|  There are two almost diametrically opposed views of the Egyptian economy inside Egypt. The first is that the cabinet of 55-year-old Prime Minister Ahmed Nazif – appointed in 2004 – is the most impressive economic team the country has had in more than a quarter of a century and that its core policies of tax cuts, encouraging foreign investment and implementing long-delayed privatisations are the best chance Egypt has for sustainable long-term growth. The second is that these neo-liberal policies are exacerbating divisions in an already deeply divided society and offer no hope for the vast majority of Egypt’s 80 million-strong population.
Naturally the first view is the one favoured by foreign investors, who fervently hope that the second view is wrong – compared to the Maghreb countries of Algeria, Morocco, Tunisia and Libya, Egypt’s relatively enormous population, seen through the capitalist lens, resembles a glittering economic opportunity just as long as the privatisation-led reform process revitalises the wider Egyptian economy, stimulating a consumer boom, outward-bound tourism and all the other profitable opportunities of an emerging economy. Take the banking sector. In 2006, after more than a decade of prevarication, the government sold off one of the “big four” state-owned banks, Bank of Alexandria, to Italy’s Intesa Saopaolo for €1.2bn. So it was now the big three, and that, thought virtually everyone, would be the end of it. But one of the three, Banque Misr, after examining the books of its sibling rival Banque de Caire, declined a government suggestion that the two should merge. The government’s response? To offer 80% of Banque du Caire to the highest bidder. The move provoked predictable outrage in both the official and opposition press, fuelling bitter criticism of the Nazif government and calls for him to be sacked – but alternative solutions to Banque du Caire’s chronic over-staffing and crippling bad debt are in short supply. The shares are expected to go to a foreign buyer, very possibly European, although turmoil in the international financial markets may reduce the price. For the Egyptian government, these sell-offs serve a dual purpose: they bring in revenue to restructure the public sector and much-needed foreign expertise. From the perspective of investors looking in, the relatively high risk of investing in decrepit Egyptian institutions is more than balanced by nearly Chinese economic growth rates (7% this year), a simply enormous nascent mortgage market and a real estate and energy boom that shows no signs of abating. The enticement of foreign investors seems to be working. Foreign direct investment in Egypt in the fiscal year to June, 2007 topped €7.8bn for the first time, with the Gulf and Europe providing the vast bulk of the funds. For the next few years, at least, Egypt can expect these inflows to continue.  The four pillars of the Egyptian economy are tourism, oil and gas, Suez Canal revenues, and workers’ remittances (all of which were secured by the late President Sadat’s peace treaty with Israel and rapprochement with Saudi Arabia in the late 1970s.) Discounting remittances and the Suez Canal, whose swelling trade now contributes €3bn annually to the state’s coffers, the main investment sectors open to foreigners are energy and tourism.
In the last decade, Egypt’s own energy industry has seen declining oil production but a leap in natural gas production, which has doubled since 2000 to over five billion cubic feet a day. Egypt is now the world’s sixth-largest exporter of gas, and oil and gas exports account for around half of the country’s exports. UK companies British Gas and British Petroleum are the key foreign partners in upstream production and are committed to substantial investments in the coming years. In August, India’s Reliance Group said it would invest €7.4bn in Egypt’s downstream oil sector. Egypt welcomed 9.1 million tourists in 2006, a 5.5% rise on 2005, and the forecast is for 14 million by 2011, most of them Europeans. More than a million people from each of the UK, Germany and Russia now visit Egypt each year. Tourism accounts for around a quarter of foreign currency earnings, 10% of GDP and 13% of employment. Real estate is a huge opportunity in Egypt, although the subject is also currently one of the hottest political potatoes. Dozens of resorts and luxury developments have sprung up in the desert around Cairo and along the coast, aimed almost entirely at foreigners and what are known locally as the “super-rich” (which in reality includes those with incomes ranging from €3,000 a month to dollar millionaires and above). Many of the developers are Gulf companies seemingly intent on reproducing what many Egyptians believe is inappropriate Gulf-style urban living. Property prices have been skyrocketing in the last couple of years, and most observers now say a sharp correction is inevitable; insiders insist, however, that the boom is making up for decades of underdevelopment and has scarcely begun. The Egyptian stock market has suffered along with other emerging economies from the fallout in the US sub-prime market. In August, 25%–30% of heavy trading volume consisted of selling by international investors, according to Gamal Khalifa, founder of Global Trading. But the outlook is less gloomy than might be the case in other countries, he believes. Any fall in property prices is unlikely to have a major impact on the economy as a whole due to the lack of a mortgage market. Sub-prime is a concept yet to make it into the Egyptian financial dictionary. The macro-economic outlook is reasonably reassuring. Inflation is coming down after peaking at 13% earlier in the year. The government also says it is committed to reducing fuel subsidies, which have recently been costing the country more than its combined education and health budgets and have had a distorting effect on investment. Egypt successfully placed its first local currency Eurobond in July: a five-year €780m bond yielding 8.875% that was two and a half times oversubscribed. Behind all this talk of foreign investment and market reform, however, there remains the question of the regime itself and its ability to change. Egypt’s all-powerful internal security and national defence infrastructures continue to control vast swathes of the economy and society. While the regime tells outsiders it’s an “us or them” choice between itself and the Muslim Brotherhood, it continues to stifle more moderate opposition. For Ayman Nour, the runner-up in the 2005 presidential elections, that means a long prison sentence on trumped-up charges of election fraud. In the absence of accountable politicians, however, it’s no wonder that for many, the government’s policies are identified with a crony capitalism divorced from social responsibility. As respected commentator Salama A Salama wrote not unreasonably in Egypt’s AlAhram newspaper: “We cannot let businessmen and contractors tell us how to live.” Such a backdrop serves to remind foreign investors that Egypt remains a high-risk investment unless they can form close local alliances and not stray from core competencies. 
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