Selma, wife of a general and mother
of three teenage children, is one of Egypt's dwindling
middle classes. The family bought a three-bedroom
apartment in the up-and-coming Cairo suburb Nasr City
more than a decade ago during the country's boom period,
and later a weekend chalet at a Red Sea beach resort.
The current worth of those
properties is less than they were on plan. The
couple belongs to a prestigious country club and both
Selma and her husband own cars. They should be
comfortably off, able to look forward to their
university-educated offspring finding well-paid jobs
with the prospect of a financially secure old age for
themselves.
The reality, though, is very
different. Selma told me of a struggle each month to
make ends meet due to rising prices and the cost of
extra private tuition. She worries about her husband's
approaching retirement wondering how they will exist on
his modest pension.
But Selma's greatest concerns
revolve around the respective futures of her children
against a backdrop of soaring unemployment. "If one
doesn't know someone high-up who can help with getting
jobs for them, our young people are doomed to sit at
home or hang around cafes where they fall in with bad
company," she said gloomily.
Egypt runs on the system of
'wasta'; in other words, not what you know but whom you
know. This translates to the rich getting wealthier and,
very often, the middle-classes eventually joining the
ranks of the poor.
Over on the posh tree-lined island
of Zamalek, the picture is similar yet different. Here
is another face of Cairo dotted with embassies,
expensive boutiques, antiques galleries, European-style
coffee shops and expensive restaurants; so popular they
demand advance reservations. This is the home of 'old
money', the remnants of Egypt's aristocracy, their
chauffeurs congregating outside Nile apartment blocks
polishing the requisite Mercedes, while the 'bawabs'
(doormen) rush to do errands for well-heeled owners and
tenants. But here, too, there is discontent. Property
owners have seen a dive in the value of their assets
over recent years, along with tumbling rents. Many
businesses - other than catering-related - are
witnessing dwindling returns, while banks have severely
cut interest rates, especially on foreign currency.
In the working-class district of
Shobra, the poor grumble about the doubling in price of
such staples as oil, ghee, sugar, and tea. When the
government recently upped the price of bread, the outcry
was so great it was forced to retract - obviously with
the memories of mid-20th century bread riots in mind.
Residents of Shobra are packed
tightly together in poorly constructed multi-storied
apartment blocks often without lifts and lighting on the
stairs. Moussa, a taxi-driver lives with his parents,
his wife and five children as well as his unmarried
sister in two tiny rooms. A window looks out onto the
neighbours, a seeming hands-breadth away, while the
sound of a score of televisions, radios and children
playing football in the narrow street below makes for a
relentless cacophony.
Moussa at 45-years-old is haggard
after a life spent working up to 18-hours a day so as to
send three of his children to college. They are grown
now. Two of them hold law degrees and the other is a
qualified pharmacist but all are without a job and
continue to be a financial burden.
Egyptians today are in a strange
situation. Education doesn't guarantee work and so the
brightest and best are tempted overseas. The U.S and
Europe have wooed many of Egypt's scientists and
top-notch doctors, offering attractive research
facilities and high salaries. Egyptians tradesmen - such
as painters, carpenters, upholsters, television
repairmen, and plumbers - are in demand at home. Thus,
while a government-employed scientist might earn a mere
300 LE (around US$50) a month, a carpenter might take in
as much as 1,200 LE (US$200).
Egypt's small businessmen are a
breed on their own and can often reach great heights. A
prime example is the man who once trundled the streets
of Alexandria with a pushcart from which he sold foul.
The vendor (Gad) became a multi-millionaire, moved into
a mansion and opened a chain of foul and filafel
restaurants.
Small businessmen who made good
along with property developers make up much of Egypt's
nouveau riche. These are the people eager to pay
LE120000 (US$19,000) for membership of Cairo's Shooting
Club, keen to ensure their children enjoy a life of
ostentatious luxury, the symbols of which are sleek
imported cars, designer jeans and the latest mobile
phone.
Battling a socialist legacy
Many of Egypt's economic woes derive
from the socialist legacy left by former president Gamal
Abdul Nasser. A honourable man, who lived a simple
lifestyle, Nasser redistributed the nation's wealth and
land, nationalising industries and ousting wealthy
landowners. His aim was to give everyone a job for life
and to ensure that the fellaheen (peasant farmers)
worked their own land. These were worthy ideals but in
reality the government-owned industries became wieldy
and over-staffed, and even today government employees -
even those who are inefficient or lazy - are rarely
sacked. Egypt has more than four million public
servants, representing around 25 per cent of the work
force, while a further eight per cent is employed by
public sector enterprises. These figures do not account
for the police or the military. This makes for a massive
public payroll. Anachronistic laws also mean that
employees in the private sector cannot be easily laid
off, which means employers are often reluctant to take
on new staff other than as part of a black economy.
