Banking Sector a Possible Bright Spot for Egypt

International Herald Tribune 2012-6-13 CAIRO — Depending on whom you talk to, Egyptian bankers deserve either garlands for the prudential way they avoided financial catastrophe or thorns for throttling their country’s small businesses with miserly, short-sighted credit policies.

Since the revolution that ousted President Hosni Mubarak in February 2011, Egyptian banks have faced a currency crisis, a surge in delinquencies and a flight of foreign capital that left them choking on their own government’s debt. They have survived intact, however, thanks to changes over the past decade that revived the country’s sedentary financial sector.

“The country is still functioning, and it’s largely because of the banking sector,” said Hisham Ezz Al-Arab, chairman of the Commercial International Bank headquartered in Cairo. “So let’s give credit to the market regulators and the players.”

Having purged much of their balance sheets of nonperforming loans, the legacies of Egypt’s command economics of a half-century ago, Egyptian lenders have much about which to boast. The industry’s 39 institutions — dwindled from 62 over the past decade — enjoyed double-digit annual profit growth from 2004 until the advent of the global financial crisis four years later.

In the past 10 years, banks have trained their loan officers to lend against future earnings rather than fixed assets. Theoretically at least, that cultural shift means that an entrepreneur with a smart business plan or a popularly branded product might qualify for credit without having to put up an asset — like his home, for example — as collateral.

Regulators closely monitor provisions against bad loans, and the industry is in the process of adopting the standards laid down by the Basel Committee on Banking Supervision, known as Basel II.

While bankers in Europe loaded up on bundled mortgages and other toxic derivatives, their Egyptian counterparts confined themselves to uncomplicated, mostly locally denominated, debt. In a May report, Standard & Poor’s applauded Egyptian lenders for their “plain-vanilla commercial banking products and services” that spared Egypt the ruinous asset bubbles that have derailed economies across on the European side of the Mediterranean.

Reaping the benefits of that prudence, a bank — the Egyptian subsidiary of the Greek-owned Piraeus Bank, formerly Egyptian Commercial Bank before it was purchased by Piraeus in 2005 — has emerged as one of the few properties in post-Mubarak Egypt to attract foreign investors.

Standard Chartered Bank was in advanced talks to acquire Piraeus bank Egypt, before backing away in November because of Egypt’s bleak economic outlook. Despite Standard Chartered’s retreat, rumors persist that a Moroccan bank — possibly Attijariwafa Bank, the largest in Morocco — could be interested in a bid for the Egyptian lender.

Redemption through restraint, however, has a downside.

According to many economists and analysts, risk-averse bankers in Egypt were unwitting contributors to the job insecurity that helped spark the insurrection last year. By favoring large corporate clients with inexpensive loans while ignoring small-scale businesses, they denied credit to what should be the turbine of Egypt’s highly decentralized economy just as privatization and reduced import duties were fueling inflation and killing jobs.

Though Egypt’s commercial bankers today may be more inclined than those of an earlier generation to take cash flow into account as a metric of credit worthiness, they remain as reluctant as most of their peers around the world to enter the low-margin world of small-bore lending.

As Egyptians prepare for the decisive round this month of the country’s first free presidential elections, it is unclear what, if anything, the two remaining candidates plan to do about the banks.

“Banks contributed to the revolutionary environment by deliberately avoiding smaller companies for the corporations,” said Magda E. Kandil, executive director of the Egyptian Center for Economic Studies. “There was a lot of growth, but the wealth did not trickle down,” she said.

Chronic illiquidity among small to midsize enterprises is common throughout the Arab world. Although countries like Jordan, Saudi Arabia and Syria have followed Egypt’s example and liberalized their financial industries, the primary medium for Arab commerce is still cash.

The problem is particularly acute in Egypt. According to the economist Tarek El Ghamrawy, working from a World Bank study, credit allocated by Egyptian banks for new investment accounts for a mere 3.5 percent of the total, compared with an average 12.8 percent for the Middle East-North Africa region.

Only 4.2 percent of those loans are held by small or midsize businesses. More than half of credit extended to the private sector goes to 0.19 percent of bank clients.

Prior to the revolution, Egyptian banks were awash in cash. Although only 1 in 10 adult Egyptians has a bank account, according to bankers and economists in Cairo, the total of deposits is equal to a year’s gross domestic product, a high ratio by international standards. Yet the country’s loan-to-deposit ratio, at 54 percent, is well below both the global and the Middle East and North Africa regional averages of 86 percent and 71 percent, respectively, according to data from the Egyptian central bank and World Development Bank indicators, Mr. Ghamrawy said.

Starved of capital, all but a small fraction of Egyptian business owners mine a vast, unregulated shadow market. Estimated by some economists at anywhere between 10 percent and a quarter of official G.D.P., the shadow market is a huge source of lost public revenue, and host to endemic money-laundering schemes.

“Egyptian banks need to be more aggressive in the underground economy,” said Angus Blair, president of Signet Institute, a research institution in Cairo that specializes in business and politics in the Arab world. “They have to change their business model and decide what kind of banks they want to be.”

To be fair, Egypt’s liquidity crunch extends beyond small businesses. Since the revolt, a large share of bank capital has been locked up in Egyptian sovereign debt, an obligation imposed on local lenders when foreigners, rattled by the prospect of political unrest after the ouster of Mr. Mubarak, liquidated their holdings in government treasuries.

Nearly two-thirds of domestic credit is now committed to public debt, and while banks are happy to let their positions ride so long as they continue to reap yields of 16 percent, they do so at the cost of rationing badly needed investment capital for their best customers.

The practice also renders them vulnerable to a government default. The same Standard & Poor’s report that praised Egyptian banks for resisting exotic securities also downgraded four of them because of their overexposure to government treasuries “at a time when Egypt’s credit worthiness has deteriorated markedly.”

Bankers and financiers agree that underwriting small and midsize businesses, which account for an estimated 80 percent of Egypt’s private-sector employment, would be a market worth tapping.

Mr. Arab of Commercial International Bank, for example, says that he hopes to reduce the bank’s reliance on institutional clients to 60 percent of its loan portfolio from 80 percent by 2016, with the balance allocated to households and consumers as well as small business owners. “We want to build a risk model that allows for delinquencies but hedges small borrowers against the problems they face,” he said.

What banks can do for small-scale businesses, particularly merchants who routinely work with their suppliers on credit, is less loans for investment or trade finance than overdraft facilities to match their assets and liabilities. Such low-margin services may be worth marketing, banks say, if the client is likely to expand and, ultimately, take his company public.

Because few enterprises in the shadow market rarely survive more than a few generations of family ownership, however, lenders are reluctant to invest the time and resources needed to nurture an enduring banker-client relationship.

Even among those that succeed, said Andrew Long, chief executive of HSBC Bank Egypt, “there’s not much in the way of market depth or brand recognition, nothing beyond niche products.”

Government efforts to flush the underground economy to the surface have had mixed results. The state-run Bank du Caire has enjoyed some success as a specialized provider of small and midsize businesses as well as microcredit, loans of a few hundred dollars at high rates of interest.

Recently, the central bank ruled that small loans could be sourced from the high loan-loss reserves that many banks had built up: But few lenders have followed suit.

Some years ago, the Egyptian Exchange started a secondary bourse to help small businesses raise funds through share issues. But amid the uncertainties over Egypt’s political and economic future, exchange officials are struggling to recruit companies, despite relaxed listing requirements.

“This is a tough environment for small enterprises,” the chairman of the exchange, Mohammed Omran, said. “They think the time is not yet right.”

Egypt at War With Itself

The Nation 2012-6-8 Cairo has always had its slums, among them tidy neighborhoods like Shobra and Agouza, which were once middle-class but have been abandoned over time to the poor and homeless—the “Egypt of rags and sores,” as novelist Lawrence Durrell put it. Over the past decade, however, a new and more sinister species of urban blight has advanced along the city’s outskirts: great honeycombs of mostly uninhabited apartment blocks, products of a vast unregulated economy without permits and inspections or public services like paved streets, lighting, sewage systems and clean water. Many were built by speculators and abandoned in mid-construction. Colonies of squatters have moved in, announcing themselves by the lines of laundry that protrude through windows like flags of capitulation.

Pop-up slums are only a small part of Hosni Mubarak’s legacy, the ousted dictator’s revenge on a nation whose natural resources he plundered and whose markets he rigged for his family and corrupt hangers-on. Having throttled even peaceful opposition throughout his thirty-year rule, he bequeaths a nation at war with itself ahead of the second round of its first free presidential elections. A once-molten political landscape has hardened into a handful of rival camps defined less by issues than by identity and class: Muslim and Christian, religious and secular, haves and have-nots, liberal-minded and security-conscious. Unless the new president can form a broad coalition government to confront the challenges that lie ahead, Egyptians could see years of partisan gridlock, with occasional interludes of violence.

