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Political crisis leaves Egyptian economy in jeopardy - Daily News Egypt

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Political crisis leaves Egyptian economy in jeopardy

World markets have been reacting strongly to the violent protests in Egypt that have continued without pause for six days straight, forcing the country’s president, Hosni Mubarak, to appoint a new cabinet, and calling into question the future stability of the regime. Locally, the Egyptian Stock Exchange was shut down for trading on Sunday and …


World markets have been reacting strongly to the violent protests in Egypt that have continued without pause for six days straight, forcing the country’s president, Hosni Mubarak, to appoint a new cabinet, and calling into question the future stability of the regime.

Locally, the Egyptian Stock Exchange was shut down for trading on Sunday and will remain closed. All banks have been closed as well, bringing a significant bulk of economic activity to a near standstill.

A source in the exchange told Daily News Egypt that Egypt’s market will be closed “until further notice,” at least until a minister is appointed who will oversee the exchange can order it open.

At the end of trading last week, on Jan. 27, the EGX 30 closed at 5,646.5 points, 10.52 percent lower, its second sharpest drop in history, after having fallen 6.14 percent at 6,310.44 points on the 26.

Elsewhere, in Dubai on Jan. 30, the DFM index plunged 6.7 percent after the first ten minutes of trading, while the Saudi exchange, Tadawul, fell 6.4 percent on Jan. 29.

On Jan. 27, the Dow Jones Industrial, the US’ main index fell 1.4 percent to 11,823.70 points, with similar losses in Asia and Europe, media reports indicated.

Fitch Ratings issued a note on Jan. 28 stating that it had revised its outlook for Egypt down from ‘Stable’ to ‘Negative.’

Egypt’s long-term foreign currency Issuer Default rating (IDR) is BB+, long-term local currency IDR is BBB-, short-term foreign currency is B and country ceiling is BB+.

In the note, Richard Fox, head of Middle East and Africa Sovereign Ratings at Fitch, said, "The outlook revision reflects the recent upsurge in political protests and the uncertainty this adds to the political and economic outlook ahead of September’s elections.”

Before the political crisis, projections for Egypt’s economy for 2011 showed that the country’s GDP would expand by 6 percent over the 4.7 percent in 2010 the country delivered in spite of the global economic downturn, with investments set to increase, as well.

Commenting on the overall situation, Angus Blair, head of research for Beltone Financial, a Cairo-based investment bank, said over the phone from London, it is a “cause for concern,” adding that forecasts would have to “reevaluated.”

He said GDP projects would invariably have to be scaled downward for 2011.

“Foreign direct investments will be put on hold,” he stated, especially as there is no government in place.

He indicated that the longer the crisis continues, the bigger its negative repercussions would be on Egypt’s economy.

He added that it is important to keep in mind that growth is needed to create jobs — lack of which is a core complaint of the young Egyptian protesters that have hit the streets in recent days.

Blair indicated that, as a member of the British-Egyptian chamber of commerce, he was able to speak to the head of the organization, who told him that the majority, if not all, of the major, big business are not able to conduct any business activity, as the most banks throughout the country have been closed.

Smaller, local business, he explained, have opened their doors to customers, which shows that certain areas within the economy were still functioning, and which has provided a certain sense of economic normalcy.

Multinational corporations, however, are sitting on the sidelines, eagerly waiting to see how the situation develops before making any major operational or strategic changes to their business plans for Egypt.

Khaled Fayed, managing director of Unilever for the Mashreq sub-region, said to Daily News Egypt that his firm has halted operations for a period of one week before making any major decisions about the future of the company’s activities in Egypt.

He noted that for the time being the safety of the company’s employees as well as its factories and other premises were a top concern.

“No attacks have been reported on any of our plants,” he said, adding that he didn’t anticipate that there would be given that they are rather far from Cairo.

Any decision, Fayed said, would depend on what type of government arises from the political crisis.

Without providing specific names, he mentioned that he had spoken to other heads of major international firms, who stated that, like Unilever, safety has become the main priority for their firms.

Google’s regional director, Wael Fakharany, could not speak to his country’s operational or strategic plans in light of the breakdown of the political and security situation in Egypt, but also stated that safety for the company’s employees was primordial.

Nevertheless, Fayed was quick to point out that Egypt still remains a market of major regional importance for multinationals.

A government spokesperson from the Suez Canal Authority stated that shipping traffic through the canal hasn’t been affected by the unrest and disorder that has gripped the country, Bloomberg News reported.

Partly on the news of the ongoing political crisis in Egypt, which could jeopardize the stability of the Suez Canal, oil prices spiked to nearly $100 dollars a barrel, the Financial Times reported on Jan. 29.

Tourism, much like the Suez Canal, is a major revenue earner for the country, and is a sector that has been emaciated within a span of just under a week since the protests swept the country.

Karim, El Emam, co-CEO of Tour Egypt, a local tourism company, said that already his company has been hammered by a 100 percent cancellation rate until Feb. 10.

He projects that cancellations will be about 80 percent for the whole of February.

“People who are here are trying to leave, and flights are being rerouted,” El Emam noted.

All sites within the country have been closed, he said, and tourist police are preventing tourist buses from moving within the country.

 

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https://wwww.dailynewssegypt.com/2011/01/30/political-crisis-leaves-egyptian-economy-in-jeopardy/
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