News / Economy

    Morsi's Ouster May Give Egypt Window to Tackle Economic Problems

    Opponents of Egypt's Islamist leader Mohamed Morsi celebrate outside the presidential palace in Cairo, July 3, 2013.
    Opponents of Egypt's Islamist leader Mohamed Morsi celebrate outside the presidential palace in Cairo, July 3, 2013.
    Reuters
    The ouster of President Mohamed Morsi may give Egypt's economy its best chance since the 2011 revolution to escape a downward spiral of currency weakness, capital flight and crumbling state finances.
     
    The departure of Morsi will not provide any quick or easy fixes to problems such as dangerously low foreign reserves, a ballooning budget deficit and high unemployment. But many businessmen and economists hope for the appointment of a more technocratic administration that would address these problems methodically, while luring back some of the investors and money which have fled the country.
     
    “I think Egypt will start taking very strong steps to strengthen the economy...I think a lot of investment will come in,” said Medhat Khalil, chairman of Raya Holding, an Egyptian information technology conglomerate.
     
    Khalil predicted Egypt would emerge from its economic crisis in six months at most - a prediction which most foreign economists consider far too optimistic. But such optimism added about $3.2 billion to the stock market's value on Thursday as the main share index jumped 7.3 percent.
     
    Particularly strong were shares in companies perceived to have suffered under Morsi's administration for political reasons, such as Ezz Steel, whose former owner was a leading official in the party of former president Hosni Mubarak.
     
    Egyptian bond prices rose sharply and the black market exchange rate of the Egyptian pound narrowed its discount to the official rate - a sign that traders thought more funds might flow into the country.
     
    Akram Farag, founder of Oxygen Consulting, a Cairo firm which advises on digital content, said he had been thinking about leaving Egypt but now intended to stay.

    Other businessmen were making the same decision, he said.
     
    “In the short term and the long term I see what happened in Egypt last night will have a positive effect on the economy and investment.”
     
    Technocrats
     
    Much of the economic turmoil under Morsi, whose Muslim Brotherhood was new to power, was the result of indecisive and inexpert administration. After the 2011 revolution, successive governments had trouble attracting experienced technocrats, who feared being tainted by an unpopular ruling military council or by the Islamist ideology of the Brotherhood.
     
    The outpouring of public anger with the Brotherhood in the past few weeks has largely erased the stigma attached to working in a government backed by the military, businessmen say.
     
    “None of this is on the table now, so I believe that anybody who is asked to join the cabinet won't hesitate,” said Karim Helal, chairman of ADI Capital, the Egyptian investment banking arm of Abu Dhabi Islamic Bank.
     
    Former director of the U.N.'s nuclear agency and Nobel peace laureate Mohamed ElBaradei speaks during a news conference following the meeting of the National Salvation Front, Egypt’s main opposition coalition, in Cairo, Jan. 28, 2013.Former director of the U.N.'s nuclear agency and Nobel peace laureate Mohamed ElBaradei speaks during a news conference following the meeting of the National Salvation Front, Egypt’s main opposition coalition, in Cairo, Jan. 28, 2013.
    x
    Former director of the U.N.'s nuclear agency and Nobel peace laureate Mohamed ElBaradei speaks during a news conference following the meeting of the National Salvation Front, Egypt’s main opposition coalition, in Cairo, Jan. 28, 2013.
    Former director of the U.N.'s nuclear agency and Nobel peace laureate Mohamed ElBaradei speaks during a news conference following the meeting of the National Salvation Front, Egypt’s main opposition coalition, in Cairo, Jan. 28, 2013.
    Mohamed ElBaradei, who headed the United Nations nuclear agency, is a favorite to be named as head of a transitional government that will prepare for elections.
     
    The acclaim which the army won from much of the population for its smooth overthrow of Morsi may give the transitional government a window of opportunity to push painful economic reforms that previous administrations shied away from adopting.
     
    Morsi's government had been running out of cash, partly because of expensive subsidies for gasoline and other fuels which eat up over a fifth of state spending. The cash squeeze led to rolling electricity blackouts and queues of cars at filling stations, adding to the anger with the Brotherhood.
     
    If it can improve the energy supply situation, the new administration may be able to justify to the public subsidy cuts that would partially repair the state budget.
     
    “This might make it easier to push energy subsidy reform: if you explain to the public that they may have to pay more, but that fuel will be available at that price,” said Simon Kitchen, a strategist with local investment bank EFG Hermes.
     
    Financial aid
     
    Whatever the policies of the new administration, Egypt is likely to remain dangerously dependent on foreign aid to finance its external deficit for years.
     
    Raza Agha, economist at financial firm VTB Capital in London, estimated Egypt would need a $19.5 billion of external financing in the year through June 2014, to cover maturing debts and a $5.4 billion deficit in trade of goods and services.
     