World Bank Vice President Michael
Klein believes a competitive private sector is better
than a protected government sector and would like to see
the Egyptian government offering up more industry to
privatisation, especially in the steel and aluminium
fields, something the government has been slow in doing.
"You have to encourage new entrants to come and open up
trade so that you can have genuine competition and do
not merely reproduce the problems of the public sector,"
said Klein.
As arable land (six per cent of the
total) is diminishing - partly due to its continual
divvying up into small parcels as a result of
inheritance laws and partly due to industrialisation and
property development - the country's cotton and wheat
production are in the doldrums, which means that both
commodities now have to be imported.
Last year the country's textile
manufacturers complained that they had to buy-in cotton
because Egypt's own had been exported to bring in
much-needed foreign currency. The textile industry, once
thriving, is said to need a giant overhaul, requiring
new technologies, production lines, creativity and
marketing techniques.
Encouraging exports
The disparity between Egypt's
imports and exports is a cause for concern. In 2002 the
country imported more than US$15 billion worth of goods
and received only US$7 billion in export revenue. In the
first half of 2003, though, this trade balance deficit
was substantially narrowed with exports rising and
imports declining.
Writing in Al-Ahram Weekly,
professor of economics at the American University of
Cairo Talaat Abdel-Malek believes Egypt needs to
restructure the supply side of exports. He points out
that Egypt's textile quota entitlements in the U.S. are
not being fully utilised and neither are the quotas of
fruit and vegetables in EU markets.
Abdel-Malik maintains that while
Egypt has been quick to sign up to bilateral trade
agreements giving both sides easier access to each"
other's markets, many of those agreements "languish
unimplemented" as far as the Egyptian sides goes with
the other parties taking full advantage of them.
He also questions whether Egypt is
producing the right type of goods for foreign consumers.
"We should start from what the markets need and phase
out our addiction to follow the traditional
production-oriented approach..." he writes.
Citing China's impressive export
record, he says: "Consider the kaftans or Ramadan
lanterns imported from China. While Chinese domestic
demand for both of these products is basically
non-existent, entrepreneurs have successfully produced
and exported them en masse. This decision was based on
studies of the Middle East markets..." In other words,
Egyptians should study other markets before
manufacturing for export, not manufacture first and then
look around for buyers.
Another perennial obstacle faced by
Egypt's economy is due to the rising birth rate with
most experts believing overpopulation is the country's
greatest problem. Today the population stands at around
70 million but there is not enough agricultural land or
water resources to sustain such an explosion. Recently
Egyptian President Hosni Mubarak told a newspaper that
the government was doing its utmost to solve the
country's economic difficulties but that the real
problem was the rate at which "the country's population
was growing". Currently this stands at two per cent
annually, which translates to a population increase up
to a staggering 85 million within 10 years.
The political equation
When more than 50 foreign tourists
were killed by anti-government fundamentalists in Luxor
during 1997, the country's economic woes were greatly
impounded. This attack hit the national airline and left
the nation's hotels empty for at least a year. No sooner
was it on the road to recovery after adopting a flexible
monetary policy with a record tourist season underway
and the stock market beginning to stir, when America was
attacked on September 11, 2001. This signalled another
severe tourist downturn and temporarily diminished
traffic through Egypt's money-spinner the Suez Canal.
September 11 along with the
subsequent invasions of Afghanistan and Iraq, frightened
off many foreign investors too. In the period
July-September 2003 Egypt received only 30 million
dollars of foreign direct investment while the rate of
domestic investment currently stands at round 15 per
cent - considered unsatisfactory for economic growth.
Largely reliant on U.S. aid - the
second largest recipient after Israel - the Egyptian
government had little choice other than to fall in with
the Bush administration's plans for the region. Indeed,
so anxious was President Bush for the Arab world to
support the toppling of Saddam Hussein, the U.S.
cancelled Egypt's US$7 billion debt, encouraged European
and Arab creditors to follow suit and provided
substantial extra aid. Egypt benefited from a grand
total of more than US$50 billion cancelled debts. The
IMF and the World Bank were also strongly urged to
assist the country with setting its economy on track.
Egypt was further lured onto the
Bush bandwagon by the U.S. carrot of a free trade
agreement between the two countries. When Bush announced
plans for a Middle East free trade area by 2013,
American trade representative Robert Zoellick described
Egypt as the linchpin, adding that talks on a bilateral
free-trade agreement between Egypt and the U.S. would be
underway early in 2004.
However, by last June Zoellick had
changed his tune accusing Egypt of failing to implement
economic reforms.
In reality the U.S. suspended its
free trade talks with Egypt in a tit-for-tat fashion
over the latter's decision not to join America in its
World Trade Organisation complaint against the EU over
genetically modified foods.
