FT SPECIAL REPORT Egypt

Wednesday December 18 2013 www.ft.com/reports | @ftreports

Military returns to centre stage Inside » Fragile recovery Business presses case for structural Weak parties and rift reform with signs in society have led to of stability evident political vacuum, Page 2 writes Heba Saleh Fuel subsidies

hen young secular activ- top reform list ists tried to defy a law Hazem al­Biblawi, issued by Egypt’s mili- tary-backed authorities prime minister, on to restrict protests, plans for change Wpolice put on a show of force and dispersed them in minutes. Page 2 Riot police massed outside parlia- ment in late November, aiming water hoses at the dozens of protesters Too soon to write crammed on a narrow Cairo pave- ment. An armoured vehicle fired tear- off Brotherhood gas at those who had not run away. History shows Policemen grabbed organisers, thrashed them and hauled them into group has habit of the parliament grounds. rising again “They were extremely aggressive and violent,” says Nazli Hussein, one Page 3 of more than 20 women subjected to beatings before being dumped in the desert that night. “We are going back Security state to rule by a terrifying state. They are entrenching a frightening, repressive tightens hold state.” Six months after the popularly Mother’s story backed military coup on July 3 that Appeal: women detained for obstructing traffic during an Islamist protest demand their freedom at a hearing in an Alexandria courthouse Reuters overthrew the Islamist Mohamed highlights return to Morsi, Egypt’s first elected president, authoritarianism the country appears to be sliding back who launched the revolution are har- scrutiny has been drafted and parlia- Morsi’s leadership was seen by many Brotherhood banned from politics. into full-scale authoritarianism with assed and branded foreign agents and mentary and presidential elections are as divisive, inept and laying the But if Egyptians are divided, their Page 8 power reverting to the army leader- saboteurs. To many, Mr Mubarak may planned within the next six months. grounds for a monopolisation of neighbours in the Gulf have been ship and the security services clamp- be out of the picture, but “Mubarak- With the Brotherhood sidelined and power by the Muslim Brotherhood. quick to show which side they sup- ing down on dissent. ism” is staging a comeback. civilian parties weak, the military and But his removal has aggravated port. Saudi Arabia, the United Arab Immigrants flee Yet again in the throes of an often Bolstered by a nationalist pro-army security establishments are control- fractures in a divided nation with lit- Emirates and Kuwait greeted the top- violent transition, Egypt seems to mood encouraged by the media, the ling the transition. There is an tle prospect of reconciliation. Both pling of the Islamists with $16bn in xenophobia have turned full circle since the Janu- authorities have reconfigured the interim president – Adly Mansour, a sides appear entrenched. grants, loans and petroleum products. Conspiracy theories ary 2011 uprising that ended the auto- political landscape to the exclusion of senior judge – but real power resides Public opinion is “split down the The lifeline has helped depleted for- cratic rule of Hosni Mubarak and Mr Morsi’s Muslim Brotherhood with Abdel Fattah al-Sisi, the defence middle”, according to a September eign reserves which have risen to increase anger ignited hopes of a democratic future. group, banned by court order with its minister who led the coup. survey by the US-based Zogby $18bn, or about three-and-a-half towards foreigners Once again, the security agencies are members the targets of suppression. A The army’s intervention ended what Research Services: 51 per cent of those months’ worth of imports. It has resurgent, thousands of Islamists are new constitution enshrining the inde- many considered a flawed, Islamist- polled considered the military’s action Page 10 in prison and the democracy activists pendence of the military from civilian led experiment in democracy. Mr wrong, and 50 per cent want the Continued on Page 4 2 ★ FINANCIAL TIMES WEDNESDAY DECEMBER 18 2013 Egypt Economy

