Egypt

My Impressions...

As a young child, delightfully captivated by mythology and mystery, the world of Ancient Egypt roused the taste buds of my imagination beyond compare. I was eight years old when I first fell in love with Egypt, and for years afterwards, whenever it was fancy dress, you could be certain I would take to the blue eye shadow and black eyeliner and transform myself into the romantic vision of Cleopatra. In fact, it took me many years to fully appreciate that this ancient world was truly lost and would likely have been erased from memory were it not for the monuments and hieroglyphics which managed to withstand the corrosion of time.

I had to wait 15 years until I finally got the opportunity to visit this mythical country I had fallen in love with. In December 2010, as a 23 year old woman now, myself corroded by time’s loss of innocence, I spent a week on the Nile, visiting the tombs and temples that I remembered so well from my school books.

Nubian boatman, Dec 2010

The serenity of the Nile healed me, cleansed me and calmed all the terrible clouds that had gathered in my head from the dark skies of London. I must admit that upon feeling the tranquillity of that magical Nile seep into my veins I became more convinced than ever that there is something spiritual and special about Egypt. It is one of the world’s treasures if not only because it is a potent reminder of the achievements of our creative and innovative human race.

I will never forget a Nubian Felluca Boatman who took us across the Nile one day during my trip. He had clearly laboured away his life into an old age of bone and sinew - eating only food from the earth and darkened by the rays of the sun. Of course I can never imagine the hardship he has endured - but I couldn’t shake the feeling that he was healthier, happier and purer - physically and mentally - than many of the comparably wealthy tourists who sat in his felluca boat. I will never forget him because I will never forget the strange desire I had to have a life as pure as his.

Impressions from history...

In the early part of the twentieth century, Cairo and Alexandria were two of the most cosmopolitan, culturally liberal and exciting places in the world. British engineers and businessmen at the time set sail for a land which many sensed was set to become one of the great rising international powers. So when did this change?

When Gamal Abdel Nasser came to power in 1956, he was the first Egyptian to govern Egypt since Alexander the Great’s conquest in 330BC. That alone might explain why his nationalistic pride, dreams of a United Arab Republic and policies for modernisation were so resonant and resolute. The nationalisation of the Suez Canal was the first important strategic victory over Western dominance, and with significantly long-standing anti-Western sentiment, it is little surprise that instead of looking to the ideologies of democracy and capitalism, Nasser and his people found inspiration and support from the Soviet Union and their allies to help them build their dream of a modernised Egypt. Like many other countries, during the 1950s and 60s, Egypt saw Soviet Russia as a well-oiled, productive machine - a machine in which science, engineering, production and industrialisation were the cogs and wheels which churned out a vision of plenty for all. Under Nasser’s rule, arms and munitions flowed into the country and numerous industrial projects - funded by the Soviet Union and built by their engineers - started across multiple sectors.

The most famous of these industrial projects was The Aswan High Dam which I went to see during my first tour of Egypt. Despite knowing almost nothing about modern Egyptian history, I immediately noticed the reverence in our tour guide’s voice when he spoke of Nasser. However history decides to remember Nasser’s economic reforms or his visions of wealth that never came to fruition, after listening to my tour guide that day, I am sure that the Egyptian people will always remember and respect his memory with great patriotism.

The Aswan High Dam, Dec 2010

At the time, I didn’t appreciate why a dam was on the agenda for the tour – it didn’t interest me remotely - it was just a big pile of concrete that did a job, just like numerous other piles of concrete that did similar jobs all over the world. I do remember, however, being struck at the time that the Egyptians would put their ancient history at stake for such a pile of concrete. Many of the temples we visited had exhibitions charting how they were taken apart brick-by-brick and set down in a new location because their original site was to be flooded by the dam. I couldn’t see how a bit of economic prosperity could possibly be worth the risk of destroying such unique and precious historical monuments. But now, I kind of understand. Cherishing the past will make you richer in neither the present nor the future – the tourist industry will only ever be worth so much. When so much of a country is in poverty, cutting up some monuments doesn’t seem like so much of a big deal anymore. When you see other economies flourish and grow in both power and wealth, when you see huge industrial nations at the forefront of a rapidly modernising world, of course, nothing is going to matter more than becoming a part of that. I understand why The Aswan Dam was so important to our Egyptian tour guide – it is a symbol of what patriotic drive and ambition can achieve, it is a symbol of hope – that if they could do it once, they can do it again.

