Protesters stay put, but Egypt gets back to business

Unrest cost economy $310 million a day, but reforms may make up for losses.

By DAVID ROSENBERG/THE MEDIA LINE
February 7, 2011 23:54
4 minute read.
Egyptian protesters face off against tanks

Egypt Protests Tanks 311. (photo credit: Associated Press)

Protesters are still camped out at Tahrir Square and haven’t backed down on their demand that President Husni Mubarak resign immediately, but the rest of Egypt is slowing getting back to business.

Economists, investors and policy makers are assessing the damage.

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Starting over the weekend, banks re-opened on a limited basis as did stores, offices, schools and factories. And, serving as evidence that business returning to usual, Cairo’s traffic jams reappeared. The Egyptian pound resumed trading and showed surprising resilience in spite two weeks of political and economic trauma.

“People are returning to work, deliveries have resumed and goods are reaching markets,” Simon Kitchen, economist at EFG-Hermes, a Cairo-based investment bank, told The Media Line. “It’s still an environment where things can change quickly, but it’s an encouraging sign.”

A stalemate between the government and the opposition showed its first signs of resolving on early this week when a group of opposition leaders met with Vice President Omar Suleiman to discuss political reforms. Although nothing substantive came out of the talks, the meeting suggested that opposition leaders were ready to let Mubarak remain until the end of his term while the government met other demands for greater democracy.

Not all of Egypt was shut down by the unrest. The Suez Canal, a major source of income for the economy, remained opened. Egyptians working abroad, who sent some $9.5 billion in earnings to their families back home in the last fiscal year, were able to resume sending funds after a brief hiatus when local banks were closed.

Many businesses, especially those furthest away from the epicenter of the protest in central Cairo as well as those that are less labor intensive, continued to operate even last week as the economy came its closest to a complete shutdown.

But many of the businesses that had closed resumed activity Sunday and Monday. Orascom Construction, Egypt’s biggest company, said it has started up work at 50 building sites, accounting for 90% of its activities. The state-run Korean Investment Promotion Agency said that operations returned to normal at two of four Egyptian factories operated by South Korean companies.

Yet, not everything was back to normal. Cairo’s stock exchange won’t open until next Sunday at the earliest, bourse officials said. Tourists who were in the country when unrest broke out have fled, curtailing the peak winter travel season. The curfew imposed by the government to contain the unrest continued to taking a toll on business said Magda Kandil, executive director and director of research at the Egyptian Centre for Economic Studies.

Egyptians traditionally do their shopping and socializing in the evening while many people, especially those employed in the civil service, hold down two or three jobs and work late into the night, Kandil told The Media Line. But, for now, people are supposed to be off the streets by 7 p.m. local time.

Economists said that even those businesses that were shut should be able to earn back their losses with extra shifts. The one key sector that remains vulnerable to the turmoil is tourism, which is Egypt’s single biggest money earner and accounts for about 10% of GDP, Kitchen said. He said investment may also take time to revive since it is so reliant on sentiment.

Nevertheless, Egyptian exports shrank 6% in January, although Kandil noted that other factors besides political turmoil may have played a role, including the bombing of an Alexandria church New Year’s Eve and a shark attack at Egypt’s Sinai coast resort area.

Bank Credit Agricole estimated last week that the unrest cost Egypt’s economy some $310 million a day, or a total of more than $3 billion so far. It revised its forecast for 2011 GDP growth to 3.7% from 5.3% and said the Egyptian pound could depreciate as much as 20%.

Moody’s Investors Service warned on January 31 that the tense political situation may hurt the economy as the government tries to win public support by increasing subsidies and raising wages. Moody’s downgraded the country’s debt and assigned it a “negative” outlook, saying looser purse strings would widen an already yawning budget deficit equal to 8% of gross domestic product and fan inflation.

Samir Radwan, Egypt’s new finance minister told a news conference in Cairo on Sunday that the government won’t reduce subsidies even if global prices of food and commodities rise. Public spending will be used as a tool to “achieve social justice,” he said.

In fact, the markets’ response to the turmoil in Egypt has so far been muted. The Egyptian pound traded at a six-year low on Monday, but the sell-off was less severe than expected. Egypt's London-listed stocks were all higher and the cost of insuring Egypt's debt fell in the five-year credit default swap market.

Kandil told The Media Line that the political reforms now being discussed would likely give a boost to the economy, which expanded 5.2% last year, but need to hasten the pace to bring down unemployment, increase incomes and create jobs for a rapidly growing population. She said foreign investors had until now been hesitant to put long-term capital into the Egyptian economy out of concerns about political stability and the future of Mubarak’s regime.

“The reform involves changing institutions that would make governance and the fight against corruption much better going forward,” Kandil said. “If some of the changes in the pipeline are implemented swiftly, they should help economy to pick up momentum in the second half of 2011.”


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