The first round of electioneering in May produced a runoff between the two most divisive candidates: Mohammed Morsi of the powerful Muslim Brotherhood, and the law-and-order Ahmed Shafik, a Mubarak crony. Both men are creatures of an ossified establishment incompatible with the revolution’s liberal ideals. Shafik is regarded as feloul, a remnant of the old regime who would drag Egypt back to the wrong side of history, while Morsi’s Brotherhood (Ikhwan in Arabic) is a secretive, hierarchical order that rewards obedience, punishes dissenters and thrives on the politics of identity. Once widely respected for its decades-long resistance to the old regime, the Ikhwan has antagonized even orthodox Muslims since Mubarak’s departure with a series of ham-fisted miscalculations. The group assured Egyptians it sought only a minority bloc in Parliament, then fielded enough candidates to control half the seats; it promised to protect the virtue of the revolution, then colluded with the illiberal military that runs the country; it prohibited its members from running for president, but changed its mind midway through the campaign, when progressive contenders like Abdel Moneim Aboul Fotouh, an Ikhwan renegade, began polling well with voters.

Despite this, both Morsi and Shafik were able to prevail among a diverse field of candidates by appealing to their respective bases: Islamists on the one side, and, on the other, voters who, in turbulent Egypt, would trade one part liberty for an equal share of security—that slippery slope to autocracy that Benjamin Franklin warned about. The recent torching of Shafik’s campaign headquarters, as well as the outraged response to the dismissal on June 2 of corruption charges against Mubarak’s sons and the acquittal of six security officials charged with murder, shows how quickly Egyptian democracy can turn violent. As The Nation went to press, Morsi had allied with Fotouh and third-place candidate Hamdeen Sabahi to demand that election officials enforce the parliamentary legislation that disqualified Shafik because of his connection to the old regime. (The elder Mubarak, meanwhile, was sentenced to life in prison for accepting bribes and ordering a lethal response to peaceful protests.)

“Things are tense, and it will remain so for some time,” said Mohammed Habib, a former senior leader of the Muslim Brotherhood. “Violence is possible. I am not optimistic.”

* * *

After six decades of misrule—beginning with the wholesale nationalization of the Egyptian economy in the 1950s and ’60s by Gamal Abdel Nasser and the dispossession of minority groups, particularly the country’s Jewish merchant class—Egypt is broken and exhausted. The economy, which tumbled amid the uncertainty of Mubarak’s overthrow, has yet to achieve meaningful signs of recovery. The nation’s infrastructure is failing and there is no money, let alone a master plan, to rebuild it. The rate of tourist arrivals, the country’s most important source of hard currency, is at rock bottom, and the threat of a currency devaluation is keeping foreign investors at bay. Subsidies, some of them legacies of the Nasser era, are wasteful and biased toward industry at the expense of public goods and services. Banks choke on discarded government debt, even as small to midsize businesses—the backbone of the economy—are starved of capital.

Despite a free and fair legislative election in January and an imperfect but conclusive first-round presidential ballot in May, Egypt’s transition to civilian rule is far from certain. The government is administered by the Supreme Council of the Armed Forces, which has only tightened its grip on power since Mubarak’s toppling. The SCAF, already powerful economically with its lucrative share of the civilian economy, has marginalized rival agencies in the national security complex. Debate over the SCAF’s role in Egypt’s new democracy was all but absent before the first round of voting, and the generals are thought to have veto power over the soon-to-be-drafted Constitution.

“No one has tried to go after the deep state so far,” says Heba Morayef, the Cairo-based researcher for Human Rights Watch. “It used to be the State Security Investigations and the Mukhabarat at the center of power, with the military on the side. Now the military is doing everything. Whether you can peel that back is the big question.”

According to local human rights groups, security agents, with SCAF’s blessing, have been deployed to smother labor strikes, while conscripts man the production lines in army-owned factories. The military’s budget is cloaked in secrecy, as is its portfolio of commercial assets, which range from computer manufacturers to gas stations. (To coax the public into accepting proposed cuts in fuel subsidies, the SCAF is rumored to have engineered shortages of gasoline and delivery delays.) In December the military helped to replenish Egypt’s depleted treasury with a “loan” of $1 billion, a gesture that angered many Egyptians as brazen and cynical. Possibly as a hedge against a coup, it has also managed to top up the salaries of mid-ranking officers and enlisted men with generous monthly bonuses.

The SCAF’s main profit center is Egypt’s oil and gas sectors, which account for about 14 percent of economic output, and the ports and maritime authorities that process their exports. Through its holdings in Tharwa Petroleum, according to Shana Marshall and Joshua Stacher in the spring edition of Middle East Report, the military engages in energy exploration with several petroleum ventures involving Chinese and Italian firms. It also profits from Europe’s commercial links with China via enhanced traffic of Europe-bound Chinese goods through the Suez Canal Authority, which it administers.

In the past, competition for civilian assets from Egypt’s oligarchs kept the SCAF in check. Now, according to Marshall and Stacher, with so many Mubarak cronies under investigation or indicted in absentia, “the military is much freer to dictate its terms. With the power to determine the winners and losers at the commanding heights of Egypt’s capitalism, the SCAF will retain unchallengeable clout long after the formal return of civilian rule.”

The SCAF has a powerful advocate in Ahmed Shafik, a former air force general who is far more likely to collude with, rather than challenge, his former brother officers. (According to Egyptian press reports, junior officers in the security apparatus as well as civilian public servants were told by superiors to vote for Shafik, while military personnel, who are prohibited from voting, were told to mobilize their families on his behalf.) Brotherhood leaders have called for the military to declare the size of its budget, but they’ve also signaled that they must wait until the economy recovers before expending political capital in a fight with the SCAF.

“The army has always been the major power in Egypt,” says Nadeem Mansour, executive director of the Egyptian Center for Economic and Social Rights. “We need a long-term plan for asserting greater control over the military, but for now the most we can hope for is greater transparency.”

* * *

Neither candidate is likely to repeal the economic policies that transformed the Egyptian economy during the last decade of Mubarak’s rule and, according to activists and some economists, set the stage for insurrection. In 2004, with Egypt laid low by a cash crunch similar to the one it faces today, the government responded by privatizing industry, deregulating the pound, lifting import tariffs, and cutting personal and corporate tax rates. By the end of the decade, the economy had achieved an average annual growth rate of about 6.5 percent and was lauded as a model of reform by doting supply-siders. But the dividends failed to percolate beyond a small circle of predatory elites. Egyptian banks, despite higher reserve requirements and improved balance sheets, declined to diversify away from their more lucrative clients—big corporations and the treasury—at the expense of family-run businesses aching for credit. The result was rising unemployment and inflation at a time of rapid growth. As of 2008, the number of Egyptians living below the poverty line accounted for 22 percent of the population, up from 17 percent in 2000. Add to that corruption associated with the sale of Egypt’s largest companies, together with the prospect of a dynastic transfer of power from Mubarak to his son Gamal—widely loathed as both the architect and benefactor of divestment—and a reckoning was unavoidable.

If there is common cause between Morsi and Shafik, it is in their embrace of the neoliberal policies that have proven so unpopular with voters. The Brotherhood, which in the event of a Morsi victory would control the executive and legislative wings of government as well as white-collar syndicates such as the teacher and medical associations, is famously pro–free market. Its all-powerful Number 2, deputy supreme guide Khairat El Shater, is a wealthy businessman and investor who has urged a new round of privatization, including the sale of public utilities. The Brotherhood also administers a vast network of charities and patronage systems, however, and its free-market faith is not unconditional: it opposes the country’s flat tax as regressive, embraces self-sufficiency in strategic commodities, and supports a minimum and maximum wage. In an interview, Shater told The Nation that the Ikhwan might even back government intervention to shore up the pound. “The free market has adapted over fifty years,” he said, “but not without state support.”

As the election enters its home stretch, Morsi would be wise to promote such a progressive agenda, given how well it served the leftist candidate Hamdeen Sabahi in his surprisingly strong showing in the first round. (Analysts contend that had Sabahi allied with Aboul Fotouh, the ex-Ikhwanist who finished fourth, they would have prevailed.)