So why did Nasser’s great modernisation dream fail? The answer is quite simple – you can build as many factories and dams as you like, but if you fail to build the institutions to support them, the cogs and wheels will eventually crumble and rust. What twenty-first century Egyptians were left with from their great historical past was a rising militancy from Muslim parties and the decaying, bureaucratic, semi-military autocracy of Mubarak in which state security and brutal police tortured political activists and ordinary citizens alike.

Impressions of politics...

What I saw on my first trip to Egypt as a tourist in December 2010 was very different to what I saw on my return to Cairo on business in October 2011. Those ordinary twenty-first century Egyptians had finally had enough. Since my last visit, the country had been through another historical event – riding the wave of the ‘Arab Spring’, the Egyptian people became inspired to stand up against Hosni Mubarak, the man who had controlled the country for the last 20 years. On 11th February 2011, after 18 days of demonstrations, the man who one taxi driver described to me as, ‘like mafia boss, you know, he ran the country like a gangster mafia...’ was finally pushed out.

During my visit to Cairo, I walked through Tahrir Square alone with a scarf around my head, feeling the echoes of the chaos and protesting crowds still reverberating across the open space. On 9th October 2011, four days after I arrived home, 25 people - mostly Coptic Christians, were killed and hundreds more were injured during protests on those same streets I had walked. This was followed by similar scenes again at the end of November where Egyptian democrats clashed with the military with a further 40 deaths. The violence and slaughter that had filled the early part of the year had made a definite comeback, and I was not alone in questioning whether the transitional military government will peacefully steer the country towards democracy.

A silent Tahrir Square inbetween protests, Oct 2011

Although many of the key leaders have been removed from power, to a large extent, the old regime is still in place. The interim governing body, the Supreme Council of the Armed Forces (SCAF) is headed by Field-Marshal Tantawi, Mubarak’s long-standing military chief and defence minister. The army has been the backbone of every Egyptian regime since Nasser came to power and has built a deep political and economic power base. Despite pledging swift reforms and ensuring transition to a democratic civilian government, there has already been mention of additional clauses in the new constitution granting special powers to the armed forces, and one wonders how completely the generals who have held power for so long will surrender it.

Pictures of the voting queues at the first round of elections were typical of scenes often seen in counties for which democracy and fair elections are a new luxury. Enthusiasm, however, will not be enough to hasten the end of the transition under the interim leadership of the SCAF. To date, the SCAF has blocked efforts towards economic reform, deterring investors further and expanding the existing debt problems. Following the first round of elections to the lower house in January 2012, the Muslim Brotherhood proved to be the strongest political force. Although this will give them a great deal of power in writing the new constitution, the day to day control of government still lies with the SCAF. The Egyptian election process is expected to come to a head in July, but with so much uncertainty still surrounding the candidates and the outcome, the potential for democracy to fully take hold of the country could take much longer. With no clear political horizon or strong, pragmatic policies, the economy will continue to suffer from a drought of foreign investment.

I am left to ponder what the Nubian boatman thinks of it all. Are the goings on of government and public unrest in the big cities too distant from his immediate livelihood on the rural Nile, or is he a part of it all, another voice adding to the masses sheer size and power were ultimately able to topple a man from his seat of once enduring authority? Either way, the events in Cairo will almost certainly have had a profound effect on his life. Not only have investors been driven away by the revolution, but thousands of potential tourists, seeing pictures in newspapers of sectarian violence, bloody demonstrations and labour strikes, have been driven away for fears of their safety. Over 3 million people - 12.6% of the labour force in Egypt - worked directly or indirectly in the tourism industry. For an economy which has always been so reliant on this sector, the resulting loss of revenue only increases the hardship of millions who relied on the influx of foreign money to keep them employed and put food on their table. Even many of those I met during my business trip warned me to stay away from any tourist hotspots. “Stay away from the pyramids – there are so many attacks happening – even I myself wouldn’t go.”

Impressions of the macroeconomics...

Loss of tourism revenue, increased social spending and large capital outflows have depleted foreign currency reserves in 2011, and while the Central Bank of Egypt has been working hard to keep the Egyptian Pound steady against the US dollar to contain inflation, with the continued outflow of FX reserves, many economists predict further devaluations of the Egyptian Pound in 2012. Interest payments currently account for a quarter of government spending and as market expectations of higher interest rates and a loss of confidence in the government’s ability to service its debts cause these payments to spike above 15%, this situation will only continue to get worse.

