Egypt's faces an uncertain economic future (News Feature)

By Nehal El-Sherif and Andrew McCathie Feb 8, 2011, 15:56 GMT

Berlin/Cairo - A semblance of normality might have returned to business life in Cairo as the standoff between the Egypt President Hosny Mubarak and protestors camped out in the city's Tahrir Square enters another week.

But the nation's embattled economy is facing an uncertain future in the wake of weeks of often violent protests that international banks' estimate have cost the country more than 300 million dollars a day.

'Like any country that is going through such times of transformation, there is going to be losses,' said Magdi Sobhy, Egyptian economist at Al-Ahram Centre for Political and Strategic Studies. 'But we can't say when this state will end because it would depend on when and how this will end.' The government's plans to reopen the Cairo stock market on Sunday will represent a major test of Mubarak's chances of restoring economic confidence in his country and defusing the uprising against his 30-year rule.

A trickle of tourists might have started venturing back to the pyramids, traffic might have picked up in Cairo's normally bustling streets and the banks might have reopened.

But Egypt it seems has only entered the very early tentative stages of political change.

So far no detailed plans have emerged on how to refashion an economy which is heavily mired in bureaucracy, weighed down by regulations and widely criticised for entrenched nepotism.

Talks between Omar Suleiman, Egypt's newly appointed vice- president and representatives of the opposition based in makeshift tents in Tahrir Square were launched this week. But the economic direction that the opposition would like to the country to take is far from clear.

'An even bigger unknown is what the next administration might look like were Mubarak to be forced out,' wrote Deutsche Bank analysts in a note to clients.

Underlying Egypt's key strategic position, the nation's economy last year soaked up 1.3 billion dollars annually in military help from the US and 250 million dollars in economic, making Egypt the second biggest recipient of foreign aid from Washington after Israel.

Mubarak has talked at times about freeing up the nation's economy but analysts has never delivered.

Instead, the heavy hand of government regulation has resulted in the emergence of a black economy in the country estimated by economists to be worth around 245 billion dollars.

But this is just one problem that has to be tackled. Poverty is also widespread in the country.

According to the World Bank more as 40 per cent of the population in some parts of the country live on less than 2 dollars a day.

Despite the nation's economy expanding at a solid pace in recent years, 34 per cent of people under 25 are without a job. Annual income pro head of the population stood at just 6,500 dollars last year.

Faced with the on-going uncertainty, economists have already begun to downgrade Egypt's economic growth outlook.

The economy expanded by over 5 per cent last year, but France's Credit Agricole bank said last week it expected Egyptian growth this year of 3.7 per cent instead of a previously forecast 5.3 per cent.

'Local as well as international investors will demand an early exit as political instability and lack of clarity looms,' Credit Agricole cautioned.

A major risk to the Egyptian economy is the long-term damage to the nation's key tourism sector resulting from a protracted period of political turmoil.

Key tourist destinations such as Luxor and Aswan in the southern part of the country might have largely escaped the unrest.

Overall, however, about one million tourists fled the country in the first 9 days after the launch of the protests, the government said. These days any flights arriving in Cairo are essentially empty.

Egypt's tourist industry has bounced back from major challenges in the past, including terrorist attacks that have been aimed directly at foreign visitors in the country.

Tourism accounts for about 6 per cent of the nation's gross domestic product and about 10 per cent of the country's jobs.

Consequently, any dramatic contraction in the number of tourists arriving could result in a major slump in revenue which in turn could lead to the government's deficit ballooning out.

Egypt's state finances are already been stretched by the pressure to help to ease tensions in the country with state subsidies for basic necessities such as food and fuel.

In the meantime, government workers have also been granted a 15- per-cent pay rise to help them cope with the surge in food prices and quell the pent up anger with the Mubarak regime over the cost of daily life in the country.

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