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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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