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

    Russian-speaking Muslim Exiles Fear Possible Russia-Turkey Thaw

    Exiled from Russia as Islamic radicals and extremists, thousands found asylum in Turkey

    US Presidential Election Ends at Conventions for Territorial Citizens

    Citizens of US territories like Guam or Puerto Rico enjoy participation in US political process but are denied right to vote for president

    UN Syria Envoy: 'Devil Is in the Details' of Russian Aleppo Proposal

    UN uncertain about the possible humanitarian impact of Russian proposal to establish escape corridors in Aleppo

    Featured Videos

    Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
    Uganda Unveils its First Solar-powered Busi
    X
    July 28, 2016 4:16 AM
    A solar-powered bus described by its Ugandan makers as the first in Africa has made its public debut. Kiira Motors' electric bus, Kayoola, displayed recently at a stadium in Uganda's capital. From Kampala, Maurice Magorane filed this report narrated by Salem Solomon.
    Video

    Video Uganda Unveils its First Solar-powered Bus

    A solar-powered bus described by its Ugandan makers as the first in Africa has made its public debut. Kiira Motors' electric bus, Kayoola, displayed recently at a stadium in Uganda's capital. From Kampala, Maurice Magorane filed this report narrated by Salem Solomon.
    Video

    Video Silicon Valley: More Than A Place, It's a Culture

    Silicon Valley is a technology powerhouse and a place that companies such as Google, Facebook and Apple call home. It is a region in northern California that stretches from San Francisco to San Jose. But, more than that, it's known for its startup culture. VOA's Elizabeth Lee went inside one company to find out what it's like to work in a startup.
    Video

    Video Immigrant Delegate Marvels at Democratic Process

    It’s been a bitter and divisive election season – but first time Indian-American delegate Dr. Shashi Gupta headed to the Democratic National Convention with a sense of hope. VOA’s Katherine Gypson followed this immigrant with the love of U.S. politics all the way to Philadelphia.
    Video

    Video Philadelphia Uses DNC Spotlight to Profile Historic Role in Founding of United States

    The slogan of the Democratic National Convention now underway in Philadelphia is “Let’s Make History Again” which recognizes the role the city played in the foundation of the United States in the 18th century. As VOA’s Kane Farabaugh reports, local institutions are opening their doors in an effort to capitalize on the convention spotlight to draw visitors, and to offer more than just a history lesson.
    Video

    Video A Life of Fighting Back: Hillary Clinton Shatters Glass Ceiling

    Hillary Clinton made history Thursday, overcoming personal and political setbacks to become the first woman to win the presidential nomination of a major U.S. political party. If she wins in November, she will go from “first lady” to U.S. Senator from New York, to Secretary of State, to “Madam President.” Polls show Clinton is both beloved and despised. White House Correspondent Cindy Saine takes a look at the life of the woman both supporters and detractors agree is a fighter for the ages.
    Video

    Video Dutch Entrepreneurs Turn Rainwater Into Beer

    June has been recorded as one of the wettest months in more than a century in many parts of Europe. To a group of entrepreneurs in Amsterdam the rain came as a blessing, as they used the extra water to brew beer. Serginho Roosblad has more to the story.
    Video

    Video First Time Delegate’s First Day Frustrations

    With thousands of people filling the streets of Philadelphia, Pennsylvania for the 2016 Democratic National Convention, VOA’s Kane Farabaugh narrowed in on one delegate as she made her first trip to a national party convention. It was a day that was anything but routine for this United States military veteran.
    Video

    Video Commerce Thrives on US-Mexico Border

    At the Democratic Convention in Philadelphia this week, the party’s presumptive presidential nominee, Hillary Clinton, is expected to attack proposals made by her opponent, Republican presidential nominee Donald Trump, to build a wall along the U.S.-Mexico border. Last Friday, President Barack Obama hosted his Mexican counterpart, President Enrique Peña Nieto, to underscore the good relations between the two countries. VOA’s Greg Flakus reports from Tucson.
    Video

    Video Film Helps Save Ethiopian Children Thought to be Cursed

    'Omo Child' looks at effort of African man to stop killings of ‘mingi’ children
    Video

    Video London’s Financial Crown at Risk as Rivals Eye Brexit Opportunities

    By most measures, London rivals New York as the only true global financial center. But Britain’s vote to leave the European Union – so-called ‘Brexit’ – means the city could lose its right to sell services tariff-free across the bloc, risking its position as Europe’s financial headquarters. Already some banks have said they may shift operations to the mainland. Henry Ridgwell reports from London.
    Video

    Video Recycling Lifeline for Lebanon’s Last Glassblowers

    In a small Lebanese coastal town, one family is preserving a craft that stretches back millennia. The art of glass blowing was developed by Phoenicians in the region, and the Khalifehs say they are the only ones keeping the skill alive in Lebanon. But despite teaming up with an eco-entrepreneur and receiving an unexpected boost from the country’s recent trash crisis the future remains uncertain. John Owens reports from Sarafand.
    Video

    Video Migrants Continue to Risk Lives Crossing US Border from Mexico

    In his speech Thursday before the Republican National Convention, the party’s presidential candidate, Donald Trump, reiterated his proposal to build a wall along the U.S.-Mexico border if elected. Polls show a large percentage of Americans support better control of the nation's southwestern border, but as VOA’s Greg Flakus reports from the border town of Nogales in the Mexican state of Sonora, the situation faced by people trying to cross the border is already daunting.

    Special Report

    Adrift The Invisible African Diaspora

    World Currencies

    EUR
    USD
    0.9017
    JPY
    USD
    104.72
    GBP
    USD
    0.7594
    CAD
    USD
    1.3160
    INR
    USD
    67.046

    Rates may not be current.