Though recent indicators suggest that the economy has stabilized, the future is obscured by an overhang of sovereign debt assumed by local banks after panicked foreign investors dumped their holdings last year. In the year after Mubarak’s February 2011 overthrow, loans to the government held by Egyptian banks swelled to nearly two-thirds of total lending, an extraordinarily high ratio that crowds out lending to businesses and corporations. The banks are willing financiers, but only at yields of at least 16 percent, a price many economists regard as unsustainable. In October, Standard & Poor’s cut Egypt’s sovereign debt rating, and in May it downgraded four top banks, citing Cairo’s “reduced sovereign creditworthiness,” which “limits the government’s ability to provide extraordinary support to banks in the event of financial distress.” In other words, if the treasury defaults on its obligations, it may drag lenders down with it.

The country’s foreign exchange reserve has stabilized at about $15 billion, less than half the pre-revolution level, largely because foreigners have finally disposed of their Egyptian treasuries. While that has cheered some economists, others fear a devaluation of the pound. “It’s great that foreigners have finished selling Egyptian debt,” says a Cairo-based investor who requested anonymity, given the fragility of Egypt’s financial system. “But if you’re no longer breathing, it doesn’t mean you don’t need oxygen. It means you’re dying.”

The analyst conceded that a revival of foreign investment and the tourist trade is likely once the country stabilizes politically. “But then what happens?” he said. “The existing cash crunch will deepen and people will be forced to go to the black market for dollars and interest rates will rise. The government has a choice. It can either devalue the currency or do nothing and hope that things will slowly turn around. But that could end in a slow death.”

The good news, according to economists, is that the risk of default is minimal. Unlike the beleaguered banking sectors of Greece and Spain, which were undone by incendiary derivatives and bundled mortgages, Egyptian banks have contented themselves with basic loans and fixed-income deposits. Another factor working in Egypt’s favor is its enormous shadow economy. Only 10 percent of Egyptians have bank accounts, which means the majority of transactions go unreported. Despite the diminished reserves of hard currency, a nebula of informal business activity has kept the economy afloat through previous recessions, and it is likely to see the country through the current one.

Of course, this is hardly an unqualified blessing. As the Arab world’s largest market, Egypt should be a major financial center. Instead, it is burdened with some of the most risk-averse bankers in the region. According to Egyptian economist Tarek El Ghamrawy, credit for new investment is worth 3.5 percent of the total, compared with 12.8 percent for the Middle East/North Africa region. Only 4.2 percent of that amount is held by small businesses, which account for more than two-thirds of economic output. Shunned by the banks, business owners either borrow from family members or turn to independent lenders at usurious rates of interest.

Eluding the treasurer’s audit, the shadow economy represents billions of dollars of unrealized public revenue. It is where unregulated housing flourishes and where schoolteachers, to supplement their meager incomes, hold after-school “tutoring” sessions that students are all but obligated to attend. It hosts much of the “officer economy,” where indentured enlisted soldiers line kitchen appliances with insulation rather than develop skills for better jobs after their return to civilian life. In the shadow economy, supply bottlenecks can multiply the price of goods by a factor of four, and farmers are violently evicted from fertile land—an increasingly precious resource given Egypt’s diminishing water supply—at the pleasure of rich developers. In a country where anyone who works more than one hour a week is counted as employed, the shadow economy is home to an invisible mass of jobless Egyptians.

It is in the shadow economy that the nation’s enterprise and illegality cross-fertilize, and it is there that Egyptian democracy will succeed or fail. The outlook is not good. The appeal of candidates Morsi and Shafik, figureheads of modern Egypt’s two most powerful warring tribes, is confined to the severely religious and the profoundly frightened. So irreconcilable are their competing values that it’s hard to believe they would lock arms for the greater good. For generations the Ikhwan and Egypt’s dictators struggled against each other like matter and antimatter, only to resume their war in the china shop of the nation’s new order. Just as the Ikhwan distinguished itself by resisting Mubarak, so does Shafik owe his resurrection to the Brotherhood’s outsized and off-putting belief in its own entitlement—first over the syndicates, then Parliament and finally the president’s office. Shafik may lose the election, but his constituency, a tactical alliance of secularists, Christians and pious Muslims unnerved by the prospect of single-party rule, will survive him unless the Brotherhood ditches its parochial parapet for an ecumenical big tent. Otherwise, the prospect of another revolt—one driven more by the need for food than the desire for political emancipation—will intensify in lockstep with Egypt’s economic and social debility.

A decade ago, when he was a member of Parliament, Morsi spent a day with me in his home district in the Nile Delta. We met at the local university, where he lectured as a professor of engineering, and as we prepared to embark on his scheduled rounds, he lamented the dire mismatch between the demands of Egypt’s youth and the diminishing returns of its economy. At one point, he gestured to the students around him. “When these students graduate, where will they go?” he asked. “We have 200,000 graduates in the market, and there are no jobs.”

Since then, that number has risen to 700,000.

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Source URL: http://www.thenation.com/article/168263/egypt-war-itself

A Gordian Knot in Egypt: Mubarak ruling puts Shafik on the backfoot

The sentencing of Hosni Mubarak has put Ahmed Shafik on the defensive in the presidential race, but will Mohammed Morsi have what it takes to press his advantage? It was a good verdict for the Brotherhood.

Not only was Hosni Mubarak, Egypt’s despised ex-dictator, sentenced to life in prison, bribery charges against his equally loathed sons were dropped while a handful of regime trigger-men, facing murder counts, walked away with a slap on the wrist. The result was a torrent of outrage against anything associated with the old government, including Ahmed Shafik, a Mubarak crony and the rival candidate in this month’s presidential ballot to senior Brotherhood member Mohammed Morsi.

Nothing could awaken the revolutionary gestalt faster than a reminder of how deeply corrupted the Egyptian government remains after three decades of Mubarak’s rule. Within hours after Mubarak was sentenced for taking bribes and ordering a lethal response to peaceful protests last year, Mohammed Morsi declared that he was at one with the revolution while implying that Shafik, as Mubarak’s last prime minister, withheld evidence that would have convicted the regime of murder. If an insinuation like that can’t keep Shafik on the defensive, nothing can.

Historians may note that it took a miscarriage of justice to salvage the Morsi campaign from not one but several occasions of inept decision-making. An accidental contender after the Brotherhood’s first choice was forced from the race on legal grounds, the field may now be clear for Morsi to become the first president of a newly democratized Egypt. The question is how long he can hold it together.

The next president will face a Gordian knot of fateful challenges in which the resolution of one will create another. Increased spending to stimulate economic growth, for example, which the military-led interim government has already tried without success, will drive borrowing costs higher while spending cuts will stifle demand and destabilize the country politically. To complicate things further, the Brotherhood is on the record in support of the very neoliberal policies – privatization, free trade, currency deregulation – that are associated with the former regime’s endemic corruption. Should a President Morsi authorize the sale of a state-run bank, for example, he may please the International Monetary Fund and its conditional offer of a $3 billion bailout package, though he will certainly antagonize a large share of the electorate.

Morsi, his supporters point out, will have at his disposal the Brotherhoods’ vast resources, including the fraternity of white-collar professionals that forms its backbone. Himself a respected engineer who did time in Mubarak’s jails, Morsi is nonetheless an unspectacular public presence at a time when Egypt is deeply divided and in need of inspired leadership. It would take a leader of Nasser’s charisma, the healing powers of a Mandela and the guile of a Franklin Roosevelt to rebuild Egypt before the end of the president’s first four-year term. Since no one person can claim possession of such qualities, it would be all the more urgent for the new president to form a broad coalition so he can leverage talent from the whole spectrum of Egyptian demography. Given the magnitude of the task ahead, he’ll need as much bandwidth as possible.

Yesterday's Egypt

Egypt's rich history bears little relation to the dismal realities of today. The choice facing Egyptians, between Ahmed Shafik and Mohammed Morsi, is a false dilemma.

Shortages—of petrol, electricity, hard currency, patience—plague Egypt. But there is an abundance of ghosts.

Egyptians are consumed with the estrangement of their dismal present from their glorious past. Nostalgia, either for the Arab Caliphate, the relatively light touch of Ottoman rule, or the secular idyll that prevailed before the era of Israel, is the baseline for progress. It is a high bar, and for the last sixty years Egypt has had little to offer that the citizens of yesterday’s Egypt would find enviable. (Though one could argue that decades of oafish, autocratic rule has vastly enriched the Egyptian instinct for ironic humor.)

I think of this whenever I enter a Cairene apartment building or office tower that was built before the war, with their grand, art-deco lobbies, open elevators and sleekly elegant stairways. Most of them have gone to seed; where opulent chandeliers would have been hung, there is now fluorescent tubing. Once gleaming parquet floors are dull, damaged and strewn with trash.

