Reality sets in for Egypt’s economy

2011-12-12 14:31

Cairo – Ten months after a popular uprising deposed former Egyptian president Hosni Mubarak, reality has hit the country’s economy hard, according to experts.

“Egypt has hit a point of unpredictability, where the risks of investment exceed the possible revenues,” said Gerhad Krause, the head of economic reform at the Delegation of the European Union in Egypt.

“Legal security is at a critical stage,” Krause told dpa.

According to him, many foreign companies worry that Egypt’s new leaders could “hastily sweep away business-friendly reforms,” under pressure from a growing disenchantment with the private sector.

Egypt’s economy has been gripped by labour strikes, political upheavals, a lack of security and a sharp devaluation of the local pound since Mubarak’s overthrow in February.

John Kerry, the chairman of the US Senate Foreign Relations Committee, said in Cairo at the weekend that re-establishing a certain level of security in Egypt was vital in order to attract foreign direct investment.

“The most significant challenge right now is the economic challenge,” Kerry said, in reference to a total economic loss of $7.5 billion (R62 billion) since January.

German Economy Minister Philipp Roesler said last week that, without political stability in Egypt, it would be tough to reverse the ongoing investment outflow.

“The preconditions for foreign investments are democratic structures, the protection of human rights, the rule of law and an effectively operating administration,” Roesler told a business meeting in Cairo.

Mohamed al-Mahdi, the managing director of Siemens in Egypt, said the telecommunications manufacturer – which has been operating in Egypt for 110 years – had plans to expand in the country.

“But the political and legal framework have to be free-market friendly,” he said.

In November, the Central Bank of Egypt said the investment flow to the country had fallen by 20% in the first half of the current fiscal year.

At present, the sluggish Egyptian economy provides little hopes for a quick recovery, experts say.

Rainer Herret, the head of the German Arab Chamber of Industry and Commerce in Cairo, stressed that besides defining clear legal rules, boosting the Egyptian economy had to be a top priority.

“If the economy doesn’t reflate quickly, sales will plunge further and international companies operating in Egypt have to consider downsizing,” he said.

Unemployment rose to 11.9% in the third quarter of 2011, according to government statistics. Egyptian stocks have almost halved in the past 11 months.

Moreover, crime has soared since Mubarak’s ouster in February, despite government promises to plug a nationwide security vacuum.

However, Industry and Foreign Trade Minister Mahmoud Eissa was optimistic, arguing that the smooth course of the initial round of Egypt’s three-stage parliamentary elections was a good step in regaining international
trust in the country’s stability.

“Investment opportunities are abundant and promising,” he told a recent business gathering in Cairo. “Egypt offers lucrative options for foreign companies.” 

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