    That estimate assumes no more capital flight, which could be triggered if, for example, elements of the Muslim Brotherhood turn to violence in response to their ouster.
     
    “A currency crisis can make things much worse than they already are. Egypt imports much of its basic food needs. Food price inflation would go up, which could lead to more popular unrest in an already highly impoverished and polarized country,” investment bank ING wrote in a research note.
     
    Egyptian protesters hold placards with the Arabic inscription reading ‘danger’ and shout slogans as they demonstrate against the International Monetary Fund (IMF) delegation visit, in front of the General-Prosecutor's office in Cairo, April 3, 2013.Egyptian protesters hold placards with the Arabic inscription reading ‘danger’ and shout slogans as they demonstrate against the International Monetary Fund (IMF) delegation visit, in front of the General-Prosecutor's office in Cairo, April 3, 2013.
    x
    Egyptian protesters hold placards with the Arabic inscription reading ‘danger’ and shout slogans as they demonstrate against the International Monetary Fund (IMF) delegation visit, in front of the General-Prosecutor's office in Cairo, April 3, 2013.
    Egyptian protesters hold placards with the Arabic inscription reading ‘danger’ and shout slogans as they demonstrate against the International Monetary Fund (IMF) delegation visit, in front of the General-Prosecutor's office in Cairo, April 3, 2013.
    Many investors hope the new government will agree on a $4.8 billion emergency loan with the International Monetary Fund, which Morsi's government initialed last November but never ratified. ElBaradei has pressed for Egypt to sign the deal.
     
    Hopes for an early IMF agreement may be misplaced, however. To avoid seeming to endorse a military coup, and to ensure that tough economic reforms in the loan deal have broad political support in Egypt, the IMF may wait to negotiate with an elected government - and it could be months before polls are held.
     
    A further delay to the IMF loan would make Egypt more dependent on wealthy donors in the Gulf. The government of Qatar, which has provided $7.5 billion in grants and low-interest loans, has been close to the Muslim Brotherhood and may view Morsi's ouster as a diplomatic setback.
     
    There is no indication so far, however, that Qatar intends to pull its money out of Egypt. The official Qatar News Agency said on Thursday that the Gulf state would “continue to respect” the will of the Egyptian people and work to strengthen ties.
     
    Meanwhile, Egypt may be able to count on more aid from two other rich Gulf states which have long distrusted the Muslim Brotherhood, and therefore have a strong political interest in ensuring that post-Brotherhood governments in Egypt succeed.
     
    Both Saudi Arabia and the United Arab Emirates congratulated the new Egyptian leadership within hours of the coup. In 2011 the UAE pledged $3 billion in aid to Egypt, but the money was never delivered; the UAE now has more reason to disburse it.
     
    Egypt “is in a much better position now to receive aid from Saudi Arabia and the UAE when the Brotherhood is no longer there,” said Citigroup regional economist Farouk Soussa.  “Both Saudi Arabia and the UAE have promised significant financial aid to Egypt. It is more likely that Egypt will receive it now.”

    You May Like

    Turkey, US Splits Deepen Over Support for Kurdish Militants

    Ankara summons American ambassador to protest remarks by State Department spokesman who said Washington does not consider Syria's Kurdish Democracy Union Party (PYD) a terrorist organization

    Obama Seeking $19 Billion for National Cybersecurity

    Move, touted as attempt to build broad, cohesive federal response to cyberthreats, calls for increase in cybersecurity spending across all government agencies

    Video Foreign Policy Weighs Heavy for Some US Voters

    VOA talks to protesters in Manchester, New Hampshire, who sound off on foreign policy issues such as the Guantanamo Bay prison, the Israeli-Palestinian conflict and the wars in Iraq, Syria and Yemen

    Featured Videos

    Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
    Valentine's Day Stinks for Lebanese Clownsi
    X
    February 09, 2016 8:04 PM
    This weekend, on Valentine's Day in Lebanon, love is not the only thing in the air. More than half a year after the country's trash crisis began, the stink of uncollected garbage remains on the streets. Step forward "Clown Me In," a group of clowns who use their skills for activism. Before the most romantic day of the year the clowns have released their unusual take on love in Lebanon -- in a bid to keep the pressure up and get the trash off the streets. John Owens reports from Beirut.
    Video

    Video Valentine's Day Stinks for Lebanese Clowns

    This weekend, on Valentine's Day in Lebanon, love is not the only thing in the air. More than half a year after the country's trash crisis began, the stink of uncollected garbage remains on the streets. Step forward "Clown Me In," a group of clowns who use their skills for activism. Before the most romantic day of the year the clowns have released their unusual take on love in Lebanon -- in a bid to keep the pressure up and get the trash off the streets. John Owens reports from Beirut.
    Video