At the stock exchange in downtown Cairo, a beautifully restored Victorian relic, I lingered over a photo gallery of board members dating to the turn of the last century. They wear linen suits and bowlers—a few don the Ottoman tarboosh—and posture proudly before the trading hall of what was then the world’s third-largest securities market. There is not a beard or skullcap in sight.

Here was the most secular of temples in a famously secular Egypt. There is no badge or insignia about these men that would distinguish them by faith, sect or ethnicity. By the ecumenical standards of the day, however, they could be alternatively secular or pious, Jewish, Christian or Muslim, and Arab, Greek, Armenian, French, British, Swiss or Maltese.

One can imagine what these men, these specters of a lost age, would say about the two candidates who are contesting Egypt’s first genuine presidential elections. One of them, Mohammed Morsi, is a senior member of the Muslim Brotherhood, a secretive, hierarchical order that rewards obedience, punishes dissenters and thrives in the politics of identity. His rival, Ahmed Shafik, is the creature of a predatory regime who would drag Egypt back to the wrong side of history with the support of those who, to quote Benjamin Franklin, would trade liberty for security and are thus deserving of neither.

There is little about Morsi and Shafik that the elites of yesterday’s Egypt would recognize, except as something alien, odd, and fatally wrong about our Egypt today.

Credit Egypt: Access to affordable credit would help rejuvenate the Egyptian economy

Presidential hopeful Mohammed Morsi is well versed in the economic malaise of Egypt, but the Muslim Brotherhood's ambitious economic plan is hamstrung. Without overhauling the Egyptian banking sector it will be extremely difficult to effect a turnaround.

A decade ago, while researching a book about the failure of the modern Arab economy, I spent a day with Mohammed Morsi, then a member of Egypt’s parliament and a senior leader of the Muslim Brotherhood. Morsi represented the Nile Delta town of Zakazik. An engineer by training, he was also a lecturer at the local university and as we strolled through the campus he lamented the dire mismatch between the demands of Egypt’s young population and the diminishing returns of its economy.

“When these students graduate,” he said, gesturing to the students around us, “where will they go? There are no jobs. We have 200,000 graduates in the market … and it’s hard for them to find any work.”

Since then, that number has risen to 700,000 and Morsi, one of two candidates in Egypt’s first genuine presidential election, is uniquely suited to answer his own question. The Brotherhood’s political wing, the Freedom & Justice Party, has unveiled an ambitious master plan to revive the country’s troubled economy and employment along with it. It promotes Egypt as a regional hub for manufacturing, calls for a revitalized tourist sector and robust new investment in the country’s dilapidated infrastructure. But there is nothing about enhancing the country’s banking sector, presumably because of orthodox Islam’s proscription against usury.

That’s a shame, because the single biggest obstacle to modernizing the Arab economy is not the fact of interest bearing loans but the lack of them, particularly to the small-to-mid-sized enterprises, or SMEs, that form the backbone of commerce. As the Arab region’s largest market, Egypt should be a major financial center. Instead, it is burdened with some of the laziest bankers in the world. According to Egyptian economist Tarek El Ghamrawy, credit for new investment is worth a mere 3.5 percent of the total, compared with an average 12.8 percent for the Middle East-North Africa region. Only 4.2 percent of that amount is held by SMEs.

A few years ago, the Central Bank of Egypt allowed banks to effectively lend from their reserve requirements if the money was earmarked for SMEs, but little came of it. Shunned, business owners either borrowed from family members or turned to independent lenders at usurious rates of interest. Not long after that, a grass-roots rebellion overthrew the regime. Coincidence? Not according to Magda E. Kandil, executive director of the Egyptian Center for Economic Studies, who told me last week that risk-averse banks “contributed to the revolutionary environment” by “deliberately avoiding SMEs.”

Bankers should duly take note. Unless Egyptian entrepreneurs and businessmen are provided with access to affordable credit, the prospect for another revolution will intensify along with the nation’s economic and social malaise.

Trouble Brewing: The polarized run-off between Ahmed Shafik and Mohammed Morsi leaves many Egyptians with grave concerns

The prospective presidential run-off vote between the ‘feloul’ Ahmed Shafik and the Muslim Brotherhood’s Mohammed Morsi has done nothing to quell political tensions in Egypt. There is hope that large concessions will be made by the eventual victor, specifically to avoid dominating the drafting of a new constitution. The night before the results of Egypt’s presidential election were announced last week I had dinner with a close friend. She had voted for the leftist Khaled Ali because she admired his message about the need for all Egyptians to make sacrifices in the name of economic and political renewal. Ali had never polled beyond the single digits and when I told my friend she was wasting her vote she replied that voting one’s conscience in an election was more important than the results.

“Unless,” she added, “it turns out to be Morsi and Shafik.”

Before the election it seemed anything was possible for New Egypt. Now, with the vindication of Old Egypt’s two most relentless warring tribes, it appears to be a good time to stock up on canned food and bottled water. Mohammed Morsi of the Muslim Brotherhood’s Freedom and Justice Party and Ahmed Shafik, a golem from the ancien regime, are twin reminders of Egyptians’ inability to once and for all scrape autocracy off the souls of their shoes. A contest like this requires only one name on the ballot: Least Bad.

As the reality of the poll results sunk in I paid a call on Mohammed Habib, a senior member of the Muslim Brotherhood before he lost a power struggle for the top spot in late 2010. Habib had declared his support for Abdel Moneim Aboul Fotouh in the presidential race and he scorned the Ikhwan for fielding a candidate despite earlier assurances it would do no such thing. But he said it was vital that Morsi prevail over Shafik in the final round of voting next month. The Brotherhood had made many mistakes, he acknowledged, “but it has done nothing to compare with the crimes of the old regime.”

Habib applauded the Ikhwan’s decision, announced that morning, that it would invite leftist Hamdeen Sabahi and Aboul Foutoh, who finished third and fourth respectively in the ballot, to serve as deputies in a coalition government. But the group should go a step further, he said, by assuring the nation that neither Brotherhood nor Freedom & Justice Party members would dominate the drafting later this summer of a new constitution. “Unless they do this,” Habib said, “Shafik will win and that would be a catastrophe for Egypt.”

Habib was right, though I wonder if such a gesture will be enough to defuse the potential for violence between the two competing visions vying for Egypt’s future. Shafik owes his resurrection to the ham-fisted way in which the Brotherhood went about scaring one constituency after another with its habitual instinct for control – of the syndicates, of parliament and now the president’s office. Unless it can check its appetite, it will sustain an anti-Ikhwan alliance of secularists, Coptic Christians and pious Muslims uncomfortable with the prospect of single party rule. By making the election safe for a warmed-over cadre like Shafik, the Ikhwan dragged its thirty-year feud with Hosni Mubarak through the garden party of Egypt’s young democracy. It has a lot work to do before it can reclaim the public trust.

The Presidential Agenda: Whomever wins a prospective run-off in the Egyptian presidential election, they will be faced with an intimidating to-do list

The polls suggest that a run-off is likely in the Egyptian presidential race. While the Muslim Brotherhood candidate, Mohammed Morsi, will probably face the representative of the old-guard, Ahmed Shafik, the challenges facing the victor will be similar. If independent polls are correct, the second round of Egypt’s presidential election will pit Mohammed Morsi of the Muslim Brotherhood’s Freedom & Justice Party against Ahmed Shafik, the last prime minister appointed by the country’s former dictator, Hosni Mubarak. For the moment, let us set aside the finalists’ relative merits and focus instead on the Pharaonic theft and neglect of the Mubarak era and what must be done to reverse its consequences.

Whomever is elected shall become the steward to a population of some 86 million people, many of whom are illiterate, unemployed or both. As the final round is bound to be closely contested, the new president will enjoy the slimmest of mandates to revive Egypt’s inert economy, modernize its bureaucracy and rebuild its failing national infrastructure. To prevail, he must commit himself to the following to-do list:

• Conduct a national census for an accurate accounting of the number of Egyptians, their birth and literacy rates, income levels and age demographics. • Flush to the surface, audit and tax an underground economy thought to be worth several times official estimates of economic output. • Replenish the public accounts, beginning with a lopsided balance of payments and an exhausted foreign exchange reserve. Persuade a truculent and adversarial parliament that the International Monetary Fund is not an agent of Western imperialism but a badly need source of hard currency. • Revive foreign investment despite significant political risk and a likely devaluation of the local currency. • Domesticate and professionalize a corrupt military that, for the last eighteen months, has entrenched its influence over the nation’s security and intelligence agencies. Convince the public, to say nothing of the general staff, that its controlling stakes in everything from pasta factories to resort hotels are superfluous to, and a distraction from, the nation’s national security needs. • Reform a network of subsidies that promotes waste and is heavily biased in favor of big business, such as cement and fertilizer manufacturers, at the expense of social welfare agencies and programs. • Reduce and rebuild an obstructionist civil service, for decades the sinecure for an idle class of mid-level functionaries. Devolve authority away from the capital to the district and municipal level for the sake of efficiency and responsiveness. • Establish an agricultural policy so the nation can, for the first time in decades, feed itself. Impose order on the farm belt by organizing the nation’s small growers, a potentially large source of employment, into collectives and prosecute those who forcibly evict them from the land. • Provide incentives for both private and state-run banks to make credit available to small and mid-sized enterprises, the backbone of the economy. • End the speculative construction of low-income dwellings, which have encircled the capital and other major cities with unsightly, shoddily built apartment blocks. Begin the process of dismantling and replacing them with integrated housing developments, complete with access roads, street lighting, sewage facilities and clean water.