enabling the government to repay some energy prices when it first took State of play Despite signs of stability, business $3bn to Qatar, a supporter of the power, because shortages had already Morsi regime, with whom relations resulted in a more expensive black urges structural reform, reports Heba Saleh have now worsened. market for products such as diesel. “We have managed to stabilise the Successive Egyptian governments situation: you could say we stopped have held back from subsidy reforms the haemorrhage,” says Ziad Bahaa- for fear of a backlash. Twice in the Eldin, the deputy prime minister for past three years, the authorities have economic affairs. “I believe that as signed loan agreements with the soon as the constitutional referendum International Monetary Fund, then has been completed [in January] – the balked at the required reforms. first step in the transition –, and if it Gabriel Sterne, an economist at unfolds in a calm and satisfactory Exotix investment bank, says: “I way, then we could say we are really think there is a reasonable possibility Fragile recovery starting to take off.” they can continue down the line of Foreign reserves have risen to a not addressing key fiscal reforms and safer level at some $18bn and the gov- being able to access financing from ernment’s cost of borrowing has fallen friendly governments. That prevarica- from 14 per cent in June to about 10.6 tion and procrastination is bad news per cent in December for 90-day treas- for the Egyptian economy.” remains a ury bills. EFG Hermes expects a nar- But EFG Hermes says it believes rowing of the deficit to 11 per cent in Gulf Cooperation Council countries the fiscal year to the end of June 2014. are “urging and pressing” the Egyp- Officials say it will be nearer 10 per tian government to deliver on cent and they predict growth in the reforms. It says support from Gulf hostage to current fiscal year of up to 3 per cent. states is increasingly likely to take The support from the Gulf has let the form of investment financing the government adopt an expansion- rather than direct cash support. ary fiscal policy to stimulate the econ- omy and create jobs while meeting political events some social needs. In addition to the ‘Prevarication and implementation of a minimum wage for public sector employees to start in procrastination are bad January, the government has launched an infrastructure-dominated news for Egypt’s economy’ fter three years of turmoil economist at EFG Hermes, the Cairo- stimulus package worth $3.2bn. that have pummelled based regional investment bank, says Most of the money is being spent on Egypt’s economy, stalling it is “still too early to make an schools, health units, electrification of Egyptian officials say the priority is growth and reducing cur- unequivocal macro call on Egypt, villages, wastewater projects, upgrad- to complete a programme, started rency reserves to danger- given the persistent uncertainties on ing railway signalling and building under the previous government, to Aously low levels, officials and analysts the political side”. However, he added rural roads. use smart cards to monitor fuel usage say the worst may be over. that the bank believed the economy Angus Blair, chairman of the Signet in preparation for staggered subsidy They caution that improvement “was finally finding a floor”. Institute, a Cairo-based regional cuts over five to seven years. remains fragile and a hostage to polit- When Mohamed Morsi, the former think-tank, says: “The impact of the Mr Bahaa-Eldin argues that price ical developments in a country going president, was ousted on July 3, stimulus is not yet apparent, but it is increases need to come within the through yet another tumultuous tran- Egypt’s foreign reserves had dropped important that the government is try- context of government policies that sition against a background of sharp to just below the critical level of three ing to do something to help improve convince the poor that the purpose is divisions and often lethal suppression months’ import cover and the deficit business sentiment. We would have to “protect rather than harm them”. of Muslim Brotherhood supporters. in the fiscal year that ended on June suggested cutting corporate or per- He cites plans to provide free meals Another concern, voiced by business 30 had widened to 14 per cent. sonal tax to boost sentiment further.” to all schoolchildren and to use direct and economists, is that the recent eas- But over the past months, a gener- He points out that the fuel subsidy, cash transfers to poor families as ing of Egypt’s economic predicament, ous package of about $16bn in loans, which swallows about a fifth of the ways to improve social protection and thanks to largesse from oil-rich Gulf grants and free fuel products from the budget, has not been addressed. “It create acceptance for subsidy reform. countries, may result in an indefinite United Arab Emirates, Saudi Arabia benefits the rich rather than the poor “These programmes do not need to deferral of painful but much-needed and Kuwait has averted economic col- and the government could have won be executed in full during the life of structural reforms regarded as crucial lapse and given the government that argument easily through state this [interim] government, but we are to economic sustainability, including breathing space at a time of meagre media,” he says. reorienting economic policy in this the reduction of energy subsidies. tourism receipts and near-absent for- Other observers say it could have direction and leaving behind plans Mohamed Abu Basha, an Egypt eign investment. The package is also Filling up: drivers enjoy fuel subsidies, which many say are unsustainable Reuters scored an easy win by increasing that can be implemented,” he says.

