Polarization in Egypt

The ISIS affiliate in Sinai known as Wilayat Sinai or Sinai Province launched a suicide attack on an Egyptian checkpoint followed by an ambush. The Egyptian security forces, made up mostly of conscripts, suffered their heaviest casualties in several months. The reaction of the Egyptian opposition, after the customary expression of sadness for the fallen, centered around attacking Sisi and his regime. How terrorism  is viewed is one manifestation of the sorry state of Today's Egypt.

Some from the Islamist camp clearly have more sympathy with those carrying out terrorist acts than they do with the victims of these acts be them civilian, conscripts or regular security personnel. However, the majority of Islamists appear to find justifications for terrorism. Conversations rapidly move to definitions of terrorism: USA and Iraq, Israel and Palestine, and of course the violence of the Egyptian Government itself: "Isn't the government itself the bigger terrorist anyhow?" is a standard phrase. 

The so called Pro Democracy camp encompassing secular, leftists and liberal opponents of the Egyptian regime tend to blame all terrorism on the state itself. Many cogently discuss terrorism in Iraq, Syria or Libya and routinely condemn ISIS attacks in the west. But when it comes to Egypt, they absurdly blame the Egyptian Government for ISIS terrorism. The Egyptian Government, not the terrorists are blamed for the collapse of tourism. Admittedly, the Government inept handling of the downing of the Russian plane last year didn't help, but botching up PR is hardly to blame, terrorism is!

The hatred for the Sisi regime by its opponents is so intense that the opposition has lost its sense of balance. Most opposition of the regime can see before their very eyes the threat of terrorism but chose to blame Sisi for it when it comes to Egypt. The fact that the regime uses the threat of terrorism to suppress dissent is met by the opposition with denial of the the existence of the threat!

The George W. Bush doctrine of "you are with us or with them" dominates the discourse in Egypt on virtually all matters. The Egyptian Central Bank's long awaited currency devaluation and liberalization are viewed the same way. To the opposition: it is a disastrous set back, wrong move, badly timed and managed with lots of allegations of corruption and incompetence. The fact that the country's foreign reserves are growing and GDP growth is the highest in the region are dismissed because of an inability to see anything beyond their hatred for Sisi.

The net result is that the Egyptian regime which is essentially a junta that is establishing a totalitarian 60's style nationalist state operates without credible opposition. The popularity of the regime, even though has waned some, drives the opposition into an isolated angry zone. The opposition is angry at ordinary people for supporting the regime. Self hate and depression dominate the Pro Democracy camp. Meanwhile the regime goes on curtailing freedoms and sidelining competing Mubarak era apparatchiks who have become its only viable opposition. 

It's hard to think of places where there could be more polarization than the USA in 2016. Hard until you get to Egypt where polarization has become the normal theme of life. The center, or the middle ground, is nowhere to be found; some sort of a no man's land where few of us stand between angry warring factions. 

Ayman S. Ashour

Egypt's New Suez Canal

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I have never actually thought the Suez Canal project, in its own right, was a priority for Egypt and highly doubt the economic viability for it, I don't think the project will generate the payback that has been promised by its champions. For one, the drop in oil prices is not good for the Suez Canal and will probably trigger a fall in the revenues of the Canal. I doubt that in the next five years the project will prove winner on standalone basis.

What is undeniable however, is the economic recovery that Egypt has witnessed since the very dark days of last winter of 2013/4. By the time the curfew that lasted many months was lifted in November of 2013, the economy was in tatters with virtually zero new investment, unemployment at sky high levels and the Egyptian consumer culture was badly shaken, confidence was at an all time low.

The Egyptian opposition has a great deal of legitimate criticism towards the Sisi regime in the areas of human rights and in the lack of transparency in the so called Egypt's War on Terror. The Sisi regime has created a totalitarian feel in the county with a 1950's flavor. There is no shortage of areas to criticize Sisi on, but where the Egyptian opposition, Muslim Brotherhood and the cadre of orientalist and novice reporters lose credibility is on the economic front.

There is little doubt that the management of the economy since these horrible days in the winter of 2014 has been excellent. What the Suez Canal  project did was truly amazing, it acted as stimulus for the economy and a confidence booster for the nation. the economic turnaround has, by any measure, been impressive. From total stagnation, Egypt saw GDP growth topping 4%. 

I have been critical of some aspects of financing the Suez Canal project through fixed interest bonds, that made it politically impossible for the Central Bank to raise interest rates to support the Egyptian Pound instead of opting for the economy choking currency controls. That aside, the proof is in pudding, the economic benefit is clear for all those who want to see.


Yes, a military guy with clear authoritarian tendencies, cavalier attitude towards human rights,  horrible ad hoc public speech giving skills, and who has worrying populist tendencies can actually lead and deliver an economic recovery! Criticise what should be criticized and praise what should be praised or at the very least remember that: silence can be golden if you can't accept the truth.


