Ripple effects

By Doha Abdelhamid

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The global economy is in a state of turbulence. The mortgage crisis in the US last year has now run a domino effect over European, Japanese, Asian and currently Arab stock exchanges. Commodity exchanges are also on the downslide.

Downturns in Egypt's financial markets are mainly due to the oligopoly status of its public financial entities, the fragmentation of small banks and brokerage firms, lack of sufficient financial products and services, high transaction costs, and weak risk management and controls over financial entities.

The very same weaknesses of Egypt's financial markets represent their edge. The oligopoly and at times monopoly status of firms operating in the Egyptian economy promised windfall profits to shareholders. Those profits acted as magnets to both Arab and foreign investors. But when investors were hit by the global financial crisis, they were forced to pull out from Egypt's stock market in a cut-loss strategy.

Although the financial position of Egyptian enterprises has not changed as a result of the global financial crisis, there are indirect ripple effects on the Egyptian economy. I foretell a decline in tourism revenues, Suez Canal and tax returns. What do we do? Egypt needs to speed up the establishment of a single, all-encompassing financial regulator; establish a financial conglomerates investor protection scheme on a cost-sharing basis to mitigate hazards; and enforce Basel II requirements over all financial institutions.

The agenda on the Arab level is more ambitious. Egypt has to lead the implementation of the Arab Economic Integration Convention 2005; target Arab foreign direct investment; and mobilise the Union for the Mediterranean towards the establishment of Arab regional infrastructure projects.

The Arab region is endowed by many blessings: its human resources, its repatriated petrodollars, and its tourist-friendly climate. What more do we need but wise management?

This week's Soapbox speaker is a senior policy advisor at the Cabinet of Ministers and resident representative of the International Development Evaluation Association.