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Amid a rare dusting of snow, a few dozen money managers and investors filed into London’s May Fair Hotel on Jan. 14 for a conference on investment opportunities in Egypt. For some in the audience, the sales pitch was personal. Wealthy exiles from postrevolutionary Egypt were being courted by representatives of the country’s Islamic government, including Hassan Malek, a leading businessman in the Muslim Brotherhood. “Most of these investors, they own large projects in Egypt,” says Malek, head of the Egyptian Business Development Association. “Their coming back mostly would be a sign of reassurance to others who might want to invest their money.”
Struggling to trim a 12.5 percent jobless rate and kick-start an economy that’s growing less than 2 percent, Egyptian President Mohamed Mursi covets the cash, Davos-caliber Rolodexes, and management savvy of the capitalist clique that surrounded former President Hosni Mubarak. Players such as Yassin Mansour of the Mansour Group and Hamed El Chiaty of the Travco tourism company, could give Egypt a lift just by arriving at Cairo International Airport.
Yet Mursi can’t risk publicly allying himself with the insiders whose lopsided profits from Egypt’s post-2004 economic liberalization soured Egyptians on free markets. “They’re squeezed politically,” says Steven Cook, a senior fellow at the Council on Foreign Relations. “They have to show things are different than under Mubarak, even though they’re on board with neoliberal reforms.”
What’s holding the exiles back is fear. Since Mubarak’s ouster, several businessmen and former government ministers have been prosecuted for corruption. In October steel executive Ahmed Ezz, an ex-official in the ruling party, was sentenced to seven years for money laundering and was fined more than $3 billion. Mubarak’s sons, Gamal, 49, the fulcrum of the regime’s business clique, and Alaa, 52, are among the imprisoned officials awaiting trial. One fugitive Mubarak backer, Hussein Salem, 79, has offered to settle tax evasion and corruption charges by giving the government half his fortune, his lawyer told the Egypt Independent newspaper on Jan. 20. Officials also are drafting legislation that would allow businessmen to settle any financial disputes with authorities.
Still, Magdi Tolba, chairman of exporter Cairo Cotton Center, says he’s skeptical the charm offensive will work. “They will not come back until they see a different environment,” he says. “It’s not enough for them to get promises in London. They take the plane and come back, and tomorrow they’re in jail.”
The courtship of the old elite by the new underscores both the political change that has occurred since the revolution and the difficulties of rebooting a stalled economy. Samir Radwan, the finance minister during the months after the uprising, says the Brotherhood’s business allies lack the global résumés of Mubarak’s tycoons. “The group of businessmen around Mubarak, in general, they were real businessmen and real entrepreneurs, and they understood economics,” says Radwan, citing ex-trade minister Rachid Mohamed Rachid, a former executive vice president of Unilever (UL) for the region, as an example. Malek and his counterparts don’t “have an economic vision on how to get this country out of this crisis.” Rachid left Egypt for Dubai and has not returned.
Under the old regime, members of the Muslim Brotherhood were limited to retail or trading businesses of middling rank and forbidden to build the industrial and real estate empires helmed by Mubarak’s well-connected few. Mubarak often had members of the secretive opposition group jailed. Malek, 54, a furniture and clothing distributor imprisoned on charges of money laundering and illegally financing the Brotherhood, was released only after Mubarak fell. Now he’s a charter member of the new elite who insists he’s not interested in score-settling, just seeing Egypt prosper.
If the tycoons came home, they would find a country in a state of political paralysis and economic decay. Cairo is scarred by political tumult, which flared following Mursi’s Nov. 22 decree temporarily placing his decisions beyond judicial review. In Tahrir Square, scene of near-daily protests, street toughs idly tossing rocks and toddlers coated with filth populate a squalid tent city. Vendors peddle black masks worn by a shadowy antigovernment group called the Black Bloc. Egypt’s defense minister warned on Jan. 29 that “the collapse of the state” could be at hand. “We haven’t had a revolution. We’re in a revolution,” says Angus Blair, president of the Signet Institute, a regional think tank in Cairo.
Egypt requires about $20 billion in annual external financing to cover its widening budget deficit and replenish dwindling foreign currency reserves, says the Institute of International Finance. Yet foreign direct investment has shriveled to almost nothing, from more than 3 percent of gross domestic product in 2010. The benchmark EGX 30 stock index is down more than 16 percent since the January 2011 uprising, and the premium investors demand to hold Egyptian debt over U.S. securities of similar maturity has almost doubled.
Egypt hopes to receive an International Monetary Fund loan, which would boost depleted reserves and pave the way for more aid from other donors. But fearing a backlash, the government is hesitant to hike taxes and cut subsidies for fuel, as the IMF wants.
Likewise, Malek, wary of stirring public anger, stresses that only those businessmen who aren’t facing corruption charges may come back. (Mansour, for example, was acquitted in July 2011 of making illegal profits and facilitating profiteering.) Speaking in measured tones, Malek laughs off charges that he and other Brotherhood members have been buying the assets of the former regime’s backers at deep discounts. Such suspicions, he says, are based on the assumption that the Islamist business elite will be just as rapacious as its predecessors. Says Malek: “We’re using a different set of rules now.”
The bottom line: Egypt’s Islamist government has hit on a novel strategy for healing its wounded economy: wooing the old regime’s discredited business elite.