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Al-Ahram Weekly 25 - 31 May 2000 Issue No. 483 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 25 - 31 May 2000 Issue No. 483
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Culture Focus Features Travel Living Sports Profile People Time Out Chronicles Cartoons Letters Using up goodwill
By Eman Youssef
Over the past few weeks the serpentine intricacies of fiscal policy have hit the public consciousness as never before. Headlines, television talk shows and even ordinary conversations have been dominated by a single issue -- the recession, or more precisely, what to do about it. Government measures to ease the liquidity squeeze and calm the anxious business community have sparked furious debate, not least the announcement that telecommunications and the power sector are up for privatisation. Hardly the first time such announcements have been made, though this time they have impacted on the public in an unprecedented manner, as has the government pledge to include the new mortgage law during parliament's current session.
Such moves, though, have been met remarkably coolly by investors. Stock market transactions remained muted, with low foreign participation. Is it, then, just a case of having heard it all before?
The 10.8 point increase in the capital market's general index in the week ending 10 May might have been a more positive sign, were it not for the fact that 73 per cent of market transactions were accounted for by MobiNil and Media Production City, and a good portion of remaining transactions were spurred by the-better-than-expected quarterly profits announced by Commercial International Bank (CIB).
Foreign investor interest remained low. "We will only react to these [privatisation] decisions when we see them coming true," said Taher Gargour, Middle East and North Africa analyst at HSBC. "The moves are really good news, but decisions and laws affect the market not when they are issued but when they are implemented."
The divestment of power sector companies was initially announced last June, only to be postponed to November and then shelved because of valuation discrepancies between the government and the US investment bank Merrill Lynch. Meanwhile, uncertainty continues to surround last week's announcement to convert the Egyptian Electricity Authority into a holding company, a necessary first step to flotation. The step, if undertaken, will deprive the Ministry of Finance of LE1 billion worth of taxes imposed on electricity consumption. Investors, frustrated by a depressed market, need time to see the impact of these decisions on interest rates and on liquidity, of both the Egyptian pound and the dollar. Only when they regain confidence in the exchange rate mechanism will they begin to react, believes Gargour.
News of the possible passing of the mortgage law, designed to kick-start the stagnant real estate sector, have had only a minimal effect on the cement and housing sectors. The vagueness of the announcements, and the confusion surrounding the recent government position on martial laws governing construction and demolition, have simply served to muddy the waters.
The construction and real estate sectors have been left baffled by what Nabil El-Gohari, chairman of Contra Real Estate Development, sees as a confused government position. He believes that allowing once more the destruction of villas will free land in the city centre for much needed office developments, and strongly supports the quick passage of the mortgage law, despite reservations over its draft. "We must start somewhere," he said, suggesting that the draft law is a base on which to build, and could be amended in line with experience. "Why should we reinvent the wheel?" El-Gohari asked, pointing out that Egyptian lawmakers should take into account laws currently applied elsewhere.
However happy the market is with the government's pronouncements, the fact remains that the lack of liquidity limits any possible reactions, says Wael Faheem, head of transactions at Prime Securities.
"What makes things worse is that investors concentrate on a limited number of highly capitalised companies, ignoring the rest of the market."
This became more obvious than ever last week when rumours of MPC's plans to increase its capital saw investors scrabbling to liquidate their positions, selling other stocks wholesale in an attempt to raise the necessary funds to further invest in the media company.
