In Post-Mubarak Egypt, Economy Continues to Slide

“In the foreseeable future, Egypt’s economic fate may not rest in the hands of its people, but those who view the country as a potential market”

By William Shaub, Online Editor

The global view of Egypt’s economic landscape has been one of insurmountable problems over Hosni Mubarak’s 30-year reign. The deterioration of the Egyptian economy has not only resulted in what the business community calls “an unsuitable climate for investment,” but a miserable social outlook on behalf of its people.

Egypt has had a massive income gap throughout Mubarak’s control, which is clearly the root cause of the original uprising. One half of Egyptians live on $2/day or less. The average per-capita income in the country is just $6,200. The minimum wage hasn’t risen in 25 years. Mubarak’s political environment has weakened the power of labor and kept down wages to the advantage of major employers, both foreign and domestic.

Mubarak’s regime, despite being supported and funded by the U.S and other Western governments up until its final weeks, is now buried in the heap of history’s toppled dictatorships. However, we’ve had enough experience with revolutions to know that socioeconomic change isn’t achieved with a regime change. Egypt’s economic recovery, if it’s worthy of being called a recovery, is years away from finding prosperity.

Starting in late 2011, Egypt will make the transition from being an oil exporting nation to an oil importing nation, if imports are available on the world market. The catch is that Egypt isn’t the only country with declining oil production. World oil production has been approximately flat since 2005, and the countries that produce the most oil are using more and more of it themselves. The result is that there is less oil available for export, even as countries like Egypt need more

Based on information from the CIA World Fact Book for 2009, Egypt was already significantly overspending, with revenues of $46.82 billion and overall expenditures of $64.19 billion. In 2010, the WFB reports Egypt’s debt amounting to 80.5% of GDP, which puts its debt level well above that of neighboring countries in Africa and the Middle East.

This kind of financial pressure on Egypt’s budget isn’t going to evaporate because Mubarak’s gone. If Egypt isn’t able to balance their trade efficiently in the near future, it can expect to experience some level of capital flight. This kind of loss of investment can stem from a variety of factors, but can usually be attributed to what the business community calls “an unsuitable climate for investment.” The loss of valuable capital in the economy, or even the threat of capital flight, imposes a stern limit to what kind of political system will emerge following the revolution.

Oliver Bell, manager of Picet’s Middle East and North Africa fund, sees capital flight as a legitimate concern in Egypt’s future. “There is still a large amount of foreign money in Egypt, around $20bn (£12.42bn), split between the equity and fixed income markets, so the biggest concern for investors would be capital flight; a weakening Egyptian pound; and, consequent boost to already high inflation.”

In the foreseeable future, Egypt’s economic fate may not rest in the hands of its people, but those who view the country as a potential market.  Mubarak knew this, and the World Fact Book correctly states that, “Cairo from 2004 to 2008 aggressively pursued economic reforms to attract foreign investment and facilitate GDP growth.” Of course, these economic ‘reforms’ are exactly what facilitated Egypt’s revolution.

By William Shaub, Online Editor

ARB Team
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