Ayman S. Ashour

The Egyptian Stock Exchange..What Next?

Invest in Egypt but don’t gamble against the odds on the stock market!

The Egyptian Stock Exchange has been closed since the early days of the January 25 Revolution. Following the toppling of Mr. Mubarak a chorus of calls for action, donations and investment in the stock market has been getting louder in the press, social media and even in SMS text messages from banks. The continued closure of the stock market has fueled a high level of anxiety amongst many and with so much excitement about the possibilities for change and progress the wonderful people of Egypt are willing listeners to advice that they think can help Egypt and its economy.

While I am not an economist, I have been at leadership positions of public companies in the US & Europe and I have also been an adjunct lecturer on mergers & acquisitions for a number of years. So what I express here is my personal view as a practitioner who has to deal with issues of stock price, investor sentiment and public markets in general day in and day out and as also as an educator of business students looking at how companies create value and how they are valued.

International investors evaluate numerous factors to make their decisions about expanding their investment in a company, sector or country. Egypt has many important attractions, large population, excellent strategic location, availability of foreign language friendly work force, good access to markets and so forth. However, certain factors have impacted investment in Egypt negatively, specifically corruption, arbitrary & corrupt taxation and an inefficient, slow and often corrupt justice system.

Political stability is another key issue that has affected attitude towards investment in Egypt and likely will continue to do so. I fear that the current plan chosen by the Supreme Council of the Armed Forces, to install a temporary constitution and only move to a permanent one after a round of presidential and parliamentary elections followed by further elections for a drafting committee and further referendums, will prolong the period of uncertainty. The Egyptian Military caution is understandable on a number of fronts and a gradual approach that allows for the building up of democratic institutions over a year or two under a relatively benign military rule has its attractions, but also its price, a price from uncertainly over process, intent and what the ultimate outcome may look like and its desirability.

In a theoretical “perfect market”, the value of a company or a business is a function of one’s view of the future cash profit that a particular company would generate for its owners; stocks or shares represent fraction ownership of a company. Obviously people can have differing views on what the future may hold for a company and thus there will be those willing to buy and others willing to sell. If we assume company in the tourism industry in Egypt, the prospects for future profit and cash generation would have been seen as promising over the last few years, however, today there is little doubt that 2011 will be a difficult one for the tourism sector in Egypt. Companies in the tourism sector may actually make less profit or actually lose money; the value of these companies and their shares is therefore reduced in a “perfect market”.

The situation in any stock market is far from that of a “perfect market”, there are other factors that affect share prices; basic supply and demand for the actual shares and expectations of this supply and demand. If one hears that a shareholder in a specific company will be selling a large block of shares, it is likely that this could affect the price per share. So as we look at a company like Ezzsteel with its Chairman and Managing Director Mr. Ahmed Ezz in prison facing a number of charges, it is unlikely that many investors will be wanting to acquire shares in Ezzsteel when the market does eventually open, arguably many would want to sell shares. The prospects of the steel industry may not have materially changed by the January 25 Revolutions yet, the supply and demand situation of the shares has likely changed. The ownership of a significant percentage of companies listed on the Egyptian Stock Market is concentrated in the hands of large shareholders and it is the perceived and the actual attitude of these large shareholders that could have a decisive effect of the share prices of their companies.

The stock market when it does open in Egypt will likely see a drastic reduction in value because of the expected economic weakness at least for 2011, because of the uncertainty surrounding several prominent business families with large controlling blocks in many listed companies and there will likely be further penalty associated with a perceived higher political instability risk. The positive sentiment associated with the competent corruption fighting government of the new Egyptian Prime Minster will likely not be enough to counter the three big negatives. So there are good reasons for the stock market to go down.

Experience has shown that betting against economic fundamentals can only work in the short term but rarely so in the long term. People who want to avoid or minimize the collapse in the Egyptian stock market need to focus their effort on the three causes; the share prices are the outcome, just the symptoms. A campaign to encourage buying Egyptian made products domestically and internationally would contribute to the health of Egyptian companies more than buying few shares from co-investors of Mr. Ahmed Ezz while his own shares remain frozen. Promoting tourism in an intelligent campaign with significant price reductions and improvement in service is critical to save jobs and businesses in the tourism sector.
Most importantly, is the further thoughtful review of the plans to achieve the objectives of the January 25 Revolution as adopted by the Military. Plans and process to rid Egypt from corruption fix the justice and dispute resolution system and remove the old dictatorial system of Government need to be transparent and inclusive.

Egypt today stands at a high place, admired by the people of the world for its peaceful revolutions and while the army may have hesitated and bungled a number of important matters, it continues to be seen positively globally. In short there is tremendous goodwill by the world Government, people and investment community towards Egypt; now the key priority to focus on the fundamentals.

AA
March 12, 2011