Fuel subsidy question demands an answer

Interview When will Egypt address We are sorry that we see Hazem al­Biblawi the structural problems very nasty events, and fuel subsidy which particularly in Sinai. Prime minister accounts for almost a On the other hand, we are quarter of the budget? fully confident in the Heba Saleh hears There is no way to avoid power of the police and tackling this problem, and the ministry of the interior interim leader set we are committed to doing to control the situation. out reform plans so. We are not going to abolish the subsidy but we Can Egypt be stable with are going to rationalise it, the Muslim Brotherhood, a Hazem al-Biblawi, 77, because the percentage in large force, marginalised became prime minister in Egypt is just crazy. and its leaders in prison? July after the army coup They have a strong that ousted Mohamed What do you mean by organisation, extremely Morsi as president. rationalise? well managed. But they The liberal French- The end result will be were building their trained economist heads an some subsidy, [and we political influence on a interim government that will] reduce the subsidy dream. When they took includes ministers from from, say, 24-25 per cent of power, they failed liberal and leftwing groups, the budget to something miserably [and] they although real power lies in like 10 or 8 per cent. disappointed a lot of their the hands of Abdel-Fattah It cannot be done in one [voters]. al-Sisi, the defence shot. We have to have a minister. plan for five to seven Is it fair for the media to Mr Biblawi’s government years. This needs a lot of brand them as terrorists? is charged with stabilising support and understanding There are no evident links Egypt’s flailing economy from the people, so we between the Brotherhood and overseeing the process have to launch an and armed groups. leading up to elections information campaign. If you look at what is next year. We intend to have the first happening in Sinai, Aided by $16bn from phase before the end of something unprecedented, Gulf Arab states delighted this transitional using heavy weapons, at the downfall of the government and we would attacking police officers, Islamists, the government like to make it a success. attacking soldiers, has adopted an kidnapping people. expansionary policy with Will there be price I am not saying that the the aim of stimulating the increases before the Brotherhood per se [is economy and creating jobs. interim government doing this]. All the leaders leaves? deny it. But what we see is You have inherited Of course, but it is not that all the attacks are economic problems. When simple. It might be that we done by people associated will Egyptians see an have a quota [of recipients] with them. improvement? with a high subsidy and I am rather surprised I The perception of the then the rest will receive haven’t seen any market is improving. This less. condemnation on their is reflected in the We are thinking of part of the acts of performance of the stock replacing it with monetary terrorism. exchange, in the upgrading compensation. But the [by] rating institutions, not problem is not theoretical, Could the Brotherhood only of the country but it is practical. How can we return to politics? even of some banks, and find a reliable database to We are open to anyone the stability of foreign identify all those people who believes in the exchange. We have added a who merit a subsidy? principles of democracy, a supplementary budget for country that does not investments and started to How worried is the discriminate. There is no draw upon it. And we have government about the mixing of religion in another package [of loans threat of terrorism politics. Politics is human. and grants] from the derailing tourism and So anyone who believes Emirates. investment? this is most welcome.

How long can you rely on Gulf money? After the constitution and ‘There is no finalising all the road map [to elections] with mixing of religion parliament and the new in politics. president, things will be totally different politically. Anyone who Tourism is picking up in Sharm el-Sheikh and in believes this is Hurghada. Within eight most welcome’ months the situation will be much clearer and this Hazem al­Biblawi, will be inviting to Prime minister Egyptians as well as to foreign investors. A lot of investors from the Gulf are showing high appetite. FINANCIAL TIMES WEDNESDAY DECEMBER 18 2013 ★ 3 Egypt Politics History suggests the Brotherhood may rise again

