Sentiment was ecstatic in most Egyptian streets and squares during the days preceding and immediately after the ouster of former president Mohamed Morsi on 3 July, and the country’s business community, which had blamed Egypt’s economic woes on poor management by the Morsi regime, was also euphoric, hoping to see a change in course with the formation of a new government of technocrats. Stock exchange indices reversed their downward trend to record double-digit jumps during last week and the depreciation of the Egyptian pound on the currency markets also slowed down. However, news of some 50 people losing their lives in clashes in front of the Republican Guards headquarters in Cairo on Monday later returned the economic scene to its previous gloom. The market lost 3.02 per cent on Monday’s transactions amid a selling spree fuelled by fears that the deepening polarisation in the country could increase the possibility of violence in the streets. The market returned back to the gainers territory on Tuesday adding more than three per cent to CASE30 momentum. The previous improvement, taking place over just a few days, had seen the EGX30, the local stock market benchmark, jump by 14 per cent in one week and had come on the back of hopes that the appointment of a technocratic government would now be able to address the country’s economic woes and attract investors back to Egypt. Pharos Holding, a local investment back, issued a research note on Sunday saying that Egyptian equities were on course to replicate the rally that had followed the appointment of a technocratic government in 14 July 2004. At that time, the EGX30 gained 300.6 per cent between 14 July 2004 and the end of 2005. The similarities between July 2004 and July 2013 were striking, according to Pharos head of research Hany Genena, who said that conditions were more benign now. “The equity market rally post July 2004 followed almost five years of poor economic management, capital flight, depletion of foreign reserves and a weak currency. Interestingly enough, the US was also recovering from a short-lived recession in 2001, and it is now recovering from the 2008 financial crisis,” Genena wrote in the note. He also noted that currently low international commodity prices, due to decelerating growth in China, were in Egypt’s favour, since the country is a net commodity importer. “The appointment of an effective government will convert optimism into confidence, confidence into spending, and spending into cash flows,” Genena concluded. However, talk of the appointment of Ziad Bahaaeddin, a former head of the Egyptian Financial Regulatory Authority (EFSA) and a lawyer with an academic background in economics, as prime minister halted on Monday amid news of the violent clashes early on Monday morning. After the 25 January Revolution, successive governments had trouble attracting experienced technocrats, who were either reluctant to work under the ruling Supreme Council of the Armed Forces (SCAF) or were put off by the Islamist ideology of the Muslim Brotherhood. Having an efficient civilian regime with a competent government is a must for Egypt if it is to face down threats of cutting aid from its main donors on the back of the 30 June Revolution that some in the international community see as a military coup. A few hours after news of the confrontations between the army and pro-Morsi demonstrators had broken, a spokesperson for the European Union said on Monday that the EU had no plan to change its aid regime to Egypt. However, he said that “we are keeping our aid to Egypt under constant review, and depending on the situation on the ground we can change.” In November last year, and after the election of Morsi as president in June, the EU pledged five billion euros in loans and grants to Egypt for 2012-2013, plus potential loans through the European Investment Bank of up to one billion euros a year. Meanwhile, there were rumours on the social media networks on Monday evening to the effect that the United States Agency for International Development (USAID), which manages US economic aid to Egypt, had suspended its activities. USAID assistance is not connected to the $1.2 billion in aid that Egypt’s military receives from the US, and it was this military aid that the American media hinted might be cut, citing laws that say that the US cannot give military assistance to countries ousting a democratically elected leader through a military coup. On Monday evening, White House press secretary Jay Carney said cutting off aid immediately to Egypt would not be “in the best interests of the United States”. Without elaborating, he added that the US was still reviewing whether the Egyptian military’s ouster of president Morsi should be labelled a coup d’état, pointing out that the issue was complex and difficult. Carney said that the US was reviewing its obligations and that the administration would be consulting with Congress. The possibility that the US might use the aid to pressure the army into allowing Morsi back into office was received with uproar in Egypt. Shereen Al-Kady, head of the Prime Group, a leading local investment bank, wrote in the Arabic daily Al-Tahrir on Monday that Egypt could live without the aid. Al-Kady said that the aid was equivalent to 2.3 per cent of Egypt’s annual influx of foreign currencies of $65 billion from tourism, Suez Canal revenues, exports, remittances and investments. Moreover, it translated to 0.7 per cent of GDP and 2.2 per cent of government expenditure. “I wonder why we take this annual humiliation from the US Congress, which threatens to reduce the value of this already small sum that we can easily live without,” he said. “Isn’t it time to stop this humiliation?” The answer depends on Egypt’s success in bridging its current financial gap. According to Reuters, Raza Agha, an economist at financial firm VTB Capital in London, said that Egypt will need $19.5 billion in external financing in the year through June 2014 to cover maturing debts and a $5.4 billion deficit in the trade of goods and services. Factoring in short-term obligations, the country’s net international reserves are in negative territory, which means they are short of covering imports and obligations over the next six months. Almost two-thirds of Egypt’s net international reserves have been depleted since the revolution, as foreign investment has dried up and tourists shied away. The clashes earlier this week reflect what Fitch Rating meant when it cut Egypt’s credit rating last Thursday. The cut came on the back of concerns that Morsi’s ouster would dampen economic growth and fan political instability. The military move that overthrew Morsi and the resulting political turmoil could set back the country’s economic recovery and make it harder to implement the fiscal and structural changes needed to secure assistance from the International Monetary Fund (IMF), Fitch said in a statement. The current situation leaves Egypt with limited choices aside from depending on foreign aid. Reports on Tuesday shows that Egypt would see an influx of Arab aid during the coming period. Saudi Arabia approved a $5 bilion aid package to Egypt comprising $2 billion deposit in the central bank , $2 billion in energy products and $1 billion in cash. Meanwhile , the UAE will extend a $1bllion grant and a $2billion interest free deposit with the central bank. Moreover , the UAE, sent 30,000 tonnes of diesel to Egypt via Suez on Tuesday as the first in a series of shipments from the Arab emirate to help to solve Egypt’s fuel crisis. Egypt imports petroleum products worth US$300 million every month. It is worth mentioning that the two Gulf states shied away from aiding the economy under the rule of Mohamed Morsi who hails from the Muslim Brotherhood group which is banned in both Saudi Arabia and UAE. The UAE promised to give Egypt US$3 billion in aid in 2011, but it has not so far delivered it. At the end of May, it said it would take time for the money to be transferred. According to economists, the IMF might opt to wait until Egypt gets an elected government to negotiate with in order not to send the message that it approves of a military coup, which is how many US media outlets have been describing the popular uprising to oust Morsi.
Posted on: Tue, 16 Jul 2013 06:27:23 +0000
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