Cairo ICT panel Karim Ramadan, general manager of Microsoft, also had a positive outlook. Speaking in reference to the information technology sector, he said that little has been affected. He pointed out that his company is witnessing a 20 per cent growth. Likewise, he said that IDC, the global provider of market intelligence for the information technology, telecommunications and consumer technology markets, has said that Egypt's IT market will grow by 10 per cent in 2009. This he attributed to the fact that Egypt's information and communications technology market is still virgin. Furthermore, he highlighted that Egypt has an opportunity to expand its outsourcing services, grabbing it from other providers who may currently be affected by the global slowdown. To him, such outsourcing services will be essential in job creation. Another facet of the crisis is the stock market. Participants at the panel agreed that panic is the primary cause behind the sharp drop in stock market performance. This week The Economist ranked Egypt's stock market as the third hardest hit after those of Russia and Greece. Osama Saleh, chairman of the Mortgage Authority, also sharing in the panel, said that the bond market which provides stability to stock markets represents a small portion in Egypt compared to constituting 50 to 70 per cent of international stock markets. Added to this is the increase in individual investors, according to Mohamed Maher, vice-chairman of Prime Investments. According to Maher, individuals are prone to take impulsive decisions. Things might not be much better this year. The EFG-Hermes yearbook does not expect a second year of dramatic market falls, but it sees that "rallies in 2009 will be short-lived and generally be followed by declines, as market sentiment will be vulnerable to earning disappointments, worsening sentiment and reversing foreign capital flows." However, it added that "a rally in late 2009 is a possibility should economic data for the rest of the world suggest a recovery." Mahmoud Abdel-Latif of Bank of Alexandria San Paolo believes that good could come out of this crisis if people go back to basics. Rather than "gamble" at the stock market, he says individuals should now pay more attention to core activities essential for the growth of the economy such as agriculture and industry.