Domestic affairs Political Islam The organisation has a Religious parties ●Freedom and Justice party habit of reviving, says Political party allied to the Muslim Brotherhood, Egypt’s largest Islamist Borzou Daragahi group. The party is committed to creating an Islamic state and won nearly half the seats in the people’s olitical Islamists tend to rise assembly in elections in 2011-12. It from the dead. Iran’s Ayatol- believes sharia principles should be lah Ruhollah Khomeini at the heart of legislation and returned in 1979 from nearly economic affairs. 15 years in exile to establish ●Nour party The second-largest Pan Islamic regime that has survived Islamist party was founded in the for almost 35 years. Turkey’s Recep weeks after the 2011 revolution. It Tayyip Erdogan emerged from prison went on to secure a quarter of seats to win elections in 2002 and has ruled in 2011-12 parliamentary elections. for more than a decade. Tunisia’s Nahda movement was erased from ●Gamaa Islamiya Hardline party view only to become the country’s allied to the Brotherhood and critical greatest political force once free and of the military coup that removed Mr fair elections were held in 2011. Morsi from power. It opposes what it Egypt’s Muslim Brotherhood, too, regards as western standards and has been repeatedly crushed over its the secularisation of government. nine decades, only to reinvent itself. Following the overthrow of President ●New Labour party A moderate Mohamed Morsi, its leader, in July, Islamist party and member of the the group and the movement of politi- national coalition to support cal Islam are again at a historic cross- legitimacy, a pro-Morsi grouping roads. whose members include the FJP and “I don’t buy the whole ‘death of Gamaa Islamiya. Magdy Karkar, its political Islam’ narrative,” says Shadi leader, has called for a non-violent, democratic approach to early Hamid, a Brookings Doha Center elections and dialogue with non- scholar who is writing a book on polit- Islamists. ical Islam in the Middle East. “You will see political Islam morphing in ●Strong Egypt A moderate and different directions, even if the Broth- economically progressive party that erhood is not allowed to reconstitute lists social justice and tackling itself in the near future. poverty as its priorities. The party “The Brotherhood isn’t just an advocates independence from US organisation. It’s an idea. It’s a school influence in foreign policy. of thought and world view. It’s very difficult to kill an idea.” Justin Cash Some will try. The secular-minded, Returning: university students protest in Tahrir Square in support of Mohamed Morsi and the Muslim Brotherhood Reuters military-installed government and its oil-rich Gulf state patrons are enemies of the fusion of populist and Islamist other, will pass and we will arise Mr Abdel-Rahman insisted it was the coup that ousted Mr Morsi and secretary-general of the New Labour the July coup, while Nour’s confi- politics perfected by the Brotherhood. stronger than before.” too early to begin writing a political remains a political force. “We see that party, a tiny Islamist group. dence ratings had dropped from 22 to Security forces have swept up Mr Facing enormous pressure, the obituary for the Brotherhood or even others don’t have the ability to pull Renegade ex-Brotherhood leader 10 per cent. Morsi, his confidantes and hundreds Brotherhood and its Islamist allies discuss how it might transform itself. the country from this catastrophic sit- Abdel Moneim Aboul Fotouh’s Strong Should elections be a farce or if of mid-ranking Brotherhood leaders have gone underground, utilising “No one talks about the future evolu- uation,” says Nader Bakkar, a spokes- Egypt party managed to keep its dis- General Abdel Fattah al-Sisi, chief and tossed them into prison. social media and flash protests to tion of a movement while it’s in the man for the Nour party. tance from the coup and the Morsi commander of the army, and his allies A pliable judiciary has moved to keep up the movement’s spirits and middle of a heated battle,” he said. “The most organised people on the government and could serve as a manipulate the outcome of the vote, outlaw the Brotherhood and its Free- maintain a presence on the streets. “Maybe after the finish, there will be ground are the Islamists,” he adds. channel for political Islam. But Mr many predict more protests and boy- dom and Justice party (FJP), an elec- “It’s a new generation that is open talk about what is to be done.” “We want stability. We will remain on Aboul Fotouh has redefined himself cotts. The least likely outcome would toral powerhouse that won two legis- to the world, and social media,” says Observers outlined several routes the political scene. Sooner or later, we as a liberal and may have alienated be for the Brotherhood to give in and lative elections and the presidency Islam Abdel-Rahman, a London-based for the Brotherhood’s intermediate will regain people’s trust to achieve too many Brotherhood supporters. endorse the interim government and last year. official of the Brotherhood’s political future, including the possibility that it the right formula for regulating the Few believe any of the Islamist its “political road map”, which it views True believers are unbowed. “It’s party. “Youth were the future, are will be allowed to function as a legal country, like the Turkish experience.” alternatives in Egypt’s political spec- as illegitimate. not the first time that political Islam the future and will be the future. The party and re-enter politics in parlia- Many Islamists have become disillu- trum have the credibility or the ideol- “It’s unlikely because it’s unclear has been under fierce attack and we vast majority of the Brotherhood’s mentary elections expected in the first sioned with Nour after it sided with ogy to draw the Brotherhood’s rank what they would...get in return,” always manage to come back,” says membership is under 30. They have few months of 2014. the Brotherhood’s enemies. and file. A September poll conducted says Mr Hamid. “It will anger their Ahmad Hosni, spokesman for the grown up [with] the internet and If it is not allowed to run, some “The beneficiaries of the Brother- by Zogby International showed confi- base. Why do they come out with bois- Gamaa Islamiya group, allied to the opened their minds politically Islamist Egyptians may vote for the hood’s demise will be moderate dence in the Brotherhood’s FJP had terous statements? That’s what their Brotherhood. “So this attack, like any through the pages of social media.” Salafist Nour party, which supported Islamist parties,” says Magdy Karkar, shot up from 24 to 34 per cent since base to wants to hear.” 4 ★ FINANCIAL TIMES WEDNESDAY DECEMBER 18 2013 Egypt Politics and economy

