Egypt Jeopardizes Tourism and FDI Recovery with Disruptive Policies

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The sustained attacks by IS and other insurgents against tourist targets in Egypt have had a severe dampening effect on the broad tourism industry there and have led to a major flight of foreign investors. But MEA Risk says the actions of the authorities themselves do not bode well for any industry recovery in the foreseeable future. The most visible example of an overzealous Egyptian security services was the accidental killing of eight Mexican tourists last year. But there are also low-key incidents that do not often make it to front pages. Most recently, we noted the arrest of a Turkish tourist in Giza. The man was arrested for taking photos near the famed Giza pyramids, with the authorities accusing him of focusing too much on photographing the police.

Obviously the diplomatic row between Turkey and Egypt does not help in expediting any case of a Turkish national in Egypt found performing a questionable act as in this case, however, the Egyptian authorities are acting in contradiction with their own laws, which do not prohibit the taking of photos, even with the nearby presence of the police. Several individuals, including media professionals have been arrested for simply taking photos of policemen. These types of arrests do not help attract foreign tourists.

Another case, which has yet to be tied to the Egyptian authorities, is the recent disappearance of an Italian student, who was later found dead. The vanishing of Giulio Regeni prompted the Italian government to pressure Cairo to find him. He ended up assassinated and many suspect the Egyptian police may have been involved. Once again we note that there is no evidence that the Egyptian police were behind the killing of Mr. Regeni, however, police authorities have been active harassing professionals, from doctors and lawyers, to journalists and analysts that there is some possibility of police wrongdoing in the Regeni case.

The focus on foreigners comes as Egypt has been increasing its crackdown of even the simplest sign of dissent. Among their latest move was the arrest of cartoonist Islam Guawish for publishing drawings criticizing the authorities. A Ministry of Interior spokesman used the irrational argument that Guawish ran an unauthorized website, a wireless router and a CPU.

Severe Cash Problem and the Flight of Foreign Business Partners:

On the economic front, foreign companies are increasingly distancing themselves from doing business with Egypt. With Egypt seeing its cash reserves drop to below $17 billion, which was more than double when Mubarak was ousted, Egypt suppliers are facing uncertainty with Egypt as a paying customer. In one case, Egypt could not pay for wheat delivery from France, firstly using the argument that the wheat had elevated level of fungus. As a result, the wheat was returned back to France, which is now adding to the European wheat stock and likely lead to lower prices. However, these potential lower prices may not benefit Egypt, as traders will impose a risk premium on the country given its cash crisis.

To add more problems to an already strained financial environment, many news agencies reported today that American car maker General Motors (GM) is temporarily suspending operations for a week as a result of a shortage of foreign currency. Such position would affect a company that controls one quarter of the Egyptian automobile market. The spokesperson told the AP that it is not the only company in this situation, suggesting that foreign companies are halting their operations until the government shows that it has cash to pay for their business.

Outlook:

As the cash crisis worsens, China has released some $900 million to help Egypt boost its reserves, however this is a drop in the bucket. The country’s needs are enormous and such needs amount to billions of dollars. The country has long relied on support from Saudi Arabia and other GCC countries, in particular after the ousting of Mohammed Morsi. However, pledges to help Egypt financially have not materialized and are not likely going to happen in the foreseeable future. This is largely because Saudi Arabia is going through its own set of austerity measures, as a result of both a massive drop in oil-related revenues and the billions it is spending on waging a war in Yemen. As such, Egypt may not be able to count on Gulf allies to fill the gap in its budget deficit and in its reserve coffers.

In the longer term, any recovery will be highly correlated to politics and policy transformation in Egypt. The government must review its political agenda to establish a roadmap for a return to a civilian-led government, and the restoration of rights. The war against terror must continue, but it cannot be used as an argument to completely block any economic and social development.