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BEWARE SAFETY
There’s been a lot of hopeful talk that Egypt
may come to be seen as a safe haven for foreign capital. Key emerging
econ-omies in Europe, Latin America and Asia may be hanging by a
thread, the argument goes, but Egypt’s rests upon a solid macroeconomic
base. Debt and deficits – both in the budget and current account
– are minimal, the pound is stable and stocks are un-dervalued.
Once battered foreign investors manage to look around at obvious
opportunities, Egypt is sure to shine.
Perhaps, but we should be careful what we hope for. There’s
nothing dishonest about talking up Egypt’s real macroeconomic
achievements. And Egypt’s growth targets will never be met
without more foreign investment. But there’s no getting around
the fact that Egypt has escaped severe injury from the storm whipping
through the world economy largely be-cause it was never out in the
weather to begin with. Minister of Economy Youssef Boutros Ghali
said as much in his closing speech at the Euromoney Conference,
when he offered up the theory that Egypt stands firm because it
has been “underestimated” by international investors.
Foreign money never flowed in with excessive exuberance, so there
was never an opportunity for it to flee in disappointment.
Perversely, a reputation as a safe haven could reverse that equation.
If foreign investors decide Egypt is a safe haven, it will mean
Egypt is no longer underestimated. And if foreign capital flows
in, it will push Egypt out into the weather with everybody else.
Then we’d be a haven for capital – or at least a (probably
rented) home – but the price could well be safety.
The big question now is whether Egypt is ready. Ghali and others
say yes. The nation’s halting progress on reforming its real
economy, once criticized as foot-dragging, is being recast as a
deliberate policy to not push change beyond the capacity of its
institutions’ ability to cope with it – pretty smart,
considering the excess of Asia.
But we shouldn’t get ahead of ourselves. This way of looking
at the past seven years is largely an afterthought. Call it building
a solid base, but there has been plenty of real foot-dragging. And
Egypt’s economy, while sound, shares some of the shortcomings
that ultimately brought down economies in Asia.
Chief among them is the Egyptian pound’s virtual peg to the
U.S. dollar, which gives rise to the dangerous illusion of a risk-free
foreign-exchange environment, the starting point for excess foreign-currency
borrowing by Egyptians and ill-considered investments by foreigners.
Egypt also shares the problem of weak (in Asia, weakened) exports.
And with oil and tourism suffering and emerging-market competitors
lining up to exploit a shrinking customer base, Egypt doesn’t
look poised for a sharp jump in foreign currency earnings any time
soon. The one weakness that Egypt doesn’t share is a heavy
short-term foreign-currency debt, but this situation could change
once safe-haven seekers start aggressively pushing bonds and loans.
This is not to say that foreign investment should be discouraged,
or that Egypt’s economy is doomed to collapse. Egypt’s
policymakers have a strong record in the 1990s and are already taking
measures that show they have learned from the mistakes of others.
Still, we shouldn’t get taken in by our own sales pitch. We
can speak proudly about having avoided the mistakes that brought
down the world’s hot emerging markets. But we should nev-er
forget that we’re speaking from the safety of the sidelines.
A final note. We’d like to offer a belated farewell to Special
Staff Assistant Sahar Azab, who left us in September. Sahar is famous
for rebuking an advertising client who demanded an excessive discount
with the line, “This isn’t the Khan El Khalili.”
We’ll never forget that. We’ll also never forget her ability
to keep the sensitive and shifting Chamber News section firmly in
line. And I personally will remember that, while soft spoken, she
had an uncanny ab-ility to read people. We’ll miss her advice
and her help, and wish her all the best.
Andrew DowelL
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