May 23rd, 2011
04:55 PM ET

Egypt's ruined economy

Everyone will agree history was made in Tahrir Square and Egypt's politics took a great step forward with the ouster of President Hosni Mubarak. But have Egypt's economics taken a big step backwards?

One of the generals running the country presented a picture of his country's economy that made me think, "What in the World?"

He says foreign direct investment is now down to zero. Egypt's foreign reserves are fast getting depleted. Then there's the tourism industry, which employs 2 million people but is sitting idle with the world continuing to shun the Pyramids of Giza and cruises down the Nile.

That's $1 billion of lost revenue every month. Growth has crawled to a standstill. 

Meanwhile, tens of thousands of workers, emboldened with a new sense of freedom, are staging strikes to demand better pay. Confronting them would mean work stoppages. Appeasing them will cost money, and the state's coffers aren't exactly overflowing.

Then there's oil. The revolutions of the Middle East has sparked a cycle of pain in the crude markets. Look at three countries that have been hit hardest by people power movements - Egypt, Tunisia, Syria. They are all oil importers. Egypt then will go from growth in 2010 to shrinking GDPs this year.

Now, look at their neighbors who managed to stave off the wave of protests through a mix of bribery and appeasement - Qatar, Saudi Arabia and Kuwait. They're all net oil exporters with vast cash reserves.

That's why the dichotomy is actually getting worse, because oil importers need to spend more to buy the same amount of gas. Also, to keep political support at home, they need to increase subsidies on things like food - potatoes, carrots - because everything costs more, thanks to oil-driven inflation here.

And then there's this. Unlike previous years, the gulf countries, the oil-rich countries, actually want oil prices to be priced higher because they need the cash. They need to support their own spending plans for new cities and to more payouts to suppress dissent. For the first time in history, oil is averaging nearly $100 a barrel for more than a year. Even the Saudis need that cash.

If Egypt's economy doesn't stabilize soon, the IMF will soon come knocking on its door. And what will it demand? Economic reform to promote growth, of course, which means what? A devaluation of Egypt's currency, possibly? The reduction of subsidies? The privatization of industries? Anything to get the fiscal house in order and generate new economic growth.

But the problem is that economic reform is now a tainted idea. In the people's minds here, it's a phrase associated with Gamal Mubarak, Hosni's son, and his businessmen friends.

Those policy changes made by Gamal Mubarak in 2004 onwards triggered strong growth in Egypt, though also unequaled growth and charges that it unduly profited friends of the regime.

Over the last decades, however, countries from China to Brazil have found that if you want economic growth, the surest path is reforms that open your economy up to markets and trade. But no Egyptian politician is going to say that today. So the demands of economics will bump up against the demands of politics.

Who will win? Egypt's future might depend on finding a creative solution to this problem.

soundoff (20 Responses)
  1. Michael Martinez

    People who topple governments in anger seldom take into consideration the consequences of their choices, which may be severe regardless of how much they despised the governments they toppled. That is equally true for both regime-changers and revolutionaries.

    May 23, 2011 at 5:46 pm | Reply
    • everyonesurvival

      Brilliantly and well said. Did they even think of the consequences beforehand? Any strategy they had should have taken into account the costs. I feel badly for Egypt, and for hasty rebellions. Analysts predicted that the rebels were not in a position to form a good democratic government. This is why I opposed this rebellion. I don't glorify it.

      May 24, 2011 at 2:57 am | Reply
  2. j. von hettlingen

    Egypt is a country with ancient history. The glorious revolution last Spring saw the downfall of an autoriitarian regime, yet not the demise of an ossified, hierarchîcal society, which is quite common in Arab countries. It is social inequality and injustice that gave rise to this democratisation movement. Four years ago Egyptians took to the streets voicing their discontent over rising wheat prices. The government addressed the grievances and showered with subsidies. The magic worked and the protesters were appeased. This Spring the protesters demanded for freedom. With help of social media millions of young people got themselves organised and mobilised. As a result of the absence of a civilian government, the country's economy suffers, yet many Egyptians still think that the sacrifce is worth the while.

    May 23, 2011 at 5:55 pm | Reply
    • nick g

      Will see how great the sacrifice is when people start to starve. When you consider that the only thing that has kept the Egyptian pound from massive losses is the fact that the central bank is pumping tons of cash into the system, it's just a matter of time before the reserves run out and things get nasty. I live in Egypt and this is one of my biggest concerns. People will do crazy things when they and their families are hungry.

      May 23, 2011 at 6:21 pm | Reply
    • everyonesurvival

      50% think its worth it, 50% don't ( I ma just making up the numbers) and 100% suffer

      May 24, 2011 at 3:35 am | Reply
  3. Master Allan

    After returning from a week vacation in Egypt all I can say is GOOD!

    I had a horrible time in Egypt with all the scams, rip offs, and hassels. You would think these troubled people would shape up their attitude and try to promote tourism again. What few tourists do visit right now have to deal in a society where you cannot trust anyone. Take your vacation dollars elsewhere. Egypt and the middle east is just bad news and the people should be avoided.

    May 23, 2011 at 6:09 pm | Reply
    • Tornado...SssZ

      That's right...lets just wait for a few months and these Egyptian ARAB SPRING revolutionaries will soon get CRAZY and STARVING...AND FOR THAT REASON, STILL THESE BUSTARDS will blame H.Mubarak!!! for no HARDSHIP that they maybe suffering. What a Hell!!!