The pound goes into free fall
Due to the region's volatile
political situation, lower foreign exchange earnings
have put intense pressure on the Egyptian pound and
resulted in foreign currency shortages. In January last
year the pound was floated and has seen an approximate
45 per cent devaluation against the dollar in real
terms. Today the pound stands at around 6.2 to the
dollar and 11 to Sterling, whereas three years ago, the
approximate exchange rates were 3.80 and 5.90
respectively. Such attractive rates for visitors have
encouraged tourism from the Arab world, especially Saudi
Arabia and the Gulf states. They also mean there are
land and property bargains galore for those with the
means and the patience to wait for eventual high returns
on property investment.
Egypt's first mortgage company
Those returns could come earlier
than expected due to a mortgage law, long on the books
but shortly to be implemented. Many Egyptians who until
now have been struggling to buy homes will be able to
get bank loans for the first time. It doesn't take much
savvy to realise if and when demand outstrips supply the
country will see a rise in property and land prices.
Indeed, Egypt's first private
mortgage company was recently launched boasting an
authorised capital of 100 million LE (US$16 million).
With a holding of 40 per cent in the company the
Egyptian American Bank (EAB) has spearheaded the
creation of the Egyptian Housing Finance Company in an
attempt to boost the real estate market. "This will come
as welcome news to newly-weds and to those in middle
income brackets, who are seeking financial support to
buy their homes," said EAB's Managing Director Roderick
Richards.
Booming Energy sector
But not all is gloom and doom.
Egypt's energy sector is positively vibrant with the
country's ace-in-the-hole being natural gas. On January
14 this year, Minister of Petroleum Sameh Fahmy told the
American Chamber of Commerce that Egypt would soon be
exporting large quantities of natural gas to the U.S.
and Europe. He predicted that by 2006 his country would
be ranked the sixth largest exporter of natural gas
worldwide. Last year, an Egypt to Jordan gas pipeline
was inaugurated with much fanfare.
Since the discovery of the huge Al
Morgan oil field in 1964, Egypt has signed 293
concession agreements with foreign companies with the
nation's share of the resultant revenue 76 per cent
rather than just 50 per cent, as is the common
perception. Egypt's policy is sensibly never to contract
out more than one third of its natural reserves.
Rallying market
January and February 2004 also
witnessed an encouraging rally in Egypt's stock market,
which posted better than expected results. This was the
result of a buoyant telecommunications sector and
greatly lowered interest rates giving stocks the edge
over bank deposit accounts. Apart from
telecommunications shares, the most actively traded were
those of the Egyptian Media Production City, largely due
to a rumour that the company would soon be listed on the
Dubai Exchange.
Confidence in tourism
With a new terminal in the pipeline
for Cairo International Airport, financed by the World
Bank and the Egyptian National Investment Bank, along
with a host of new international five-star hotels, the
future for tourism looks healthy.
The Grand Hyatt Cairo was recently
opened after Hyatt's successful entry into Sharm
el-Sheikh and Taba; JW Marriott opened on 400 acres in
Heliopolis; the Four Seasons' group plans a third hotel
on Cairo's Corniche and another in the Mediterranean
town of Alexandria; Accor Hotels and Resorts has
inaugurated the ninth Sofitel in Egypt, while the
Sheraton Heliopolis is embarking on a multi-million
dollar expansion programme.
The Dubai connection
Al Habtoor Engineering Enterprises
is currently engaged in the construction of Alexandria's
luxury San Stefano Hotel and residential complex, as
part of a joint venture with Murray & Roberts and SIAC,
an Egyptian partner. Depa Interiors, an affiliate of
Arabtec, has won an interior design contract for the
same complex.
Another major UAE group Majid Al
Futtaim has made a commitment to Egypt anticipating
investing several hundred million dollars in the country
over the next decade, a process, which began with the
opening of the Maadi City Centre mall, complete with
Carrefour Supermarket and over 40 outlets. This was soon
followed by a similar project on the outskirts of
Alexandria. The group's first overseas project on such a
scale, Egypt's City Centres must have constituted a
gamble. If it was, then judging by the volume of
shoppers thronging the malls, it is one, which has paid
off. Egyptians have taken to this new style of shopping
and are surprisingly receptive to new and innovative
products.
Mirroring Dubai, Egypt hosts a
shopping festival and last year inaugurated its Smart
Village on the lines of Dubai's Internet City with many
big names already signed up. The Egyptian government has
facilitated free Internet, lifted or reduced tariffs on
IT equipment and wants every child to possess a computer
at home.
Although the country still suffers
from a more than 40 per cent illiteracy rate and around
28 per cent unemployment, it's heading in the right
direction. With de-regulation, corporate stability, the
right political will, a healthy investment
environment... and a little help from its friends,
Egypt's economic potential is poised to expand.
Linda S Heard is a specialist writer
on Mid-East affairs and welcomes feedback at
heardonthegrapevine@yahoo.co.uk
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