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Al-Ahram Weekly 30 March - 5 April 2000 Issue No. 475 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 30 March - 5 April 2000 Issue No. 475
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Culture Special Focus Travel Living Sports Profile People Time Out Chronicles Cartoons Whose figures anyway
By Sherine Abdel-Razek
British investment bank Robert Flemings' recent report on the Egyptian economy raised as much controversy among officials as with businessmen and experts. The report downgraded Egyptian equities from neutral to underweight because of what it termed "a high macro risk".
Critics of the report, including analysts with Fleming CIIC, a joint venture asset management company between the British bank and the Egyptian Commercial International Investment company, argue that it is based on outdated data, and as a consequence does not take account of recent improvements or newly announced changes in the government's spending policies.
The report suggested that the Egyptian pound was overvalued by as much as 40 per cent, leading to a persistent trade deficit and, possibly, to an eventual devaluation. Rising interbank rates were also cited as a cause for concern, potentially jeopardising macroeconomic stability.
The investment bank's attempts to ease the tensions created by the report by apologising to the Egyptian government last week were undermined by a Financial Times report in which Robert Wise, Flemings' Middle East Division Director, was quoted as saying "the fact remains that the currency is overvalued although our calculations of 40 per cent may be at the upper end".
Very exaggerated, rather than at the upper-end, is the conclusion drawn by many economic commentators, who point out that the lifting of exchange restrictions has led to the pound being traded at only six to seven per cent below its controlled price, which hardly suggests that it is really worth only half its current value.
As for concern over interbank rates, it should be noted that interbank transactions represent barely a tenth of overall banking transactions.
Khaled El-Mahdy, head of research at HSBC, questions the indices used in the report. "The report compares earning ratio [earning per share to share price] with the higher inter-bank rate to show that the return on riskier stock market investments is lower than bank deposits." But, as El-Mahdy points out, the interbank rate applies only to loans between banks and is not payable on all deposits.
The report also suggested that the Egyptian stock market was attracting less portfolio investments than other emerging markets while in fact the volume of portfolio investments in Egypt jumped from $24 million in the fourth quarter of 1998-99 to $132 in the first quarter of 99-2000.
And while the report conceded that the current account deficit had been reduced due to restrictive import policies and an increase in tourism revenues, it undermined its concession by insisting that the recovery might stem from "unsustainable factors".
"This is not completely objective," said El-Mahdy. "Current account items in any economy are unsustainable as they are all affected by external factors and cannot be managed internally. Items like tourism proceeds, expatriate remittances and even oil revenues are affected by global trends and not only in Egypt's case."
There is, however, consensus over one of the points made in the report -- a lack of transparency concerning items included in the budget which inevitably raises questions over the level of the budget deficit.
The report's tone contradicted the positive evaluations of the Egyptian economy given by the majority of rating companies and investment houses.
"The macroeconomic overview as seen by the foreign investment houses is pretty good. Indeed, Merril Lynch recently raised its rating from neutral to overweight," pointed out El Mahdy.
