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liquidity injection falls slightly short
["a stitch in time...," june 2000]

four months after the government set out to put more cash in the economy through repayment of debts to local companies, the highly publicized liquidity injection scheme appears to have fallen a bit behind schedule.

the plan — whereby £e 25 billion was to be released into the market over a eight month period — represented a first tranche of payments on a total domestic debt conservatively estimated at £e 147 billion. at this point, however, little more than a third of the total figure promised is even close to being settled.

an article in al ahram hebdo in the beginning of august detailed outlays of state funds to various ministries and associated enterprises to permit them to pay their bills in accordance with the injection plan. the funds totaled £e 8.6 billion, an amount which the state-owned, french-language paper said had been decided on in april - although the arabic state press had referred at the time to payments of no less than £e 2.5 billion per month.

the specific amounts transferred to the ministries and enterprises reportedly corresponded to their accumulated arrears up to june 1999. a finance ministry official interviewed by business monthly gave credence to the hebdo figures.

of the total sum allocated, £e 5.6 billion had been repaid, while some £e 3 billion was "in the course of being paid," according to a ministry official quoted in the article. the official added that a further £e 5.4 billion of arrears would be paid in a later tranche.

while statements from the minister of economy in july assured newspaper readers that the injection plan was on track, market analysts and others involved in sectors where debts were owed had begun to wonder where exactly the alleged repayments had been going.

the hebdo article, however, told of over £e 2 billion in allocations to various branches of the government to cover outstanding debts incurred by their agencies and dependencies. "the agriculture ministry and its departments received £e 422 million; the industry ministry £e 87 million; the electricity ministry £e 278 million; the housing ministry £e 619 million; the higher education ministry £e 298 million; and the information ministry and its branches £e 246 million," the article said. the cairo governorate, for its part, received £e 57 million.

especially hard-hit by the liquidity squeeze has been the construction sector, where a large proportion of the state’s domestic debt is owed, according to industry analysts. one of the country’s largest construction firms, the private sector aic, found itself crippled by interest payments after its accounts receivable spiraled out of control late last year. aic’s biggest client, the irrigation ministry, was more than six months behind in its payments, an anonymous analyst said.

yet according to the finance ministry source quoted in hebdo, "arab contractors received about £e 2 billion," which had made a sizeable dent in the state-owned construction company’s arrears of £e 3.4 billion. (industry analysts have cited much higher figures for the government debt to the company.) a company official was quoted as saying that arab contractors had been paying an average of £e 2 million a day in interest on outstanding loans.

antar abdel razzek, assistant general manager of the cairo-based construction firm kajami corp., said his company had recently received payment of a modest government debt that had been left outstanding for four years.

while abdel razzek said that private sector companies were suffering most from the government’s inability to pay its bills, he partly attributed the problem to cost overruns by public sector firms. "the prime minister and the cabinet have announced that all projects will have to be completed to budget from now on, where in the past they were often allowed to overrun," he noted.

yet with public sector entities on the point of defaulting on bank loans, the government probably had no choice but to cough up in some cases, said mustafa assal, a fixed income specialist at efg-hermes. the source of the money? "my wild guess would be the national investment bank — that is, increasing the public debt."

the government’s recent efforts at debt resettlement have been purely a matter of "accounting entries between state entities," assal suggested. "the problem is not being solved — and there is a lack of transparency, which leaves everything open to speculation."

peter shaw-smith

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al alam goes up to £e 2
["read all about it," january 1999]

at least a few loyal readers of the local business daily were chagrined on the morning of august 1 to discover that al alam al youm’s newsstand price had doubled overnight.

the jump, from £e 1 to £e 2, came at a time when many other publications in egypt and elsewhere were also raising their prices. shortly before, al arabi went up from 75 piastres to a pound.

local newsstand customers are at the end of a line of cost increases that go far beyond egypt. "the price of pulp has rocketed because of a supply shortage, and this has driven many paper mills out of business," explained the assistant manager of a major privately owned printing house in cairo.

with paper prices rising around the world in recent months, newspapers have been forced to pass some of the cost increase along to their customers. "the price of paper has soared — from $500 to $750 per ton — and it’s expected to rise yet again," said saad hagras, the managing editor of al alam al youm.

zanders feinpapiere ag, a leading german paper manufacturer and a major supplier to the egyptian market, "has recently decided to stop producing 90-gram papers, sticking to 115-gram papers," the printing house assistant manager said. while international prices are up on all grades of paper, local printing houses have been compelled to use heavier grades of paper for some publications, "which makes printing even more expensive."

al alam al youm, however, is still being produced on the same 70-gram newsprint as always. the main reason for the doubling of the paper’s price, according to hagras, is enhancement of the content.