When Egypt rejected IMF funding back in July, the local banking sector bought up much of the latest treasury bills, happy to get a return of 15% on local paper rather than lend it to businesses which posed a higher risk of potential default. With the risks of currency devaluation heightening, the yields on these t-bills also rises as does the risk of local banks demanding high interest rates beyond what people can reasonably afford. Unlike European government bonds, Egyptian bonds are only issued for a few months. As the government deals with the budget deficit through issuing more of this short-term debt, there is a risk that they will fall into a cycle of printing more money which would result in a speculative attack on the currency and force interest rates higher still. The pressure to keep fiscal spending loose is going to be incredibly difficult and if public finances are set to be squeezed, the government will be forced to focus on current spending such as wage increases and subsidies rather than investing in growth initiatives.

The Egyptian stock exchange, the EGX, made significant gains after the financial crisis in 2008 and has been one of the most lively places for international investment in MENA. As the political and economic fear monsters simultaneously reared their heads in 2011 foreign investors were scared away from the Egyptian market. During the year, the EGX lost 40% of its value making it one of the worst performing exchanges of 2011 behind only Cyprus and Greece. I would argue that the main worry for investors here is not so much the uncertain political situation, but the increasing risk that the CBE will be forced to devalue the Egyptian Pound – as discussed above. Although discussions with the IMF in recent weeks could help Egypt to avert a broader economic crisis, the programme, at only $3.2bn, will not be enough to meet Egypt's external financing requirements, and the aid will have little impact on current investor sentiment. Once the devaluation occurs it should help to increase exports and boost the economy. Although the expected currency depreciation will lead to a rise in inflation, this will be somewhat alleviated by the fall in domestic demand and global commodity prices. Another way out would be for Egypt to accept the aid on offer from international institutions such as the World Bank or oil-rich Gulf states to replenish the Central Banks reserves.

Impressions of the future...

Why does Egypt matter? Well I’ve already alluded to the importance of the country historically and culturally, but more than that, I believe that Egypt has the potential to be one of the fastest growing markets in the world economy and a place for investors and tourists to reap rewards for years to come. Egypt is the jewel in the Arab crown by virtue of history, geography and its population of 85 million. If it can vote in a strong, democratic government, other countries in the region might be persuaded to follow suit. Following the first round of elections, the Muslim Brotherhood have made a very strong showing and are expected by many to be the eventual victors. While many in the West fear that a populist government under Islamic influence will eventually subvert the cause of democracy, the reform in Tunisia where the Islamists influence rather than dominate policy, has shown that this will not necessarily be inevitable.

The chaos of Cairo was beyond any of my expectations. I had seen YouTube videos of cars dodging each other a full speed at crossroads in India, but seeing it first had was another thing. It sounds like a very ignorant, Western thing to say, but I genuinely didn’t understand how a city – particularly a busy, capital such as Cairo, could function without traffic lights, pedestrian crossings or even basic lanes and markings on the roads.

Looking out over Tahrir Square, Oct 2011

Spend a day in Cairo and you will appreciate how much the country is crying out for infrastructure investment. Whoever takes the helm of the new government later this year will inevitably start looking to implement policies geared towards helping Egypt towards long-term growth and becoming a competitor in the global market place. Investments in infrastructure will almost certainly be a priority for creating this stable growth. A revamped Cairo with better transport systems and roads, better housing and utilities, would see the business environment grow from strength to strength, attracting global companies to open new offices in the city, bringing an inflow of human capital, foreign investment and encouraging both domestic and international business. Furthermore, tourists and foreign investors should return in greater numbers once the corruption of the old regime is replaced with transparency, accountability and stability.

But will Egypt be able to put it’s recent past behind it or will investors remain spooked by the memories of public protest and violence? Maybe I am a romantic, but I believe that Egypt will become one of the best growth stories of the next twenty years. This is not a country of anarchy and unrest - the Egyptians that I met were full of hope for their country now that the ruler they feared and hated has gone. There is nothing but optimism among the common people and a desire for their country to be democratic, fair and prosperous. I believe civilian ambition is a fundamental ingredient for growth – (I will come on to this idea again with China.)

In the short term, like almost every other country in the world, a potential breakup of the eurozone would be an additional blown to Egypt and result in weaker trade and remittance inflows and fewer tourists with money to travel. This again will be worsened should growth in China slow further or the US economy continues to struggle to get off the ground. Ignoring Egypt’s cyclical problems, I believe the long term picture is still positive. The rapidly growing youth population is a contrast to the picture seen across the ageing Western countries, and with such potential for development in the banking sector and infrastructure projects, I hope that in years to come we will see Cairo as a hub of international business and prosperity again.


Recommended Reading to build on your own impressions...

Egypt on the Brink: From the Rise of Nasser to the Fall of Mubarak by Tarek Osman