IMF and the general economic situation - overview.

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IMF and the general economic situation - overview.

Post by Hafiz » Tue Sep 27, 2016 4:38 pm

Here is a recent think tank article on the current state of play on economic reform/IMF in Egypt.

Its written by the highly rated Middle East Institute. The, US based, Institute is long established, employs analysts from the region, publishes a peer refereed journal and is currently chaired by the man who was chief terrorism advisor to both Clinton and Bush II. It seems slightly left centrist.

Some will find spooks and CIA money in it – if so post your results.

Their summary of the current economic situation is non-controversial and expressed in cautious language.

The following are some interesting points.

“Egypt’s real G.D.P. is forecast to expand by 3.3 percent in 2016, despite 4.2 percent growth in 2015, according to the I.M.F.’s 2016 World Economic Outlook.

.. Another major reform, which requires an ideological change in Cairo, is the privatization of large state-owned companies. Egypt has held a centrist approach toward its economy and, although there have been recent announcements regarding the listing of some public companies, it remains unclear how willing the government and the army is to relinquish control of largely inefficient companies that dominate a significant portion of the economy.

The flow of F.D.I. (foreign direct investment – usually private) on the other hand poses a larger long-term issue. Foreign investment is attracted to large margins and proven track records, both of which Egypt boasts. But more importantly, foreign investors look for an uncomplicated business environment—something Egypt is not offering at the moment. The government has promised to modernize legislation and streamline the business environment, but Egypt ranks 131 out of 181 economies in terms of ease of doing business—down five places from its 126 ranking in 2015.

Egypt’s military and quasi-government business partners continue to maintain a strong grip over large parts of the economy, which is a policy that has proven costly for the wider economy. Their desire to hold on to large state-owned companies is rooted in Egypt’s centrist economic history, harking back to Mubarak-era economics, which perpetuated this policy. Thus, the military-dominated government might see a preference in undertaking certain I.M.F.-conditioned reforms that do not result in a diminished military stake in the economy, such as slashing subsidies and introducing VAT. However, pursuing such reforms without enabling the emergence of a vibrant private sector may backfire, as it would impact the middle and lower classes without the necessary job creation growth that would be spurred from a boost in F.D.I. and private sector activity. Egypt could, therefore, be left in a position where it will apply socially sensitive reforms without counterbalancing that with major economic benefits.”http://www.mei.edu/content/article/imf- ... ign=buffer

Their main web site is at: http://www.mei.edu/. Their A-Z of the current economic position is at: http://www.mei.edu/content/egypt-economics - very good graphics. Their journal is at: http://www.mei.edu/middle-east-journal. This Institute should not be confused with the more controversial MEMRI which has been mentioned on this forum a few times in the past.

So …one take home is that reform which hurts the poor is easily done but reforms which affect the powerful are hard. Economic growth is also stalling, down one fifth on 2015, and well below the rate necessary to start absorbing all those dangerous unemployed young people who are currently 70% of the total unemployed.



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Re: IMF and the general economic situation - overview.

Post by Major Thom » Wed Sep 28, 2016 3:57 am

Amazing!!!!

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Re: IMF and the general economic situation - overview.

Post by carrie » Wed Sep 28, 2016 9:40 am

Thank you Hafiz.

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Re: IMF and the general economic situation - overview.

Post by newcastle » Wed Sep 28, 2016 11:25 am

Thank you Hafiz.

The IME article was echoed in a report I read recently from the Atlantic Council

http://www.atlanticcouncil.org/images/p ... 060316.pdf

This gives a bit of history to the current situation and helps put it in context. The report was also covered recently by Daily News Egypt

http://www.dailynewsegypt.com/2016/06/1 ... orms-made/

Both the IME & Atlantic Council focus on the need for FDI...and the AC goes into some detail regarding the obstacles!

Whichever way you look at it, it will be a long uphill haul...possibly beyond the tenure of Sisi....and will involve some moves - further reduction in subsidies, currency flotation etc - which will hit the majority of egyptians severely. Sisi has made no bones about this .

Previous regimes have always baulked at grasping this nettle for the sake of social stability, although it didn't save Mubarak. In his case, the fact that the economy was not generating employment for a growing number of disaffected youth was a major factor in his overthrow.

