Friday,21 September, 2018
Current issue | Issue 1133, 31 Jan - 6 Feb 2013
Friday,21 September, 2018
Issue 1133, 31 Jan - 6 Feb 2013

Ahram Weekly

Political upheaval, economic woes

The second anniversary of the 25 January Revolution has brought more bad news for the economy, reports Sherine Abdel-Razek

Stock market
Stock market
Al-Ahram Weekly

The orgy of violence that swept Egypt this week has highlighted the deep distrust that exists between the country’s Islamist government and the opposition and has left the economy on shaky ground.
The country was hit by a wave of violence that left 50 people dead and led to the announcement of a state of emergency and curfews in the three Suez Canal governorates of Port Said, Ismailia and Suez.
The violence was triggered by the peaceful, and then violent, demonstrations commemorating the second anniversary of the 25 January Revolution and was intensified by a court ruling that 21 of those accused of taking part in the Port Said massacre that took the lives of 74 football fans in February 2012 would be hanged.  
The violence has come at a critical stage for the Egyptian economy, with talks with the IMF being scheduled to resume in two weeks after having been put on hold as a result of earlier violence in the wake of President Mohamed Morsi’s controversial constitutional declaration in early December last year.
The Egyptian pound is now at its weakest point against the US dollar in nine years, now being sold on the black market at a rate exceeding LE7 to the dollar.
According to Beltone Financial, recent events have added to worries on the political and economic levels. In addition to the violence, caused in part by a loss of trust in the country’s political institutions, there is the possible boycotting of the country’s upcoming parliamentary elections.
Economic concerns have been highlighted by delays in the processing of the IMF loan.
One government official speaking on condition of anonymity told the media on Monday that the Egyptian presidency and ministerial economic team had decided to put negotiations with the IMF team on hold and to postpone a request for a technical assessment visit indefinitely as a result of the current disturbances.
Egypt is in dire need of foreign investment, with its foreign-currency reserves diminishing by some 60 per cent since the revolution. The ballooning budget and trade deficits are also putting the economy at risk.
While President Morsi was supposed to visit three European countries at the end of this week to promote investment, these visits have been undermined by current events.
On Sunday, the German ambassador to Egypt told a local financial daily that his country would not extend further aid to Egypt unless “a real democratic transition took place” that included the whole political spectrum.
The pound continued its slide, albeit at a slower pace, on the back of the news, reaching an official rate of LE6.68 to the US dollar on Monday, according to Central Bank data. This figure was slightly higher at LE6.75 at forex companies.    
Emad Fathi, manager of Crown Foreign Exchange Bureaus, said that transactions had been slower than during previous weeks due to the flare-ups of violence in the country. Hikes in the price of the dollar on Sunday, Monday and early Tuesday had not exceeded 2-3 piastres, which represented a deceleration to the situation at the beginning of the year, he said.
At 6.68 to the dollar, the pound has lost about nine per cent of its value since late December when the Central Bank started forex auctions to preserve its reserves. It is about 14 per cent weaker than before the uprising that ousted former president Hosni Mubarak in 2011.
The head of the dealing room at a private commercial banking facility, who asked for anonymity, told Al-Ahram Weekly that the rift between the country’s opposition, revolutionary forces and the presidency was now deeper than ever. “The gap between these parties will be hard to bridge, a fact that will cause more social unrest and could further delay the IMF loan and thus put more pressure on the pound,” he said.
Hisham Ramez, who is set to become Central Bank governor on 3 February, told investors during a 9 January conference call that he did not expect the pound to weaken beyond 6.7 to the dollar.
Another concern for Beltone was the safety of the Suez Canal, despite its being protected by the army after the three governorates in the vicinity came under curfew on Sunday.
A senior official of the Canal told Al-Ahram daily that transportation at the Canal was uninterrupted. However, a report by the Egyptian Chambers of Commerce said that some shipping companies had started considering different routes, as a curfew could affect the transportation of containers to and from ports on the Canal.
The Suez Canal is one of the main sources of hard currency for the Egyptian economy, with receipts averaging around $5 billion a year.  
Meanwhile, some Egyptian expatriates have started a Facebook campaign urging Egyptians working abroad not to transfer money back to Egypt because the government is using state funds to buy tear gas.
The campaign criticises the use of violence against the protesters. “We believe that the only thing the government has succeeded in developing by using its hard currency reserves is buying more tear gas,” said the statement.
Remittances and the Suez Canal have been the main sources of foreign currency since the Revolution, with exports and tourism receipts on the slide. Expatriates have helped to back the pound by supporting hard currency reserves, with the value of remittances from abroad almost doubling from $9 to $18 billion.
While the stock market’s reaction to the events was relatively subdued on Sunday, selling pressures shaved 1.4 per cent off the market on Monday.
The losses were limited because worries of violence on the anniversary of the revolution or as a result of the court ruling had already been factored in last week, according to Hassan Kinawi, head of the local institutions desk at HC Brokerage.
Egypt’s stocks have dropped by almost four per cent since 9 January, as government and opposition groups have geared up for the anniversary of the uprising that ousted Hosni Mubarak two years ago, with some groups threatening violence in protest at what they see as the slow pace of change.
Kinawi said that another factor that had cushioned the fall was the fact that foreigners were net buyers on the market. “Now that Orascom Construction Industries, which has the largest weight on the EGX30 index, will be listed in Amsterdam, foreigners are buying other blue chips to benefit from their increased stake in the index,” he said.
According to Bloomberg, Egypt sold its target of LE4 billion ($601 million) of treasury bills at a separate auction on Sunday, with nine month yields increasing the most in three weeks.
This increase in interest rates on the bills reflects increased perceptions of risk.

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