    Video Rocky Year Ahead for Nigeria Amid Oil Price Crash

    The global fall in the price of oil has rattled the economies of many petroleum exporters, and Africa’s oil king Nigeria is no exception. As Chris Stein reports from Lagos, analysts are predicting a rough year ahead for the continent’s top producer of crude.
    Video

    Video Foreign Policy Weighs Heavy for Some US Voters

    VOA talks to protesters in Manchester, New Hampshire who sound off on foreign policy issues such as the Guantanamo Bay Prison, the Israeli-Palestinian conflict, Middle East Affairs and national security.
    Video

    Video 'No Means No' Program Targets Sexual Violence in Kenya

    The organizers of an initiative to reduce and stop rape in the informal settlements around Kenya's capital say their program is having marked success. Girls are taking self-defense classes while the boys are learning how to protect the girls and respect them. Lenny Ruvaga reports from Nairobi.
    Video

    Video New Hampshire Voters Are Independent, Mindful of History

    Once every four years, the northeastern state of New Hampshire becomes the center of the U.S. political universe with its first-in-the-nation presidential primary. What's unusual about New Hampshire is how seriously the voters take their role and the responsibility of being among the first to weigh in on the candidates.
    Video

    Video Chocolate Lovers Get a Sweet History Lesson

    Observed in many countries around the world, Valentine’s Day is sometimes celebrated with chocolate festivals. But at a festival near Washington, the visitors experience a bit more than a sugar rush. They go on a sweet journey through history. VOA’s June Soh takes us to the festival.
    Video

    Video 'Smart' Bandages Could Heal Wounds More Quickly

    Simple bandages are usually seen as the first line of attack in healing small to moderate wounds and burns. But scientists say new synthetic materials with embedded microsensors could turn bandages into a much more valuable tool for emergency physicians. VOA’s George Putic reports.
    Video

    Video Bhutanese Refugees in New Hampshire Closely Watching Primary Election

    They fled their country and lived in refugee camps in neighboring Nepal for decades before being resettled in the northeastern U.S. state of New Hampshire -- now the focus of the U.S. presidential contest. VOA correspondent Aru Pande spoke with members of the Bhutanese community, including new American citizens, about the campaign and the strong anti-immigrant rhetoric of some of the candidates.
    Video

    Video Researchers Use 3-D Printer to Produce Transplantable Body Parts

    Human organ transplants have become fairly common around the world in the past few decades. Researchers at various universities are coordinating their efforts to find solutions -- including teams at the University of Pennsylvania and Rice University in Houston that are experimenting with a 3-D printer -- to make blood vessels and other structures for implant. As VOA’s Greg Flakus reports from Houston, they are also using these artificial body parts to seek ways of defeating cancerous tumors.
    Video

    Video Helping the Blind 'See' Great Art

    There are 285 million blind and visually impaired people in the world who are unable to enjoy visual art at a museum. One New York photographer is trying to fix this situation by making tangible copies of the world’s masterpieces. VOA correspondent Victoria Kupchinetsky was there as visually impaired people got a feel for great art. Joy Wagner narrates her report.
    Video

    Video German Artists to Memorialize Refugees With Life Jacket Exhibit

    Sold in every kind of shop in some Turkish port towns, life jackets have become a symbol of the refugee crisis that brought a million people to Europe in 2015.  On the shores of Lesbos, Greece, German artists collect discarded life jackets as they prepare an art installation they plan to display in Germany.  For VOA, Hamada Elrasam has this report from Lesbos, Greece.
    Video

    Video E-readers Help Ease Africa's Book Shortage

    Millions of people in Africa can't read, and there's a chronic shortage of books. A non-profit organization called Worldreader is trying to help change all that one e-reader at a time. VOA’s Deborah Block tells us about a girls' school in Nairobi, Kenya where Worldreader is making a difference.
    Video

    Video Genius Lets World Share Its Knowledge

    Inspired by crowdsourcing companies like Wikipedia, Genius allows anyone to edit anything on the web, using its web annotation tool
    Video

    Video In Philippines, Mixed Feelings About Greater US Military Presence

    In the Philippines, some who will be directly affected by a recent Supreme Court decision clearing the way for more United States troop visits are having mixed reactions.  The increased rotations come at a time when the Philippines is trying to build up its military in the face of growing maritime assertiveness from China.  From Bahile, Palawan on the coast of the South China Sea, Simone Orendain has this story.

    World Currencies

    EUR
    USD
    0.8899
    JPY
    USD
    114.87
    GBP
    USD
    0.6937
    CAD
    USD
    1.3904
    INR
    USD
    68.044

    Rates may not be current.