"we publish two supplements: one for banks, issued on sundays, and another for communications, issued on mondays," he said. "they are 16 pages each — as big as the newspaper itself. bearing in mind the upward trend in paper prices, the cost has become outrageous."

hagras said that there is also a plan in the works to thicken the main newspaper to 20 pages, with the addition of four pages dedicated to coverage of the stock market.

"and not just that," he said. "in a couple of weeks, there will be a 20-page specialized supplement every day — not just twice a week. we will be covering a whole spectrum of services. for instance, there will be a supplement for mobiles and one for job opportunities, as well as other specialized journalistic services."

the middle east’s first financial daily, al alam al youm first hit the streets in september 1991 at a unit price of £e 2, hagras said. later, an egyptian edition came out, priced at £e 1.

hagras said that the paper’s circulation has not been significantly affected by the change of price. "the effect has been very limited, because al alam al youm — like the financial times and the wall street journal — depends more on subscriptions rather than newsstand sales," he said. the cost of a subscription has also doubled, rising from £e 300 to £e 600 per year for delivery within egypt. but hagras didn’t seem to be worried about the possibility of subscribers cancelling.

"naturally, most of the subscribers are companies," he pointed out, "so they won’t say ‘we’re not going to buy the newspaper anymore because of the small increase in subscription fees.’"

ahmed fekry

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reports cite the usual suspects
["egypt not looking so good to s&p," august 2000 ]

over the summer, it truly looked as though the knives were out over how egypt is portrayed to international investors. in the wake of an earth-shaking flemings report in march and then a standard & poor’s outlook downgrade in early july, two more reports have questioned the soundness of egypt’s economic situation.

thomas financial bankwatch on july 27 issued a negative assessment of egypt’s economic trends, followed by none other than the us embassy in egypt on august 6. both reports cited the usual concerns over the slow pace of privatization and domestic monetary policy.

local analysts point out that these issues are hardly new, but rather have been around for at least a year. yet the ongoing repetition of the same complaints, coupled with a liquidity squeeze and a particularly slow summer on the cairo bourse, may have sparked this wave of foreign negativity.

"concerns have been there for such a long time and nothing new developed," said karim moustafa of prime securities. "some of these institutions waited a while before downgrading their outlooks, to see if some kind of change would occur. since nothing happened, they went ahead and published their reports."

but something is happening, local analysts maintain. in the midst of the bourse’s summer doldrums, incredibly low prices brought on by a two-year slide are at last resulting in renewed buying. perhaps investors have become immune to negativity from foreign investment houses. furthermore, egypt’s july 31 placement on the msci index for emerging markets means the good news can be seen to outweigh the bad.

"the negative reports published on egypt basically don’t hold as strong as the inclusion on the msci index," explained mustafa. "global institutions do in fact consider egypt to be a healthy emerging market."

thomas changed its outlook for egypt from "positive" to "stable" due to stalled plans for privatization and the damaging effects of a fixed exchange rate.

there had been hopes that these problems would be addressed following prime minister atef ebeid’s accession last october, but then nearly a year passed without signs of amelioration.

the us embassy, likewise, cited slow privatization and the rigid dollar peg to the pound as the main problems with the economy. the embassy’s report also mentioned widespread perceptions of a recession.

"this is all old news," countered hassan shukri, an analyst at hc securities. moreover, these are only assessments. "it’s not like they’re downgrading egypt’s credit rating or anything."

along with other local analysts, shukri said that the reports focused on old problems and that measures were now being taken to correct these. "everything is getting slightly better," he said. "you cannot fix everything wrong with the economy overnight." egyptian exchange rates, he noted, are actually getting more flexible, with most banks selling dollars at higher rates (above £e 3.50) in a kind of devaluation by stealth.

still, the government’s commitment to privatization is an area where many become uncomfortable. the surprisingly low number of companies privatized in 1999 and 2000 doesn’t suggest that egypt is really doing its utmost in this area. "we’ve seen a lot of promises, and at the end of each week you hear an announcement by government of, say, 1,400 companies to be privatized – every week a different figure," shukri said. "and there is no delivery yet."

in a press conference on august 9, osama al baz, the political advisor to the president, was questioned on precisely this issue. al baz maintained that with a few exceptions, economic growth and indicators were strong and investor confidence remained.

"as you undertake certain reforms of the economic system," he said, "you discover that every few years you need to take a look and evaluate and see how the economy is behaving." the government, moreover, "got involved in some measures of adjustment in the past few months, since the new cabinet took office."

al baz said he expected the next year to be much better than the current one. on the issue of privatization, however, he did not comment directly.

the hope of the analysts is that the privatization program – including a long-awaited offering of part of egypt telecom – will pick up speed again as the stock market shakes off its summer slump. but at this point, shukri said, "all we have is promises."

paul schemm

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