Absent a relentless, multi-pronged assault on the Mubarak legacy, Egypt’s first freely elected president will most certainly be deprived of a second term. More importantly, the nation’s faith in democratic governance will be shaken, creating space for the worst of all possible outcomes: a man on horseback with seductively simple answers to unmet challenges.

The Inconvenient Truth: Distrust of political Islam may hold back spirit of inclusivity in Egypt

Political Islam's status as a legitimate fixture in Egyptian society does not sit well with many in the country. Stephen Glain met with prominent businessman, Naguib Sawiris, and discovered that a certain antipathy towards religious governance may hinder Egypt's nascent plurality.

Yesterday I paid a courtesy call on Naguib Sawiris, the forlorn face of non-Islamist Egypt.

Naguib is one of three brothers, the sons of a successful Coptic businessman, though he staked out a fortune of his own by taking bets in the telecommunications industry that no one else could stomach. On a table in his office antechamber is a framed photograph of him strolling along a marble corridor with Kim Jong Il, the late dictator of North Korea, where his company installed a cell phone network.

The Sawiris clan and its conglomerate enterprises, the Orascom group, are lynchpins of Egyptian society, particularly now amid chronic joblessness and flat growth after the ouster last year of dictator Hosni Mubarak. When Naguib spoke out early and aggressively against the regime as the anti-Mubarak revolt erupted last January, he was putting both himself and Orascom on the line. Vindicated, he launched a political party that stands for a liberal, secular order.

If informal polls are anything to go by, the man Egyptians elect in this month’s presidential election is liable to be neither liberal nor secular. Hence it was a deflated if combative Sawiris that regarded me from behind his cluttered desk in the Orascom office building.

“If the Islamists win it’s the end of the civil state,” he said, referring to Mohammed Morsi, the candidate fielded by the Muslim Brotherhood, or Ikhwan, and Abdel Moneim Abu Fotouh, the ex-Brotherhood leader who split from the group to mount an independent campaign. “I’ve never been so pessimistic.”

The election, said Sawiris, was not about capitalism or socialism but human rights. An Islamist president, marching in lockstep with the country’s Islamist-dominated parliament and its Islamist-led syndicates, would impose a new constitution that would steamroller the revolution’s humanist ideals. “If there is a religious reign,” he said, “it will be about my relationship with God, what I wear, what I can drink, what art I can buy, and what movies I can watch.” Pointedly, Sawiris said the Western powers should not support an Islamist government in Egypt until it proved its commitment to ecumenical democracy. He admonished Western journalists, (and by implication this one), who have characterized Ikhwan leaders as practical men who would govern from the center so as not to antagonize the moderate Egyptian middle.

I can sympathize with Naguib, who has far more at stake in this election than I do. But to pre-emptively isolate a freely elected government for its religious identity would likely arouse its most illiberal instincts. And truth be told, since the Ikhwan has assured the US government of its respect for Egypt’s peace treaty with Israel and its contracts with foreign investors, it is more or less free to harass women, Christians and dissidents with nary a peep from Washington.

For Naguib, and for those who have invested their hopes in people like him, the inconvenient truth of political Islam is its legitimacy as a fixture of the very civic society they fear will crumble under its authority. When Sawiris says, as he did in our conversation yesterday, that he will resist the Islamist tide “until his last breath,” he is placing himself in opposition to a plurality, if not a majority, of his fellow Egyptians. That is a losing gamble, even for someone who built an empire beating the odds.

Here’s Hoping: Economic hopes are fixed on the presidential election in Egypt

The economic travails of Egypt have barely been addressed in the run up to the historic presidential election. Stephen Glain discovers that hopes are pinned on a spectacular turnaround once a new president is in place.

Conspicuously absent from Egypt’s presidential elections—the first round of which ends today (Wednesday)—has been a serious discussion about the flagging economy. Last week, when Standard & Poor’s declared that a depreciation of the Egyptian Pound was inevitable and that it was reducing its credit rating on the banking sector, there was nary a mention of it in the local press.

Among the many businessmen, party leaders and economists I’ve spoken with there seems to be a faith-based notion that the election of a new president—albeit one whose powers remain undefined by a constitution that has yet to be written—will almost by itself revive foreign direct investment, worker remittances, Suez Canal traffic, and tourism arrivals. This for an economy that suffers from an acute liquidity crisis and is expected to grow by less than one percent this year, if at all.

Khairat El-Shater, deputy supreme guide of the Muslim Brotherhood and himself a highly successful businessman, laid out for me a compelling plan to modernize Egyptian tourism, rebuild its failing infrastructure and establish a world-class industrial base. When I asked where the financing would come from given Cairo’s depleted foreign exchange reserves and absence of investment from abroad, he said it would come surging back after the election.

On Tuesday, Tarek Shaalan, who heads the economics committee for Egypt’s largest Salafi party, told me the economy would be saved by the post-election enabling of Islamic banking and investment funds that would flush to the surface the country’s vast underground economy, where it could be audited and taxed. All this would happen by the end of the year, he said, once the new president is sworn in.

It’s not just the Islamists who are stirred by the presumption of a post-election idyll. With few exceptions, Cairo’s investment banks are seizing on isolated signs of recovery—mainly an extraordinary rise in worker remittences from Libya, a modest increase in foreign reserves of $100 million and a slight rise in local-currency deposits—as the basis of sanguine growth estimates.

None of this is to disparage Egypt’s historic elections nor enthusiasm among the people who boldly struggled for them. And it is entirely possible that political stability, or at least a facsimile of it, will revive investment and the tourist trade. Structural problems that impair the economy run wide and deep, however, and expectations of their speedy resolution could ultimately render Egyptians cynical and dismissive about the very democratic system that can redeem them after thirty years of oppression and neglect. While they are rightly proud of having deposed a dictator, the popular notion that “the hard part is over” makes for a dangerous conceit.

A New Napoleon: The Ikhwan "behaves as if there never was a revolution."

Stephen Glain meets with former Muslim Brotherhood figure, Kemal Helbawi, and assesses the implications of an MB success in the presidential elections.

On Saturday I met with Kemal Helbawi, who was an esteemed member of Egypt’s Muslim Brotherhood before he angrily resigned from the group after the toppling of dictator Hosni Mubarak last year. He blamed senior leaders in the Brotherhood, or Ikhwan, for abandoning the ideals of the movement for the sake of controlling it.

“They were slow to join the movement and once they did they declined to sustain it,” said the 73-year-old Helbawi, who joined the Ikhwan at the age of twelve. “They had the resources to uphold the revolution’s demands of dignity and social justice but instead they invested in their own interests. They behave as if there never was a revolution.”

As Egypt embarks on historic presidential elections, criticism of the Ikhwan, even among those who respect the group for its opposition to decades of Egyptian dictatorship, is as common a refrain as the mullein’s call to prayer. They scorn its leaders for allegedly cutting back-room deals with the army generals who have been running Egypt since Mubarak’s departure, contesting and winning half the seats in parliament after declaring they would limit themselves to a quarter or so of the chamber, and fielding a candidate in this week’s presidential election after foreswearing any desire for executive power.

Established in 1928, the Ikhwan is the world’s largest Islamist movement with its own political machine, social welfare service and business empire. Having outlasted Mubarak’s autocracy through a dogged campaign of peaceful resistance, it emerged as a political powerhouse in the post-revolution era. Instead of playing the long game that was the key to its survival, however – lying low and reading the political terrain while coexisting peacefully with secular and non-Islamic society – Brotherhood leaders estranged themselves from many swing voters by promising one thing and doing another.

