What does the bankruptcy of one investment bank at the other end of the world have to do with Egypt? As economic analysts and commentators the world over warn of an impending global recession reminiscent of the Great Depression in 1931 with the fall of Lehman Brothers, the US's largest investment bank, in Egypt the benchmark CASE 30 index slid 5.52 percent to close at 7,541,24 points on Monday and dropped another 4.73 percent to 7,184.35 Tuesday. By Thursday, we reported that the CASE shed 4.77 percent to 7,066.21 points, while the Hermes index lost 4.95 percent to 630.30 points and broader CIBC index plunged 7.46 percent to 363.11 points as the market reeled on global market woes. Analysts told Daily News Egypt that heavy selling by foreign investors was what caused the plunge in the stock market and at the same time the fall of the Egyptian pound to its weakest level in five months. The current exchange rate stood at around LE 5.44 to the US dollar compared to LE 5.29 to the US dollar in August, prompting the Central Bank of Egypt to contemplate injecting $500 million in the interbank market, according to unconfirmed reports, in order to reassure inventors in the Egyptian market that there will be no foreign currency liquidity crunch. However, as fortunes and jobs were being lost on Wall Street, key players on the local scene kept their cool. In an interview with Daily New Egypt, the CEO Amlak Finance and Real Estate Investment, mortgage finance company and affiliate of the UAE-based Emaar Properties, announced the launch of yet another luxury project, Aurora Ain Sokhna. He assured Egyptian and foreign investors that the seismic effects of the subprime mortgage crisis which has snowballed into what many fear will be a global recession, has not effected Egypt's mortgage finance market. The CBE only allocates five percent of its financing portfolio to mortgage finance, he explained, within a policy that is not liberal with lending money. The CBE's strategy of raising interest rates has, however, meant that more obstacles are placed in front of potential home buyers, a problem that is compounded by escalating real estate prices and souring inflation. Ironically in Egypt, at a time when the country is at the peak of a decades old housing crunch that has led to explosive social problems, culminating in the recent death of over 100 of the country's poorest citizens in the recent rockslide disaster in the Duweiqa shantytown, more than one million apartments remain uninhabited because people can't afford to buy them. Abdalla Elnockrashy, managing director of development and real estate at Orascom Hotels and Development (OHD), a subsidiary of Orascom Development Holding, also catering for high-end local and foreign buyers told us that "Typically, in a downturn of the economy, who gets hurt is the bottom and the middle line. So to go back to my initial question, how will a global recession impact Egypt, my answer would be, in the same way the global hikes in food prices did and continues to do, but for now, a little less blatantly. Perhaps most Egyptians, 25 percent of whom live under the poverty line, may not realize the impact of this global financial meltdown right now, but it's only a matter of time before the ripple effect begins to dig its claws into the empty pockets of the average Mohamed who will continue bearing the brunt of growing inflation, rising cost of living, a static income and dilapidated public services whether in health, education or transportation. With analysts projecting further weakening of the Egyptian pound against the US dollar by year end, it seems that 2009 will get off on a bad start, raising more venom against an already unpopular regime. Just as the developed world has learnt the hard way that regulatory state strategies are necessary to sustain a healthy free market economy, Egyptian policy-makers too must make sure they don't fall into the same traps. Huge social subsidies and quick fixes are not enough. Forward vision and sound planning with the express aim of lifting the struggling masses from adverse poverty, is the only way to guarantee political, social and economic stability in a country teeming with the disappointment of millions of disenfranchised youth whose small buried dreams will soon turn into bitterness and violence. Rania Al Malkyis the Chief Editor of Daily News Egypt.
