Egypt's government is on alert as it attempts to contain the ripples of the financial crisis, writes Niveen Wahish First, Minister of Trade and Industry Rachid Mohamed Rachid met with industry representatives. Then, the board of directors of the stock exchange was locked in its own session, just as President Hosni Mubarak was meeting with the governor of the Central Bank of Egypt (CBE), the prime minister and minister of investment. On Tuesday it was the turn of the cabinet to put their heads together and come up with a contingency plan to guide the Egyptian economy through the global financial crisis. The message that has emerged is one of cautious reassurance. Egypt's banking sector will not see the kind of collapse witnessed in the US. Local banks have no liquidity problems. Their external positions are secure, as are the country's foreign reserves estimated at $35 billion. So, there's nothing to worry about? Well, not quite. The stock market remains cautious and transactions have been sluggish while the Egyptian pound fell to LE5.6 against the dollar on Wednesday. "Countries exporting to the US will suffer," says Hisham Fahmi, executive director of the American Chamber of Commerce in Cairo (AmCham), as the US economic slowdown kicks in. Egypt's exports to the US reached $7.7 billion in 2007, according to AmCham figures, which represents six per cent of Egypt's GDP. But the government has promised to take steps to make exporters' lives easier. Such measures are likely to include a freeze on energy prices for export industries and a reassessment of existing export fees. Fahmi is also worried about the impact of a slide into global recession on the tourism sector and on the volume of traffic transiting the Suez Canal. Receipts from both have reached record levels in the last two years, with the Suez Canal earning LE16.7 billion during the first seven months of 2008, a 23 per cent increase on the same period for 2007. Tourism has also been enjoying a boom. The number of tourists arriving in Egypt reached 9.7 million in 2006/07. During the first half of 2008 tourism had generated revenues of $9.5 billion and the Ministry of Tourism had widely publicised plans to target 14 million arrivals by 2011/12. The industry accounts for a little over 11 per cent of Egypt's GDP and 19.3 per cent of its foreign currency revenues. Minister of Tourism Zoheir Garrana has already announced an increase in advertising campaigns in an attempt to counter any drop in foreign visitors. Foreign direct investments (FDIs) are another focus of concern, though any falls are a result of the credit crunch, says Fahmi, and not because Egypt is viewed as an investment risk. "Multinationals will reconsider their budgets for investment abroad. Projects may be postponed or overlooked all together," says Fakhri El-Fiqi, professor of economics at Cairo University. The government is hoping to offset any shortfall by diversifying the sources of FDIs. It has compiled a list of 50 new target countries, including China, India, Turkey, Oman, Bahrain and Algeria. Samir Radwan, board member and advisor to the General Authority for Investment and Free Zones, argues that the crisis also contains opportunities. Emerging economies like Egypt, he says, could capitalise on the disarray in financial markets by offering themselves as an alternative to investors looking to relocate. Egypt might be particularly attractive to Arab investors who have lost a great deal in the US. Radwan hopes they have now learned their lesson and will redirect part of their funds to Egypt. Our success, he says, depends on "how quick and how serious our plans are". While Prime Minister Ahmed Nazif is optimistic that growth can be maintained at 6.8 to 7.2 per cent, El-Fiqi believes six per cent to be a more realistic figure. But even this reduced figure is no small achievement. "All things considered," says Fahmi, "Egypt is much better off than many countries." The IMF's latest World Economic Outlook (WEO) predicts global growth will "slow sharply to 3.9 per cent in 2008 from 5.0 per cent in 2007, and continue slowing to 3.0 per cent in 2009." Emerging and developing economies, meanwhile, will see their growth "moderate to 6.1 per cent in 2009". To prevent growth falling below six per cent will, El-Fiqi says, require a cut in interest rates. Yet concern about inflation, which hit 23 per cent last month, has led the CBE to impose a series of increases in interbank rates. Even the coordinated reduction in interest rates by central banks around the world failed to budge the CBE from its anti-inflationary position, and the monthly meeting at which a decision to cut rates might be made has now been postponed until November. In September the CBE raised overnight deposit and lending rates by 50 base points, to 11.5 per cent and 13.5 per cent respectively. Yet cutting interest rates, insists El-Fiqi, "is essential to encourage investments." Diversifying the economy is another must, argues Radwan, with a particular focus on small and medium industries which need to be nourished and developed into corporate entities. Whatever the government's final strategy it cannot afford to falter and must not, says Fahmi, deviate from its emphasis on growth. And if the speed of the contagion from US markets to the rest of the world was one of the most dramatic aspects of the crisis it was simply one side of the globalised coin. The other, believes El-Fiqi, is that the problems can be extinguished as quickly as they flared.