As voters prepare to vote in the first round of elections on Thursday, Mohammed Morsi of the Brotherhood’s Freedom and Development Party has emerged as a frontrunner less for his vision and charm than for the immense logistical resources available to him. The Ikhwan is thought to have hundreds of thousands of members, each of whom have sworn fidelity to its leader, the Supreme Guide, as shock troops in the campaign. Morsi, an engineer by training, is widely tipped to survive the first round of the election and perhaps become president. There, he would face an economy in disarray and the crush of high expectations from an electorate that is eager to redeem the profits of its hard-won democracy. Few expect Morsi or the other campaign leaders – the former diplomat Amr Moussa, for example, or the exiled Brotherhood leader Abdel Moneim Aboul Fotouh – to be anything but one-term presidents.

Should Morsi prevail, the Brotherhood would control the executive and parliamentary branches of governments with all the responsibility for success or failure such power confers. It would become the political equivalent of a new Napoleon, another of Egypt’s many conqueror-kings, who famously said he would rather fight against a coalition of forces than fight with it.

And we all know what happened to him.

Brothers in Power

Institutional Investor  2012-4 The Muslim Brotherhood promises a pragmatic blend of Islam and capitalism for Egypt. Now can the once-banned group deliver?

Click here to read the story.

In Egypt’s bread, signs of economic weakness

Washington Post  2012-2-10 CAIRO — There is no more potent symbol of Egypt’s economic fragility than the pocket bread that is a staple of life here.

Every day, the Egyptian government allocates 25-pound bags of subsidized flour to designated bakeries to produce the Frisbee-shaped loaves, which Egypt’s impoverished and working poor buy for about eight cents per 10 loaves. But sometimes, there is not enough to go around.

While fertile land is abundant in Egypt, particularly along the Nile, the country relies on foreign producers for nearly all of its agricultural needs — including wheat. And though the state sets prices on basic goods such as bread and heating oil, when the cost of imported commodities goes up, the underground economy flourishes. Some bakers sell their flour allotment on the black market instead of making bread, prompting shortages, long lines and, sometimes, unruly crowds.

Egypt’s slide from breadbasket of the eastern Mediterranean to net grain importer is elemental to an economic crisis that threatens to convulse the nation. According to economists and farm experts, several factors are complicit in the decline: an Egyptian government that for years refused to build the infrastructure needed to produce wheat in a cost-effective way; a privatization drive that plundered Egyptian agriculture with ill-advised and often corrupt divestment deals; farmers who sold their fields to property developers or diversified into more profitable crops for export at the expense of grains; and the U.S. government, which promoted sales of American wheat in Egypt rather than encouraging greater self-reliance.

Today, Egypt imports about 80 percent of its agricultural products, and with a currency devaluation expected sometime this year, consumers are bracing for more costly foreign goods across the board. The country labors under a chronic balance-of-payments deficit. And inflation, already at 9 percent, is expected to increase in the coming months along with borrowing costs. Already, lines of motorists anxious about fuel supplies, another subsidized commodity, have been radiating from gas stations.

‘Everything starts with the farm’

In a country where 40 percent of the population lives on less than $2 a day, subsidized bread is considered a basic human entitlement. Efforts to lift price supports have fueled riots, most severely in 1977, when President Anwar Sadat was forced to reinstate them, and inexpensive bread was hailed alongside freedom and social justice as the clarion call of the revolt that deposed President Hosni Mubarak a year ago. But economic distress has only intensified since Mubarak’s ouster, raising the possibility of more social instability and violence.

“Everything starts with the farm,” said Mohammed Barghash, who chairs Cairo’s As-Salam Agriculture Association. “If a country is unable to provide its own food, it is not worthy of the name.”

Not surprisingly, most of the blame for Egypt’s food insecurity is heaped on Mubarak. Two of his last three ministers of agriculture are in jail, charged with, among other things, allowing tainted pesticides into the country and selling prime farmland to regime cronies for a fraction of its market value. “Hosni Mubarak killed Egyptian agriculture,” said economist Mohammed Gouda, who was raised by cotton growers. “It was not done by benign neglect. It was malign and corrupt.”

Throughout Mubarak’s rule, according to Egyptian farmers, the government failed to provide irrigation and electricity systems that are vital to the production of water-intensive crops, particularly in a desert country with a meteoric population growth rate.

A farmer who owns several thousand acres of land northeast of Cairo says his family managed to connect to an electrical grid just two years ago after relying for decades on costly generators. Even then, the Ministry of Agriculture did little more than issue the necessary permits. “We did pretty much everything ourselves, including the financing,” said the grower, who asked that he not be identified by name for fear he might need more permits. “There was no government plan.”

Deregulation, a hallmark of the economic reforms promoted by Mubarak, also had a negative impact on Egypt’s wheat belt. As free-trade deals in the 1990s unlocked new markets to Egyptian commerce, growers abandoned low-margin crops in favor of higher-value products such as fruit and cut flowers. At the same time, they succumbed to the call of rising property prices by selling grain fields to developers, often in defiance of zoning laws.

“There has been a lot of illegal building of homes on some of the country’s most fertile land,” said Wael Ziada, head of research at investment bank EFG-Hermes. “You can hardly blame [the growers] given the lack of incentives to remain on the land.”

The U.S. role

It was the U.S. government, in tandem with the International Monetary Fund and the World Bank, that strongly encouraged Cairo to liberalize its economy and expand its share of regional trade. Washington feathers the Egyp­tian-Israeli peace treaty it brokered in 1979 with generous allocations to Egypt of civilian aid, most of which is administered under the U.S. Agency for International Development, Washington’s humanitarian assistance policy arm.

Even as USAID has plowed well over a billion dollars into rural Egypt, mostly in the form of training courses and water-management programs, many farmers complain that the decline of Egyptian agriculture is as much an American failure as it is a local one.

In particular, they chafe at how the United States is one of the country’s largest suppliers of grain — bolstered by loan guarantees and other subsidies from Washington — even as the output of Egyptian farms diminishes.

“If the U.S. is the mother of democracy, it should go to the people and help them feed themselves,” said Barghash, of the agriculture association. “Yet still we import most of our wheat from America.”

E-mailed requests to USAID for comment were not returned.

Researcher Deena Adel contributed to this report.

Muslim Brotherhood official says West is neglecting Egypt

Washington Post  2012-2-3 CAIRO — Egypt is on the brink of political and economic collapse and the West has an obligation to sustain the country with financial aid and diplomatic support, a senior Muslim Brotherhood official has warned.

Khairat El-Shater, deputy supreme guide of the Islamist movement that controls half the Egyptian parliament, said this week that the United States and Europe are neglecting Egypt at their peril a year after a popular uprising deposed a key U.S. ally in former president Hosni Mubarak.

“The democratic transition in Egypt is hanging in the balance,” Shater said this week at the Brotherhood’s headquarters in a Cairo suburb. “We strongly advise the Americans and the Europeans to support Egypt during this critical period as compensation for the many years they supported a brutal dictatorship.”

Shater’s appeal was extraordinary, coming as it did from a group the United States had long kept at arm’s length out of respect for Mubarak, who persecuted the Brotherhood as a threat to his secular rule. It was only two months ago that high-level U.S. officials engaged in rare formal meetings with senior Brotherhood members, many of whom regard Washington warily for its unstinting support of Mubarak.

Since Mubarak’s ouster, the Egyptian economy has suffered from capital flight, rising inflation, a yawning balance-of-payments deficit and a failed bid to stabilize the local currency that halved its foreign reserves. An economic meltdown, Shater warned, would “transform a peaceful revolution into a hunger revolution” with traumatic consequences for U.S. interests in the region. Tensions in Egypt boiled over this week in response to the deaths of more than seventy people at a soccer riot in Port Said, an incident rumored to have had political motivations.

The United States has been cautious in its approach to Egypt since Mubarak’s fall, supporting its transition to civilian rule while insisting that its freely elected parliament uphold the country’s international accords, particularly its peace treaty with Israel. Washington has been sharply critical of the government’s move last month to prohibit several American NGO workers, including the son of U.S. transportation Secretary Ray LaHood, from leaving the country.

But Shater admonished the U.S. government for its long support of Mubarak at the expense of the Egyptian people.

The 61-year-old Shater made his remarks as relations between Washington and Cairo have decayed amid reports the White House is pressuring Egypt’s military-run interim government to hasten a transition to civilian rule.

He warned against a reduction in U.S. aid to Egypt, a reference to recent reports that the Obama administration has threatened to cut Washington’s annual $1.3 billion package of military assistance, a legacy of Egypt’s three-decade old peace treaty with Israel.

