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

Lesotho Faces New Round of Violence, Political Crisis

Brutal killing of military officer has sent former leaders back into S. Africa where they're watching anxiously as regional officials head in to try to restore peace More

Video VOA EXCLUSIVE: US Diplomat Expects Adoption of Bosnian Massacre Anniversary Resolution

Samantha Power says there's broad consensus about killings in Bosnia's war, but Russia calls resolution 'divisive,' backs UN countermeasure More

UN Report Exposes Widespread Boko Haram Atrocities

Damning report graphically details pattern of vicious, widespread atrocities committed by Islamist militants More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Olympics Construction Scars Sacred Korean Mountaini
X
July 02, 2015 4:10 AM
Environmentalists in South Korea are protesting a Winter Olympics construction project to build a ski slope through a 500-year-old protected forest. Brian Padden reports that although there is strong national support for hosting the 2018 Pyeongchang Winter Olympics, there are growing public concerns over the costs and possible ecological damage at the revered mountain.
Video

Video Olympics Construction Scars Sacred Korean Mountain

Environmentalists in South Korea are protesting a Winter Olympics construction project to build a ski slope through a 500-year-old protected forest. Brian Padden reports that although there is strong national support for hosting the 2018 Pyeongchang Winter Olympics, there are growing public concerns over the costs and possible ecological damage at the revered mountain.
Video

Video Xenophobia Victims in South Africa Flee Violence, Then Return

Many Malawians fled South Africa early this year after xenophobic attacks on African immigrants. But many quickly found life was no better at home and have returned to South Africa – often illegally and without jobs, and facing the tough task of having to start over. Lameck Masina and Anita Powell file from Johannesburg.
Video

Video Family of American Marine Calls for Release From Iranian Prison

As the crowd of journalists covering the Iran talks swells, so too do the opportunities for media coverage.  Hoping to catch the attention of high-level diplomats, the family of American-Iranian marine Amir Hekmati is in Vienna, pleading for his release from an Iranian prison after nearly 4 years.  VOA’s Heather Murdock reports from Vienna.
Video

Video UK Holds Terror Drill as MPs Mull Tunisia Response

After pledging a tough response to last Friday’s terror attack in Tunisia, which came just days before the 10th anniversary of the bomb attacks on London’s transport network, British security services are shifting their focus to overseas counter-terror operations. VOA's Henry Ridgwell has more.
Video

Video Obama on Cuba: This is What Change Looks Like

President Barack Obama says the United States will soon reopen its embassy in Cuba for the first time since 1961, ending a half-century of isolation. VOA White House correspondent Luis Ramirez reports.
Video

Video Hate Groups Spread Influence Via Internet

Hate groups of various kinds are using the Internet for propaganda and recruitment, and a Jewish human rights organization that monitors these groups, the Simon Wiesenthal Center, says their influence is growing. The messages are different, but the calls to hatred or violence are similar. VOA's Mike O’Sullivan reports.
Video

Video US Silica Sand Mining Surge Worries Illinois Residents, Businesses

Increased domestic U.S. oil and gas production, thanks to advances known as “fracking,” has created a boom for other industries supporting that extraction. Demand for silica sand, used in fracking, could triple over the next five years. In the Midwest state of Illinois, people living near the mines are worried about how increased silica sand mining will affect their businesses and their health. VOA’s Kane Farabaugh has more in this first of a series of reports.
Video

Video Blind Somali Journalist Defies Odds in Mogadishu

Despite improving security in the last few years, Somalia remains one of the most dangerous countries to be a journalist – even more so for someone who cannot see. Abdulaziz Billow has the story of journalist Abdifatah Hassan Kalgacal, who has been reporting from the Somali capital for the last decade despite being blind.
Video

Video Texas Defies Same-Sex Marriage Ruling

Texas state officials have criticized the US Supreme Court decision giving same-sex couples the right to marry nationwide. The attorney general of Texas says last week's decision did not overrule constitutional "rights of religious liberty," and therefore officials performing wedding services can refuse to perform them for same-sex couples if it is against their religious beliefs. Zlatica Hoke reports on the controversy.
Video

Video Rabbi Hits Road to Heal Jewish-Muslim Relations in France

France is on high alert after last week's terrorist attack near the city Lyon, just six months after deadly Paris shootings. The attack have added new tensions to relations between French Jews and Muslims. France’s Jewish and Muslim communities also share a common heritage, though, and as far as one French rabbi is concerned, they are destined to be friends. From the Paris suburb of La Courneuve, Lisa Bryant reports about Rabbi Michel Serfaty and his friendship bus.
Video

Video Saudi Leaks Expose ‘Checkbook Diplomacy’ In Battle With Iran

Saudi Arabia’s willingness to wield its oil money on the global diplomatic stage appears to have been laid bare, after the website WikiLeaks published tens of thousands of leaked cables from Riyadh’s Ministry of Foreign Affairs. VOA's Henry Ridgwell reports.
Video

Video In Kenya, Police Said to Shoot First, Ask Questions Later

An organization that documents torture and extrajudicial killings says Kenyan police were responsible for 1,252 shooting deaths in five cities, including Nairobi, between 2009 and 2014, representing 67 percent of all gun deaths in the areas reviewed. Gabe Joselow has more from Nairobi.

VOA Blogs

World Currencies

EUR
USD
0.9009
JPY
USD
123.09
GBP
USD
0.6387
CAD
USD
1.2524
INR
USD
63.605

Rates may not be current.