The January 25 revolution that toppled Egypt's former dictator Hosni Mubarak will almost certainly bring more social justice, personal freedoms, human rights and democracy to Egypt's 84.5m people. But as I said in yesterday's blog, the jury is still out on whether the revolution will be good or bad for the economy.
The speakers at an event I attended at the Edinburgh International Book Festival on August 28, chaired by the BBC's special correspondent Allan Little, made clear that the warped priorities, bizarre uncommercial deals and repression under Mubarak had been deeply damaging to the country's grassroots economy.
The Palestinian poet and political scientist Tamim Al-Barghouti said that, under Mubarak, Egyptian farmers were effectively banned from growing wheat. The regime of the ex-leader, who is now on trial for the murdering of protestors in January and February, decided wheat should be classified as a "strategic crop".
Any farmer who dared to ask the Ministry of Agriculture for a permit to grow it was imprisoned. This story was corroborated by the other two speakers in the debate, the Anglo-Egyptian novelist Ahdaf Soueif and the filmmaker Omar Robert Hamilton.
The policy was linked to a policy of prioritizing the cultivation of cash crops such as canteloupe and strawberries. The trouble was that, as a result, Egypt became dangerously dependent on imported wheat, specifically US imports. The speakers said this was because Mubarak had entered into an aid-linked deal with Washington.
When the world wheat price went through the roof during 2008, Egypt was left dangerously exposed, even though the fact it was already importing greater quantities from Russia and Ukraine did ease some of the pain. In 2010-11, the country is expected to grow 8.25m tonnes of wheat, but to import 10m, according to figures from the US Department of Agriculture. “70% of every loaf of bread in Egypt is American wheat", said Soueif.
The partial ban on wheat-growing was just one symptom of the wider economic craziness and graft that went on whilst Egypt was a one-party state seemingly run for the benefit of Mubarak and his cronies.
The book festival panel also described the astonishing, uncommercial natural gas deal that Mubarak's government did with the government of Israel in July 2005. Under the arrangement, Egypt agreed to pipe 1.7 million cubic meters of gas a year to Israel via private company Egyptian Eastern Mediterranean Gas, commencing in 2006.
The price was surprisingly low however. The gas was reportedly sold for 75 cents per million BTUs (British thermal units) even though the market price at the time was around $6 per million BTUs (although according to The New York Times, the price was marginally higher).
Further details of the deal have recently emerged thanks to a US embassy cable leaked to WikiLeaks. The arrangement was between Egyptian Eastern Mediterranean Gas, a joint venture company majority owned by Mubarak's former intelligence chief Hussein K. Salem, who is now a now fugitive in Spain, and the Israel Electric Corporation.
The arrangement could be deemed to have run counter to Egypt's economic interests in that it created gas shortages in Egypt, provided Israel with half its gas needs at a heavily-subsidized price, and lined the pockets of a hated figure.
Salem, ex-president Mubarak, ex-Egyptian petroleum minister Sameh Fahmy and six energy officials have been charged with corruption including the facilitation of gas exports to Israel. Salem is being tried in absentia. The charges include:-
"committing the crimes of harming the country's interests, squandering public funds and enabling others to make financial profits through selling and exporting the Egyptian gas to Israel at a low price below international market rates at the time of the contract."
After Fahmy and the six officials were detained in April, a statement from the prosecutor general said the deal in question caused Egypt losses worth more than $714m.
When asked about how to address the demographic and economic challenges facing Egypt – where youth unemployment stands at 25%, the informal economy is said to employ 40% more people than the formal economy, and capital flight is creating fiscal worries – Hamilton advocated the collection of fees for using the Suez Canal in Egyptian Pounds, the scrapping of fuel subsidies to release $7.5bn a year, massive reductions in military and security expenditure and "turning the Sinai into something along the lines of south Lebanon". The panel also advocated self-sufficency in wheat and other staples. Soueif said:
“We don’t want to be sold cheap to a company like BP.”
There is clearly a huge amount of excitement in Cairo as the people of Egypt seek to build a better nation from the ashes of Mubarak's pernicious regime, and there's a real chance that democracy will be good for the economy. I agree with The Economist when it said:
"The revolution could make Egypt more prosperous, if it leads to less corruption, stronger institutions, greater diaspora goodwill and a more motivated population."
However, this is by no means guaranteed. None of the political parties that are seeking power after the elections – which were recently rescheduled from September to either October or November – has put together a cohesive and convincing economic policy. Nor am I convinced that the current front-runner for president, Amr Moussa, interviewed by Stephen Sackur on the BBC's Hardtalk yesterday, has anything that remotely resembles a credible economic approach.
Further reading on emerging markets and the Egyptian economy:
- Egypt's economic outlook neither blissful nor heavenly by Ian Fraser
- Rising energy prices threaten global recovery by Anthony Harrington
- Commodities set to shine in 2011 by Anthony Harrington
- The Evolving Role of the CFO by Aldo Mareuse
Tags: Ahdaf Soueif , Allan Little , BBC , corporate governance , corruption , economic corruption , Edinburgh Book Festival , Egypt , Egyptian economy , emerging markets , Hosni Mubarak , Hussein K Salem , natural gas , North Africa , Omar Robert Hamilton , revolution , Suz Canal , Tamim Al-Barghouti , The New York Times , Wikileaks