Shater, an engineer by training, is widely regarded as a shrewd pragmatist informed by a successful business career and the 12 years he spent in Mubarak’s prisons. He has emerged as a powerful voice in a country polarized by the generals in power, an Islamist revival and a loose coalition of secular groups that led the anti-Mubarak revolt only to lose badly at the ballot box.

Shater’s investment returns are thought to be so crucial to the sustainability of the Brotherhood’s charitable works that his assets were seized several years ago by the government.

In the interview, Shater played down his influence over an organization known for its rigid hierarchy. Nevertheless, he is thought to be the driving force behind recent Brotherhood commitments to recognize Egypt’s diplomatic and trade accords with Israel and to not impose Islamist strictures such as dress codes on women and bans on alcohol.

“The general feeling is that he is the one who is making these decisions,” said Ibrahim Zaafarani, a former group member who heads Cairo’s Arab Doctors Association.

Respect for Shater as an astute businessman and dissident is tempered among some liberal activists for what they say is his overly conciliatory regard for Egypt’s military leaders, who have justified for security’s sake crackdowns on peaceful demonstrations and restrictions on press freedoms.

Shater emphasized that his assets remain in state hands a year after Mubarak’s departure and that exiled Brotherhood members are still living abroad for fear they would be arrested should they return to Egypt — proof, he said, that the Islamist group and the military have not made a deal to protect each other.

“The army has been ruling Egypt for more than 60 years,” he said. “The transition from military rule will take a gradual approach, though this does not sit well with those who take to the streets demanding that the military leave immediately.”

Researcher Deena Adel contributed to this report.

New hope for Egypt’s pioneering journalist

Washington Post  2012-2-1 CAIRO — A little over a year ago, on the eve of the revolution that ousted Egyptian autocrat Hosni Mubarak, Hisham Kassem was poised to launch the Arab world’s first independently owned multimedia news company. But the revolution failed to redeem its promise of full democracy, press freedoms deteriorated, the economy tanked, and Kassem’s shareholders abandoned him.

“Investors started missing payments in June,” Kassem says from his half-finished offices in downtown Cairo. “By late August I was cash-strapped.”

Kassem, who during the twilight of the Mubarak regime did as much as anyone to create pockets of oxygen for hard-hitting journalism, says he is confident that his Egyptian shareholders will return from the sidelines once the country stabilizes politically. Though recent elections turned out an Islamist-dominated parliament, he notes, the process was smooth, setting the stage for a presidential election this year and the end to an unpopular military-led interim government. Venture capitalists are showing renewed interest in his enterprise, the name of which he declines to divulge, and, he said, he’s getting fresh offers for shares.

Even Kassem admits, however, that there is no guarantee Egypt’s national security apparatus, which survived the revolution more or less intact, will go quietly.

During the last few years of Mubarak’s rule, the country’s draconian press laws were loosened so that criticism of the regime was tolerated, if grudgingly and arbitrarily, and independent journals and magazines proliferated. But even that modest flowering was crushed by the ruling military council not long after Mubarak’s removal, according to journalists, with what they suspect is a stealth campaign of harassment.

“The pressure is now worse than ever,” says Ibrahim Eissa, an activist and publisher who last spring launched Tahrir, a newspaper and broadcast company named after the square that served as the locus of the anti-Mubarak movement. “The government passes laws that make it harder to publish. Now, anyone can declare themselves slandered by a story and demand fines. Of course, it’s impossible to say who’s behind these attacks.”

Growth potential

Investor interest in Egypt’s media sector and its enormous growth potential remains high, however. Though less than a fifth of the country’s 85 million people read daily newspapers, that could change if outlets like Kassem’s venture, which will generate print, television, radio and Web-driven content, take root. Internet usage is still relatively low, which means newspapers, radio and television broadcasters will be commercially sustainable for some time. Plus, the country’s state-run press and broadcasters, as unpopular as they are costly to run, are likely to consolidate or disappear altogether, creating new market share for independents.

Buoyed by such projections, Kassem says he will not hesitate to reengage the spooks and functionaries whose job it is to obscure truth from power. In the late 1990s he launched the English-language Cairo Times, a general interest monthly and a must-read for Cairenes outraged at Mubarak’s brutality. E xhausted, he closed shop after several years of prolonged skirmishes with regime censors as the only independent publication of its kind. In 2003 he was recruited to edit Al Masry Al Youm, an independent daily newspaper, and under his watch it evolved into an authentic and profitable dissenting voice.

Issandr El Amrani, who worked for Kassem at the Cairo Times as a journeyman reporter, remembers his old boss as a Middle East H.L. Mencken, equal parts stern, parsimonious and shrewd. “He proved you can make a successful business out of a good publication,” says Amrani, who now edits The Arabist Web site. “And that was before there was so much to write and read about.”

In 2008, Kassem resigned from Al Masry Al Youm to begin the spadework for a landmark Arab media conglomerate. He toured the world’s great newsrooms to learn how to develop his own news management system and organized a road show to line up 30 million pounds (about $5.2 million) in start-up capital — under Egypt’s press law, he is prohibited from raising funds from non-Egyptians.

As 2010 approached, he had signed a lease for two floors of prime office space and he was negotiating with an architect the fine points of the floor plan, from the thickness of sound-proofing tiles in the recording studios to the wattage of recessed halogen bulbs in the newsroom. He was just about to start hiring staff when the rebellion against Mubarak gripped the nation and consumed the world.

A push for ‘good governance’

Today, despite Egypt’s difficult economic environment, Kassem is optimistic. In a few weeks, he says, he’ll be accepting applications for the 60 or so positions that will round out the staff and he expects some 5,000 submissions. “I’m not exaggerating when I say every journalist in town wants to join us,” he says.

The vacant offices are silent except for the whir of a small refrigerator and the din of Cairo’s relentless traffic that pulses up from below. Kassem recalls how, when he was running the Cairo Times, he was ordered by the censors to stop reporting on a $60 billion residential and water-irrigation development, which like so many Pharaonic projects conceived under Mubarak was regarded as a corrupt land grab for regime cronies.

“We were told ‘don’t touch it’ and we had to leave it alone.” he said. “No more. There needs to be an end to graft and corruption and a move to good governance and if I’m doing my job here, it can happen.”

Egypt’s Muslim Brotherhood adopting caution on economic matters

The Washington Post  2012-1-24

CAIRO — A year after the revolution that toppled Hosni Mubarak, Egypt’s Muslim Brotherhood, the dominant party in a new parliament, has a clear mandate to lead Egypt as it confronts its most serious threat: an exhausted, evaporating economy.

And so far, the Islamist group appears willing to respect a secular status quo, emphasizing accommodation over conflict, working with international bankers to help restore economic growth, and playing down more orthodox calls for bans on bikinis and alcohol.

“A lot of people don’t appreciate how conservative the Brotherhood is, and by that I mean cautious as well as pious,” said a Cairo-based banker who did not want to be quoted discussing political issues. “They prefer conciliation over confrontation, particularly now that they’ll be held responsible for what happens to the economy.”

It remains unclear just how much authority over economic matters the country’s military rulers will permit the new parliament, where nearly half the seats will be held by the Brotherhood’s Freedom and Justice Party, the victor in historic elections. But the party has moved quickly to assert a leadership role.

Last week, the party announced that it would not meddle with the industrial zones jointly managed by Egypt and Israel to promote trade between the two peace partners. The party has held meetings with a delegation from the International Monetary Fund to discuss a $3 billion bailout that was rejected last summer by Egypt’s military-led government. The party also has assured tour operators that it would not support legislation that would prohibit women from wearing revealing swimwear at beach resorts.

What appears to be tactical restraint, however, might be less political calculation on the Brotherhood’s part than a reaffirmation of its mercantilist sensibility. Its members are well represented among Egypt’s white-collar middle and merchant classes, and many hold senior positions among the country’s professional guilds, or syndicates. (By contrast, the hard-line Islamist Salafists, who won a quarter of the parliament seats as members of the Nour party, draw their support largely from rural and lower-class Egyptians.)

Though admired for its patronage systems that provide food, education and health care to Egypt’s poor, the Brotherhood’s economic agenda is informed by an ancient laissez-faire tradition that has more in common with the values of the United States’ tea party than it does with, say, the more heavily regulated economies of Europe. In the 1950s, for example, the group struggled against President Gamal Abdel Nasser as much for his decision to nationalize the Egyptian economy as for his fierce secularism.

Brotherhood members trace their capitalist conceit to the birth of Islam and tend to associate one with the other. “Islam endorses the market economy and free trade,” Abdel Hamid Abuzaid, a Muslim Brotherhood member and economist at Cairo University, said in an interview before his death last year. “It is part and parcel of Islam as a complete way of life.”