The question remains - even if the obstacles to reform can be overcome, will the perceived improvement (i.e. employment) come quick enough to offset the discontent at the rapidly rising cost of living.

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Re: IMF and the general economic situation - overview.

Post by carrie » Wed Sep 28, 2016 11:57 am

All makes depressing reading. so many problems. As Sisi said it might take one or two generations to sort it all out.
I didn't see anywhere though reference to the opposition the armed forces have to their businesses being privatized.
I just hope that the people of Egypt, who are incredibly patient, can see a promising future for if not themselves then their children and grandchildren.

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Re: IMF and the general economic situation - overview.

Post by newcastle » Wed Sep 28, 2016 12:49 pm

A very pertinent point Carrie......the relevance of the position of the military'

The esteemed MEI reported on this less than a year ago :

http://www.mei.edu/content/map/egypt%E2 ... eed-change

Some relevant extracts :

In today's Egypt, you cannot miss it: the heavy presence of the military institution in the economy. The Egyptian military owns business enterprises that are in almost every sector and produce an extremely wide area of services and goods. It runs hotels, sea resorts, and apartment buildings along with lavish villas. It owns cement, steel, jeep, fertilizer, home appliances, pasta, and other factories; runs gas stations; and constructs toll highways. Moreover, ex-generals occupy the top civilian positions in the state’s administrative apparatus in control of key sectors, from public transportation systems to water and sewerage services, Internet lines, social housing projects, and more. This situation is far from being a new phenomenon that emerged with the election of a new president from the military last year; its entrenched roots go back to the last six decades of the country’s history.

It seems highly unlikely that the Egyptian officers today would respond to calls for divestiture, especially under a president who might place no pressure on them to do so. Recently, the Egyptian military has rejected public criticism of its economic activities. In a press conference in 2012, the vice minister of defense for financial affairs and SCAF member, General Mahmud Nasr, pledged to “fight” to protect the armed forces’ business. Nasr asserted, “our money does not belong to the state; it is the sweat of the ministry of defense from the revenue of its enterprises…We will not allow the state to intervene in it…We will fight for our economic enterprises and we will not quit this battle. We will not leave our 30-year sweat for somebody else to ravage it, and we will not allow anybody to come near the armed forces’ projects.

[Only a couple of days ago Sisi defended the army's role in the economy.

http://www.aljazeera.com/news/2016/09/s ... 44188.html ]

Several months after he was elected president, Abdel Fattah al-Sisi held an international economic conference to declare the country open again for foreign investments. It was a big gathering to which the government invited important world leaders, including the IMF’s director Christine Lagarde.

But under president Sisi the number of ex-generals appointed to key positions in the administration and the ever-increasing privileges of military businesses are distorting the free market and hindering reforms toward more neoliberalism. In 2015, to name only a few instances, ex-generals headed the public authorities of industrial development, agricultural development, import and export control, maritime transport, railways, sea and Nile ports, and the Suez Canal. The crucial positions of the minister of transportation, the chairman of the national Telecommunication Holding Company, and the chairman of Maritime and Land Transport Holding Company were all occupied by other ex-generals. Meanwhile, military contractors continued to function as gigantic parastatal entities that took charge of executing public construction projects of bridges, roads, hospitals, schools, affordable housing, sporting clubs, etc.

Around the same time, the military obtained 10,000 acres for land reclamation and commercial farming, and another total of 40,000 square metres to build additional gas stations.[13] The president issued a law to exempt a list of 574 military premises from the real estate tax, and this list included supermarkets, hotels, sea resorts, and movie theatres. He issued another law to authorize the ministry of defense to establish private security firms, and a third law authorizing the ministry of military production to open its own contracting firm.[14] Critics argue that ex-officers lack business management expertise and that their prevalence harms the economy.

The entrenched economic interests of the military institution provide it with both incentives and resources to uphold political hegemony.

As the Egyptian state today faces one acute crisis after the other, taking the Egyptian military out of the economy seems more necessary than ever. Whereas the expansive economic privileges of the army currently render this an impossible process, simmering public discontent might push for military concessions in the near future.

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Re: IMF and the general economic situation - overview.

Post by Major Thom » Thu Sep 29, 2016 6:25 am

Patience, whey hay!. I am sure there is plenty of that, in Luxor they have been patiently waiting for tourists for 5 years and are still patiently waiting. Wonder when the penny will drop.

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