25 April - 1 May 2002
Issue No.583
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Al-Ahram Weekly Online 25 April - 1 May 2002 Issue No.583 |
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Wood or trees?
The Israeli invasion of the Palestinian territories has dealt yet another blow to the much-battered Egyptian economy. But some think the real problem lies deeper. Niveen Wahish reports
First it was the Luxor incident and the South East Asia crisis of 1997. Then came 11 September, and now it's the turmoil in the region. Every time Egypt's economy begins to catch its breath, unforeseen circumstances throttle recovery. Just as tourism was picking up after hitting record lows, events in the region have caused business to slow again.
Egypt cannot quite get its feet on solid ground. A series of political blows has been followed by economic ones: tourism being the repeated scapegoat
But if events change, the victims stay the same.
"Classic tourism has certainly been affected," said a source in Misr Travel, a travel agency, who preferred to remain anonymous. He said that since the recent events there had been cancellations of reservations to Cairo, Luxor and Aswan, Egypt's classic sites. This time, however, the damage has been limited, as it is almost the end of the tourist season. And, contrary to expectations, some areas which rely on charter flights, such as Sharm El-Sheikh and Hurghada, have not seen many cancellations. "Their clients are regulars who often come to dive and are aware that Egypt is a safe location," the source said.
They may be a rarity. "Tourists do not differentiate between one country and another, especially with the uncertainty that the conflict may widen to include other countries," said Samiha Fawzi, deputy director of the Egyptian Centre for Economic Studies.
Improvement in tourism, a main currency earner for Egypt, is being counted on to reinject much needed hard currency into the country. This reliance, though, may be to excess. Following the 11 September attacks, tourist arrivals almost came to a standstill for a month and a half, according to Mervat Riad, who works for one of Sharm's five-star hotels.
But it is not only tourism that has taken a beating. Fawzi warns that the situation is not only frightening away tourists but investors as well. Although Fawzi points out that foreign direct investments and portfolio investments are already in a pitiful state, what is happening is ruining prospects for improvement. "Should this situation continue, even potential investments are at risk." Fawzi observes.
She points out that much sought-after US and other foreign investments could be scared away by the anger targeted at them when crises erupt, as was the case when some US brands were recently targeted during protests. Moreover, the calls for a boycott of US products throughout the region are also damaging. "Investors do not come to service the local market only; they use operations in Egypt as a springboard into the region," Fawzi commented.
She added that, even though investments have slackened during the past two years, today's political risk and uncertainty are intensifying the malaise.
While Fawzi believes that the turmoil will make a bad situation worse, others think the Egyptian economy was a shambles before the most recent crisis. "Attributing the economic crisis to what is happening in the region is only an excuse," said Hani Tawfik, chairman of International Investors, an Egyptian company.
Tawfik argues that the low investments are a result of the government's dwindling credibility and that external events are not to blame. "The turmoil will affect mainly tourism -- not so much as a foreign currency earner (most tourist agencies keep their money abroad), but because of the thousands of jobs dependent on the sector," he said. To make up for the lost tourism, he suggests that more Arab and internal tourism should be encouraged. The turmoil in the region will also, he surmises, eventually bite into Suez Canal revenues.
Tawfik thinks that to sharpen the appetite of investors, the economy needs radical tax cuts, a liberalised exchange rate mechanism and slashed interest rates. These issues, he argues, should be part of a broader national plan to resuscitate the economy. "[These reforms] should be in place before Egypt receives the international support pledged during the Sharm El-Sheikh conference last February," he argues. Tawfik maintains that assistance money should not be used to buoy the pound or finance imports.
International donors, however, seem to agree. A joint World Bank and African Development Bank mission is currently in Cairo until the end of the month. The mission, which met prime minister Atef Ebeid and the economic cabinet, is cooperating with the government, private sector representatives, academics and other major donors to identify the areas of reform which the $1 billion loan requested from the World Bank and the African Development Bank will support. According to Gamal El- Kibbi, vice-president of the World Bank's Cairo office, the mission is here to review whether the government has begun the reforms it pledged at Sharm El-Sheikh. "Once those reforms are in place, then an agreement will be written for the disbursement of the money," El-Kibbi said.
According to a World Bank press release, the possible areas of reform to be supported include improving the business environment for investment in Egypt, helping attract private capital to finance Egypt's growing infrastructure needs and placing greater emphasis on promoting exports.
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