A market in crisis

Not for nothing, Brotherhood members are fond of reminding Westerners, did Ronald Reagan suggest that the philosophies of Ibn Khaldun, a 14th-century Islamic scholar, anticipated the Laffer Curve by 600 years. The group has supported lower taxes and is staunchly antitrust, owing to a verse in the Koran: “He who brings commodities to the market is good, but he who practices monopolies is evil.”

Skeptics of the free market — Egypt has a broad political spectrum that includes a small, if plucky, Communist Party and a cadre of Trotskyites — point out that the Brotherhood’s neo-liberal agenda differs little from the one promoted during the twilight of the Mubarak regime. It was popular outrage over the government’s corrupt privatization plan and the job losses that followed, they argue, that fueled the revolt against Mubarak in the first place. Small wonder, then, that stumping Freedom and Justice Party candidates spoke vaguely about economic policy, lingering more over the imperatives of “social justice” and “equitable distribution of production” than over the need for fiscal restraint.

Now, with the economy all but vacant of foreign investors and tourists, both vital sources of hard currency, the need for a coherent reform plan is inescapable. Egypt’s gross domestic product is expected to grow by a mere 0.4 percent this year, down from last year’s modest rate of 1.8 percent. Foreign reserves have dwindled by half over the past 12 months — to $18 billion, equal to four months of imports — because of the government’s decision to protect the Egyptian pound. Borrowing costs are rising and currency devaluation is unavoidable, say many economists, a prospect that has triggered panicked buying of gasoline and long lines at filling stations. Inflation, which averaged 9 percent in the second half of 2011, is expected to accelerate this year.

The Freedom and Justice Party’s “Program for Economic Development” calls for an end to corruption and chronic unemployment, enhanced productivity, revived foreign investment, a narrowing of income disparity and reform of Egypt’s long-neglected agricultural sector — the kind of pale nostrums one might expect from a group that has little experience ministering to a robust economy, let alone one racked by the convulsions of the past 12 months. Even staunch secularists, however, allow that the Brotherhood’s electoral success after decades in opposition confers upon it legitimacy and redemption that is, at the very least, worth the benefit of the doubt.

“The Muslim Brotherhood did not come from nowhere,” said Amr Hussein Elalfy, an analyst at Cairo’s CI Capital, an Egyptian investment bank. “It is deeply ingrained in the grass roots. They have their patronage systems and they are pro-investment. They want things to move ahead, and this is their first and best chance.”

By Choosing Arms Over Diplomacy, America Errs in Asia

The New York Times | International Herald Tribune 2011-12-15 Washington HAWKS on both sides of the Pacific greeted the Obama administration’s decision last month to fortify, rather than throttle back, America’s vast influence in East Asia as a defining moment in a looming confrontation between the United States and China. In the rush to militarize the world’s most important bilateral relationship, however, two questions have not been answered: Are the disputes that roil Asia more effectively resolved through armed might or diplomacy? If the answer is diplomacy, where is American statecraft when it is needed?

With the economy in disarray, President Obama chose a costly instrument in deciding to expand the American military commitment in Asia by deploying a Marine contingent to Australia; the move will only help insulate the Pentagon from meaningful spending cuts and preserve the leading role the military has played in foreign policy since the 9/11 attacks.

In looking to the military, Mr. Obama was embellishing an old policy course. For more than a century, the Pacific rim of Asia has seen a number of unnecessary American wars and interventions, beginning with Washington’s imperial thrust through Guam and the Philippines, its role in suppressing the Boxer Rebellion in China, and its 40-year-long Open Door policy (a demand that trading rights in Chinese coastal cities be shared among industrial nations that had sought zones of influence). In 1949, after Communist forces prevailed in China’s civil war, President Harry S. Truman chose not to engage the new People’s Republic but to contain it alongside the Soviet empire — with which Mao Zedong soon aligned, earlier entreaties to Washington having been rebuffed.

Having dismissed a diplomatic opening along with advice from some of his own China experts, Truman militarized Sino-American relations on China’s borders by extending aid to the French in Indochina and then by endeavoring, disastrously, to reunite the Korean Peninsula by force, in response to North Korea’s effort to do the same by invading its southern neighbor. The agonizing stalemate that followed foreshadowed America’s doomed intervention in Vietnam.

Mr. Obama, like his predecessors, seems now to be embracing a militarized policy with regard to China, the sinew of which is a global network of military bases that has changed little since the peak of the cold war. Far from reducing its profile in Asia, the Pentagon has been quietly enhancing or reconfiguring its capacity there in recent decades. For example, it has been building up forces on the United States territory of Guam, a far-reaching strategic enclave in the Pacific much like the British island of Diego Garcia in the Indian Ocean. Pentagon strategists say the aim is to “dissuade, deter and defeat” regional aggressors. And in recent months, the Defense Department has been developing a strategy for Asia called “AirSea Battle,” an instrument with which American military power can address “asymmetrical threats in the Western Pacific,” an implicit reference to China.

Washington justifies its Pacific buildup by citing China’s increasingly menacing claims on the region’s contested waterways. But there has been no serious American-led effort to resolve such disputes through bilateral or multilateral diplomatic rounds.

Indeed, America’s top diplomat has become the chief civilian advocate for military answers to diplomatic challenges. Speaking in Honolulu last month, Secretary of State Hillary Rodham Clinton called for “a more broadly distributed military presence” in Asia. While in Manila, she appeared on an American warship and reaffirmed the nearly 60-year-old security pact between the United States and the Philippines. She also has endorsed the creation of an American-led regional trade pact that pointedly excludes China for the present, a remarkably petty snub compared to the way her legendary predecessor George C. Marshall offered (without success, in the face of Stalin’s suspicions) to include the Soviet Union in the postwar reconstruction plan that now bears Marshall’s name. And this month she visited Myanmar, where the Obama administration has assiduously worked to neutralize a corrupt and repressive government in favor of democratic reform; in the grander strategic game, this, too, could be read in Beijing as a tactic to weave the country — which has been Beijing’s ally — into an American noose around China.

Since the end of the cold war, senior diplomats and general officers have coalesced in support of a central military role in the formulation and execution of foreign affairs. This role is a consequence of the growing imbalance between America’s diplomatic and military resources, and it shaped lamentably militarized responses to the Balkan crisis of the 1990s, the 9/11 attacks, the reconstitution of Iraq and now the rise of China. Mrs. Clinton may declare herself, as she did in an October article in Foreign Policy and again in Honolulu, to be for “a substantially increased investment — diplomatic, economic, strategic and otherwise” in the Asia-Pacific region, but this ignores the fact that the country’s diplomatic capacity has been cruelly cut back over the last two decades, particularly in relation to the Pentagon’s.

In fact, the Pentagon can be expected to keep outspending the State Department at an enormous rate — even in the unlikely event that Congress musters the courage to impose draconian budget cuts, as the law requires, in the wake of the deficit-reduction super committee’s collapse. Currently, Washington is allocating about a dozen dollars for defense outlays for every dollar it spends on diplomacy and international assistance. In Honolulu, Mrs. Clinton also celebrated the “opportunities and obligations” in Asia that are ripe for exploration after the immense expenditure of American blood and coin in Iraq and Afghanistan. That recalls the way the country’s policy making elite saw fresh dangers as well as opportunities in Asia after America’s withdrawal from Vietnam — an earlier example of Washington’s cyclical preoccupation with perceived threats from one end of the Eastern Hemisphere to the other.

So long as Congress insists on lavishing funds on the Pentagon at the State Department’s expense, there will be no shortage of perceived monsters to hem in or destroy. Witness the new species taking form in Asia.

Stephen Glain is a journalist and the author of State vs. Defense: The Battle to Define America’s Empire.

China "encircled by the United States." Author interview on "The Jeff & Mike Show.

The Jeff & Mike Show, WSTL-FM, San Diego  2011-11-11 Click here to listen.

"The Pentagon does not want to lose control:" Author interview with PRI's The World about State vs. Defense

Public Radio International  2011-11-3 Click here to listen.

Revolutionary leader

Institutional Investor  2011-9 Naguib Sawiris used his telecom and media empire to help the anti-Mubarak uprising. Now he wants to shape a secular future for his country.

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On Foreign Policy, Romney More Like Nixon than His Own Father

U.S. News & World Report  2011-10-13 To reject Mitt Romney as a presidential candidate solely on the basis of his faith is to be in contempt of the First Amendment. To do so for the content of his foreign policy address last week, however, is perfectly acceptable.

Read the entire post on the U.S. News and World Report website.