      After the revolution and HMubarak out, , tourist are not coming over because of the mistrust, fear of what is EGYPT like today. So that means, lets wait how how these amazing PYRAMIDS will be gone to nothing because of the SELFISHNESS and LACK PATRIOTISM of these revolutionaries.

      May 23, 2011 at 7:32 pm | Reply
  4. Artofwar

    .....This is the result of what happens when the demands of the youth are given to them without question. The young know nothing of the world and the mechanics of what makes it function. The young only know of what they want, of which they want in an instant. When children throw temper tantrums, they should be generously spanked, and sent to their rooms, just as the children that they are indeed ....Artofwar

    May 23, 2011 at 7:05 pm | Reply
  5. YankinOz

    Master Allan has it all wrong and his comments have little to do with the main issues of the political and class struggles going on in the Middle East. But anyone going to LA, NY and particularly Las Vegas sees much the same sort of hassles and scams aimed at tourists. I've often been approached in parking lots by panhandlers and seen the US equivalent of beggars sitting around with their cardboard signs. With so many people dependent upon the tourism industry is it any wonder that Egypt is struggling with tourists staying away. Baksheesh (tipping) is a way of life in Egypt and knowing this one learns to accept it just like accepting the lazy waitress in LA angrily demanding a 15% tip. Rather than complaining, the West needs to understand the issues of the people and assist where they can.

    May 23, 2011 at 7:47 pm | Reply
    • paul grench

      Sorry Yankin, but he is actually spot on with his statement! I live here, I stayed during the revolution and have sat by whilst Egypt slowly tries to pick up the peices! There are still friends of mine getting mugged, restaurants getting robbed! Hotels are empty and to top it all off they burnt down our church. Recently I had some friends come over and had to give them the full tour and I was disgusted with how we were treated, the pyramids was the worst experience I have ever had in my life, around 50 people stopped our car and hopped on the bonnet and started rocking the car because we didnt want to book a tour with them, then they started yelling abuse at the girls in the car, we turned around and went home! If you dont live here and have to put up with there dishonest, disrespectful behaviour on a daily basis then dont comment! PS: I'm from L.A. and although we have problems that in areas that are far worse we avoid those areas! Everywhere we walk in this country we seem to get abused in some way or another.
      PSS: My wife now locks herself in our bedroom everytime I go to work and sits there until I get home.....
      Cant wait to leave...

      May 24, 2011 at 1:26 am | Reply
  6. Mohamed Morsy

    As the last Egyptian joke: "After the revolution, Egypt is like a blind man who finally started to see...he was so overwhelmed that he got paralyzed"

    Our country has to move and the economy has to return back and this starts by having the right leadership.

    Control of the society and creation of work culture... and leading it to one goal...building the country.

    Of course safety is a key issue and main driver to investors.

    I share with you that we are in a very risky situation and the landing side is not yet clear..let's hope for the best!

    May 23, 2011 at 7:58 pm | Reply
  7. Paul Anderson

    The false dilemma between freedom and economic well-being is the standard idiocy that permeates Middle Eastern politics and reportage (journalism?.) A revolution in name only gets investment and tourism in name only. The 'economic opening' that was supposed to presage political freedom began in the 70s. One and a half generations later it is well past the time to acknowledge that political repression and reserving the 'captive market' economy in Egypt for the Egyptian upper class has been a long term disaster on a par with Nasser's socialism, much as GasProm's privatization\nationalization (which is it now?) helped only Putin and his cronies. Egypt struggles despite the good will that its people regularly elicit because 'cultural protectionism,' politically rationed hooliganism, an understandable disdain for peasant life, and culture of (often correctly) blaming the colonialists while abdicating responsibility for developing a diverse political system or agricultural self-sufficiency allow all players to avoid making progress. The industrialization and consolidation of American farming in the 80s onward has guaranteed that Egypt's greatest "partner" was not going to offer anything other than subsidized food gifts and agribusiness technology that was in a large part inappropriate in the U.S. and everywhere else. Economic "progress" has been defined by foreign economic interests, leaving a sort of zionist, wahabi, Aramco, Soviet foot print at the scene of the crime. With so many suspects, it is not surprising that Egyptians took so long to go to the streets. Egyptian reformers deserve the vocal and material support and encouragement of the rest of the world.

    May 23, 2011 at 8:14 pm | Reply
  8. Paul Anderson

    I apologize for characterizing some foreign economic influence in Egypt as 'wahabi.' I did not intend to impune Wahhabi Islam or its followers. My desire to observe an emerging Egyptian democracy can be better expressed without faith-oriented aspersions. Please consider my statement in that light.

    Thank You.

    Paul Anderson

    May 23, 2011 at 10:55 pm | Reply
  9. truth

    Everything has a price to pay. But if we know the stuff, we will eventually enjoy the value that we paid.

    May 24, 2011 at 8:27 am | Reply
  10. ikebrazil

    Egypt will become the "land of orgy". If the adults are unemployed, the children will have to iive in dirty and ugly houses, and woman will have to prostitute themselves to support their family... It will become a slave nation, a land of orgy.

    May 25, 2011 at 3:04 pm | Reply
  11. Enoch Luton

    Run Tv ads in America sending the signal that things have returned to normal and that you are waiting for their visit.
    Signal that Egypt's new democracy needs you. Cmon do it and you will see!!!!!!

    May 26, 2011 at 12:17 am | Reply
  12. Enoch Luton

    Americans will come but they need to know that they will be safe!!!!!! Advertize!!!!!!!

    May 26, 2011 at 12:18 am | Reply

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