x Abu Dhabi, UAESunday 21 January 2018

IMF loans provide poison in the honey for angry Egyptians

Poison in the Honey is a rather jaunty protest song you might have heard playing on a car radio down any number of Cairo backstreets during the past few months.

Poison in the Honey is a rather jaunty protest song you might have heard playing on a car radio down any number of Cairo backstreets during the past few months.

It is satirical ditty thrummed out on an oud and sung with ironic relish by an artist called Yasser El Manawahly.

El Manawahly's subject matter, however, might come as a bit of a surprise to students of the traditional post-revolutionary protest song.

His target is the IMF, with its as yet non-existent US$4.8 billion (Dh17.6bn) loan to Egypt, that has, in El Manawahly's words, poisoned the country's honey with the threat of interest payments and a shackle of debt that will keep the nation on its knees for decades to come.

The fact that the song is so popular is a measure of just how unpopular the IMF has become in Egypt. The people do not want help from an institution they see as a link to the former regime of Hosni Mubarak as it was the IMF that helped shape much of his economic reforms.

Neither do they want to start their new democratic life in hock to a western money lender.

The fact that economic dissatisfaction resonates so prominently in the popular psyche is even more significant than this distrust of the IMF and is a solid indicator of just how bleak prospects have become in Egypt.

The Egyptian economy is a failure by almost every conceivable measure. The fact that such an enormous amount of economic potential has been squandered in the two short years since the uprising that unseated Mr Mubarak is perhaps the current regime's biggest failing.

Government reserves have dropped by more than half from $36bn in 2011 to just $15bn today. The pound is in freefall and GDP growth is lower than 2 per cent. Unemployment is about 13 per cent.

The Egyptian president Mohammed Morsi is in denial of his country's predicament, meanwhile, claiming this week that the economy is stable.

At the same speech in Riyadh he called on Egyptian expats to continue sending remittances back to the old country to help out - hardly the most robust of economic plans. And that is Egypt's biggest problem. There is no real economic plan beyond asking the IMF for a loan and receiving much-needed handouts from the likes of Qatar, which has provided billions of dollars in support.

Because of the complete abrogation of responsibility for economic policy, Egypt now has no choice but to take such handouts from whomever offers them.

Egypt's internal economy, however, is quite robust. Egyptians continue to consume and there is something of a building boom going on thanks to unscrupulous developers willing to grab land and build on it as fast as they can.

But this same instability has driven away almost all semblance of foreign direct investment, which is essential if the economy is ever to break out of its current tailspin.

It has also driven away much of the tourist industry, formerly one of the country's biggest economic contributors.

There was a glimmer of hope this week when Bill Gates and a group of American investors shovelled $1bn into Orascom Construction Industries, once the country's biggest listed company and a prominent builder and fertilizer manufacturer.

They were staking a claim on the future housing, employment and consumption needs of the Egyptian people, and rightly so.

But one element of the deal was very revealing. The newly formed company will no longer be based in Egypt but the Netherlands - and it will be listed on the Amsterdam stock exchange rather than Cairo.

The subtext here is that even the biggest company in the country, with a huge reconstruction job to do that will last decades, wants to be based in a more stable jurisdiction.

This is not a vote of confidence in the Egyptian economy. It calls to mind the Coca-Cola Hellenic Bottling Company quitting Athens last year.

Nobody wants a return to the days of Mr Mubarak, but so far the Morsi regime has done nothing but harm to the Egyptian economy.

Without a swift and decisive implementation of an economic policy that encourages foreign investment and the rule of law to safeguard economic activity, the Egyptian people will not taste the sweetness of honey but the bitterness of poison for many more years to come.

James Doran's weekly column, which returns today, was commended by the Institute of Chartered Accountants of England and Wales Middle East Excellence in Financial Journalism Awards 2012