Terrorists target Egypt’s economic rebound

Friday 17/07/2015
Egyptian Prime Minister Ibrahim Mehleb speaks during the Egypt Economic Development Conference (EEDC) in March.

Washington - Knowing that largesse from Gulf Arab states is unlikely to continue indefinitely, Egyptian of­ficials are banking on increases in foreign direct invest­ment, tourism revenue and Suez Canal tolls to sustain economic growth.
These sectors, however, are es­pecially vulnerable to perceptions of Egyptian stability, even more so during periods of heightened ter­rorist activity. Nevertheless, busi­ness leaders in Egypt say the coun­try’s long-term economic outlook remains good, despite occasional short-term setbacks.
After the ouster of Muslim Broth­erhood president Muhammad Morsi in July 2013, Egypt’s faltering economy was bolstered by gener­ous assistance from Saudi Arabia, the United Arab Emirates and Ku­wait.
These grants and loans may have totalled as much as $20 billion over the past two years and provided the government of President Ab­del Fatah al-Sisi with the cushion to implement a significant reduc­tion in energy subsidies, which have been a huge drain on the state budget.
While Gulf Arab aid is likely to continue in some form — especially with Egypt backing Saudi Arabia against the Houthis in Yemen — it is unlikely to remain at historically high levels. Egypt is counting on both domestic and foreign private sector investment, an uptick in Suez Canal tolls from the canal’s expansion beginning in August and an increase in tourism, which was adversely affected by several years of political turmoil to move the economy forward and make a dent in reducing youth unemploy­ment.
Sustained private sector growth is the only way for Egypt to absorb new entrants into the workforce.
Data from early 2015 have been encouraging: Tourist arrivals in April reached 924,000, up from 835,000 in March. Although still far below the record high of 1,486,000 tourist arrivals registered in Octo­ber 2010, the trend is in the right direction.
Foreign direct investment (FDI) has also showed significant growth. In 2014, FDI was a little more than $4 billion, about dou­ble the figure for 2012. Although some foreign investors are hesitant about Egypt because of shortages of foreign currency, bureaucratic regulations and uncertainty over taxes, the government is address­ing some of these concerns.
In early March, Cairo approved an investment law that would sim­plify regulations and make busi­ness deals less vulnerable to law­suits by third parties.
A 70-kilometre expansion of the Suez Canal, set to open in August, is expected to shorten navigation time for ships transiting the canal from 22 to 11 hours. Egypt says this improvement will increase the annual number of ships passing through the waterway from 18,000 to 20,000, boosting tolls from the already high figure of $5.5 billion that were collected in 2014.
The government also has ambi­tious plans to establish industrial parks on both sides of the canal that would create thousands of pri­vate sector jobs.
But looming over these posi­tive trends is the terrorist threat from Islamic State (ISIS)-affiliated groups, the most significant be­ing the so-called Sinai Province, formerly known as Ansar Beit al- Maqdis, which has carried on a ter­rorist insurgency in the Sinai pen­insula for several years.
On July 1st, this group undertook a series of attacks against military checkpoints throughout the north­ern Sinai region and briefly took over the town of Sheikh Zuweid, killing as many as 70 soldiers and civilians in the process.
Perhaps more alarming have been terrorist attacks in Cairo, in­cluding the car-bomb assassina­tion of the prosecutor general on June 29th and another car-bomb attack on the Italian consulate on July 11th that killed one person and injured nine.
Such attacks are likely to cause concern about the planned open­ing of the expanded Suez Canal in August. Two years ago, terrorists fired a rocket-propelled grenade at a ship passing through the canal, though no one was injured.
Terrorists are obviously trying to derail the government’s economic plans and sow doubts about Egyp­tian stability to foreign investors and tourists.
However, a prominent Egyptian business leader, Anis Aclimandos, chairman of the Transcentury Cor­poration, said that while it would be “foolish” to ignore the short-term effects that the Sinai attacks are having on the FDI decision-making process, “the long-term nature of most proposed projects, the eagerness to seize opportuni­ties and long-term market share are prevailing” over other issues.
Another business leader said what is going on in the Sinai is not dampening investment appetite but the attacks in Cairo are more problematic and much will depend on whether they continue. None­theless, he added, there remains “a lot of interest” in investing in Egypt at this time.
To ensure that investors remain bullish on Egypt, the government is likely to double-down on secu­rity in the coming months.