Egypt's President Hosni Mubarak isn't known for levity. But on May 21, the stocky former air force general looked on beside his clapping wife, Suzanne, while several hundred guests, including much of the Egyptian political and business elite, bumped and ground to the raucous music of popular singer Amr Diab in a makeshift amphitheater overlooking the Red Sea. Despite Egypt's increasing Islamic tinge, liquor flowed freely. The blowout was the high point of a World Economic Forum meeting in the resort of Sharm el Sheikh.
While the 78-year-old Mubarak hasn't yet ensured a stable succession or lifted the bulk of the Egyptian populace out of poverty, he does have much to celebrate. The recent stock market swoon aside, Egypt's economic outlook is brightening. After years of stagnation, GDP growth in Egypt has snapped back to a respectable 6% per annum, thanks in part to the efforts of the government of Prime Minister Ahmed Nazif, which has slashed taxes and red tape.
Egypt, by far the most populous Arab country, has long suffered from stunted economic growth, in part because of statistical red tape. Yet the country is starting to produce some world-beating companies, including Orascom Telecom Holding, the global telecom player headed by maverick entrepreneur Naguib Sawiris, and EFG-Hermes, the top Arab investment bank.
LOOKING TWICE. The new Egypt is also starting to attract its share of world investment. Thanks to 30% tax cuts for soft-drink makers, Coca-Cola (KO) recently pumped $200 million into a new plant, says Curt Ferguson, president of Coke's North and West Africa Division. Ferguson plans to hire 425 university graduates for his 6,500 person workforce this year, and, he says, experienced Egyptians living abroad want to come home to work. Coke Egypt, he adds, "has always been a net exporter of talent. Now we need to import people to meet our needs."
Some very savvy investors are starting to give Egypt a serious look. New York-based Ripplewood Holdings, which made billions in Japan, recently paid about $200 million for a 20% controlling stake in Egypt's Commercial International Bank, which it intends to use as the cornerstone for regional acquisitions.
A senior Ripplewood executive predicted "Citigroups and J.P. Morgans are going to be created out of institutions in the region." Prime Minister Nazif said that in the second half of 2005, Egypt attracted some $3.2 billion in direct foreign investment, a big increase over the measly $400 million for all of 2004.
VIOLENT BACKDROP. None of this has kept the Egyptian stock market, which enjoyed world-leading performance over 2004 and 2005, from taking a pounding in recent months, giving up more than 25% of its gains. In part, the drop has been due to contagion from market falls in the Gulf and Saudi Arabia and, more recently, from the flight from other emerging markets around the world.
Now, the big question for potential investors and business executives is whether the government will continue to improve the fiscal and regulatory environment for business. While it has made strides in recent years, the land of the pyramids is still haunted by thorny problems, including Islamic radicalism. While the World Economic Forum debated the future of private equity and family businesses in the region, the Egyptian police searched the stark mountains that rise up near the sea for the perpetrators of bombings that killed 20 people at the nearby Sinai resort of Dahab in April. Another big obstacle to progress: bureaucratic resistance to free-market reforms.
TRANSFER OF POWER. Of even more concern is the lack of a successor to Mubarak and the increasing volatility of Egyptian politics. If Mubarak departed the scene in the near term, Egypt would be thrown into a "constitutional crisis," says Abdel Monem Said Aly, director of the Al-Ahram Center for Political & Strategic Studies in Cairo.
While economic reforms are proceeding fairly smoothly, the political convoy seems to have hit a roadblock -- a point underlined by recent police beatings in central Cairo of demonstrators demanding independence for the judiciary. Mubarak, who will mark a quarter century in power in October, will eventually die or become too old to rule. But just who will succeed him is far from clear. "It's the million dollar question, " says Orascom Telecom's Sawiris.
The regime's jealous guarding of power has prevented strong non-religious parties from emerging, playing to the advantage of the Islamists. Gamal Mubarak, the president's pro-business son, hasn't caught fire as a candidate. On a plane returning from Sharm el Sheikh to Cairo, a prominent Indian businessman worried that Amr Moussa -- the charismatic and populist Arab League secretary general and former Egyptian foreign minister who's a caustic critic of the U.S. -- could seize the opportunity. But in the short term, a successor closer to the security establishment seems more likely.
NO CERTAINTY. The Egyptian authorities received a shock last fall when the Muslim Brotherhood, an officially banned but venerable and tolerated fundamentalist group, won some 20% of parliamentary seats in elections last fall by running as independents. Even more worrying, the Brotherhood won most of the races in which they fielded a candidate, convincing some analysts that they could even take a majority in a truly free election. Another chilling scenario: that the growing popularity of the Muslim Brotherhood could serve as the catalyst for a takeover by military officers favoring Islamic rule.
The government hasn't formulated an effective strategy for dealing with the Islamists. Instead, it has largely tried to curb political openings, betting that Mubarak, who was reelected last fall, will be able to complete his six year term. Ayman Nour, a secular politician who finished second to Mubarak with about 7% of the vote, is languishing in jail on charges of vote fraud.
While insisting that there would be no going back on reform, Nazif said on May 20 "When you see the Islamists gaining, you start to recalculate -- are we doing it the right way?" There are rumors the government may call new elections in an effort to throw the Brotherhood out.
"LAST PHARAOH". In the meantime, investors in Egypt will have to count on the country's reputation for stability -- Mubarak is only the third president in half a century. But they will probably also experience a good deal of political ferment.
Thanks to generational change and pressure from the U.S., the Egyptian political system, like many others in the region, is in transition from the rule of strongmen to something else. Mubarak, says the Al-Ahram's Said Aly, "will be the last pharaoh." Maybe so, but no one in Egypt seems confident about what or who will come next.
Printer-Friendly Version