Last Update 19:34
Friday, 22 November 2019

Where was Egypt's economy heading before the revolt?

Ahram Online examines the path the Egyptian economy was on before the uprising on 25th January

Salma El-Wardani , Monday 7 Feb 2011
Share/Bookmark
Views: 2409
Share/Bookmark
Views: 2409

Fears about the economy's health spread throughout the media following the 25 January uprising. People panicked over salaries, job losses, prices, inflation, bankruptcy and the timeline for getting the economy back on the recovery path.

The single calming voice came from 55-year-old business tycoon Naguib Sawiris, who appeared on TV saying "Nothing is better for investors than democracy".

"All complications I have been suffering from as a businessman were because of working with non-democratic regimes," he added in an interview with the Associated Press.

For world’s 374th billionaire (Forbes 2010) it might be that simple, but for Egypt’s 80 million population, with roughly 40 percent of them living on $2 a day or less, is it that simple?

While millions of people have been revolting against Mubarak’s regime in governorates all over Egypt, millions more have stayed home, struggling to find cash to live on, with many left jobless.

A recent report released Friday by the investment bank Credit Agricole estimates that the protests are costing Egypt $310 million a day.

Many sectors have been highly affected by the turmoil, including tourism, investment and infrastructure.

Amid the crisis, an estimated one million tourists hurried into airports to flee the country, especially after satellite channels displayed much footage of thugs harassing and severely beating foreign reporters, with Egypt’s well-known foreigner-friendly environment suddenly appearing to turn hostile based on speculations spread by local and Arabic media claiming foreign hands behind the turmoil.

As a result, tourism - accounting for 6 percent of Egyptian GDP and bringing more than $11 billion in foreign earnings last year - could retreat to pre-2004 levels, of under 5.6 billion dollars, the report expects.

Also, only two days after the protests began, Egyptians and foreign investors transferred hundreds of millions of dollars out of Egypt, currency traders estimated.

The study said foreign director investment (FDI), which topped $13 billion in 2008 from below $1 billion pre-2004, would be impacted.

Despite these worries, Egyptian society is witnessing a heavy split, with one camp fearing not being able to buy even basic goods, while for others hope of a bright future outweighs the current economic woes.

"We might be going through a very difficult economic stage," says Dina Bahgat, a 31-year-old Zamalek resident and one of the protestors against Mubarak, "But under Mubarak we were going to suffer even more not only politically but economically too, with corruption and favoritism prevailing."

It is painful to reverse a curse but the benefits are enormous, tells the history of many emerging economies.

In his book, Capitalism and Economic Growth in Latin America, Stephen Habber examines why crony capitalism - a system where companies with close connections to the government gain economic power not by competing better but by using the government to get favored and protected positions - survives despite being detrimental to growth, and then suddenly collapses.

The favors in crony capitalism include monopolies over significant sectors, exclusive licenses to import different goods, and other sizeable economic advantages, which have negative effects as are now alleged. For Habber, the primary reason for the surprisingly rapid meltdown of East Asian economies back in late 1990s was crony capitalism.

For Habber, just like Egypt’s economy had for the last ten years been flourishing despite corruption, the case of the East Asian country—South Korea—provides a possible explanation as to how cronyism and the banking system might have performed so well for so long and then have led to the Asian crisis of late 1997.

“Usually, these favors are not outright transfers of wealth (such as forgiving taxes or providing subsidies) but rather take place through provision of economic entitlements” he writes, “These have arisen by enabling the cronies—or, more accurately, the establishments they operate, which I shall call crony operated establishments (COEs)—to receive privileged access to governmental favors that have economic value’

Habber further explains that the danger comes from the fact that such crony enterprises owe their existence not to their performance in a competitive market but to the nonmarket criteria by which they were established and are run.

"They are normally financed out of the budget, whereas the costs of cronyism are more hidden in and the value of privileged positions can be difficult to gauge," Habber writes.

In such cases, companies receive credit and may expand because their size is a political asset (too big to fail). They may be mislocated in the country’s capital to be close to those they wish to influence regardless of cost.

In Egypt, the case was to a great extent similar to Asia before the 1997 collapse.

In the year 2010 , corruption whistleblowers exposed many shady deals, especially in the real estate sector.

Madinaty, New Giza and Palm Hills - all owned by political figures - were among flagships of upcoming rich communities granted cheap or free state-owned land. Palm Hills, for instance, founded by Mansour and Maghraby Investment and Development Company (MMID) - the company owned by the family of the recently reshuffled minister of housing - has one of the largest land banks in the country with most of its revenues during the period 2007-2009 coming from the resale of cheaply bought land.

The issue came to a head late last year when Talaat Mustafa Group, the biggest publicly traded developer, also owned by a former NDP parliament member, was sued by a businessman over a contract under which it secured millions of acres of desert land to build its lavish Madinaty project.

According to Political Science Quarterly’s "Sustaining Authoritarianism in the Middle East and North Africa, September 2007" report, the privatization of public enterprises in Egypt has fostered crony capitalism and social volatility caused by a lack of distributive justice.

In the landmark Arab Human Development Report (2002), lead author Nader Fergany writes, "The operative factor is a very sinister cohabitation between power and capital. The structural adjustment program is helping to reconstruct a kind of society where a small number of people own the lion's share of assets."

Privatization in effect has meant replacing the government monopoly with a private monopolies or oligopolies, as with the mobile phone business.

The report goes on, adding that "The record of private sector enterprises creating jobs is very poor. We are not reaping the benefits of an energetic bourgeoisie, what we have is a parasitical, comprador class.... The consequences will be no less than catastrophic."

"This society is a candidate for a difficult period of intense, violent social conflict," predicts the report, written 8 years before the revolt of 25 January.

 

Short link:

 

Latest

© 2010 Ahram Online.