Egypt in numbers

Population Egypt’s GDP by industry Number of people, 2012 Map key LEBANON % of total, Q2 2013 (figures (figures in brackets indicate Below 2 million in brackets indicate change proportion of population employed Between 2 and 4 million since Q2 2003) in agriculture, hunting and fishing*, Between 4 and 8 million Mediterranean Sea 2006) Above 8 million 17 16 Extractive Manufacturing industries KAFR EL SHEIKH (52.1) DAKAHLIA (39.4) (-2% points) WEST (+5% points) ALEXANDRIA (7.1) DAMIETTA (25.2) BANK LIBYA PORT SAID (9.6) Gaza 13 ISRAEL GHARBIA (28.5) ISMAILIA (28.2) Agriculture, SHARQUIA (42.2) irrigation MONUFIA (40.7) QALYUBIA (19.2) and fishing BEHEIRA (51.3) (-2% points) CAIRO NORTH SINAI (1.2) (36.3) MATRUH JORDAN (46.4) 32 FAIYUM SUEZ Others (52.8) (7.5) SOUTH 12 SINAI including BENI SUEF (15.2) tourism General (52.6) government GIZA SAUDI (-3% points) (15.4) ARABIA (+2% points) MINYA 10 (59.7) Wholesale and retail trade ASYOUT (53.7) (=)

Red Sea SOHAG (49.0) Egypt GDP growth Current account balance Annual % change % of GDP Egypt QENA (43.4) 6 4 Morocco Luxor (25.0) Tunisia 2 4 0 2 -2 -4 WADI EL GIDID ASWAN (29.9) 0 (22.6) -6 -2 -8 -4 -10 Q2 2008 09 10 11 12 13 Q2 2000 01 02 03 04 05 06 07 08 09 10 11 12 13 14 Forecasts RED SEA (9.8) Population then and now Government fiscal balance Currencies % of GDP Egypt Against the $ ($ per currency, rebased) Egyptian Pound 4 Morocco 105 Moroccan Dirham Tunisia Tunisian Dinar Halaib triangle 2 100 (administered by Sudan) 0 95 59.3m 83.7m -2 90 1995 2012 -4 85 River Nile SUDAN -6 80

200 km -8 75 2002 03 04 05 06 07 08 09 10 11 12 13 14 2010 11 12 13 Forecasts Sources: CEIC; Thomson Reuters Datastream; IMF * Excluding underage and unattached FT graphic

Fears for future as military returns to political centre stage

Continued from Page 1 versities calling for the As the authorities press Challenges await whoever return of “legitimacy”. on with plans for new elec- emerges as president. Chief improved business senti- Police respond with teargas, tions, the smart bet is that among them is providing ment and engendered hopes arrests and sometimes bird- Gen Sisi will become the the necessary stability for of a turnround. shot and live ammunition. next president. tourism and investment to But business and observ- “What we see now are If not, diplomats and take off, reversing the eco- ers fear the mix of instabil- confidence-destruction observers believe he will be nomic decline of the past ity, political fragmentation measures,” says Amr Dar- the real power behind the three years. and weak government will rag, one of few senior lead- throne. A quarter of Egyptians preclude speedy adoption of ers of the Brotherhood and Millions of Egyptians may live in absolute poverty and painful reforms, including its Freedom and Justice have protested against Mr growth has fallen to about 2 energy subsidy cuts, consid- party not in prison. “Islam- Morsi on June 30, but it was per cent. ered necessary to reduce ist broadcasters are still pressure from state institu- Increased repression wide budget deficits. shut down, detentions con- tions – the military, the could backfire, analysts “Political developments tinue and hate campaigns judiciary, police and warn. Tactics resulting in will continue to shape the in the media are ongoing.” bureaucracy – that brought the death of a student dur- country’s macro dynamic in In disarray and with its him down. ing protests in November at the coming year,” says leaders in prison, the Broth- So far Gen Sisi has not Cairo university have EFG Hermes, the Cairo- erhood does not have a ruled out running for presi- inflamed feelings. Small based regional investment short-term strategy other dent. He can count on the campus rallies have since bank. A report cited than keeping up momen- support of business and tra- gained momentum and sup- “increased polarisation and tum with its protests in the ditional pre-revolution port. Stability hinges on the absence of visibility on hope that repression and elites, in addition to mil- improvements in living reconciliation” with the economic hardship will lions of ordinary citizens standards, which require Brotherhood as adding to increase the numbers of fed up with political substantive reforms to the the unpredictability. opponents to the regime, upheaval and yearning for a economy. On July 3, the Brother- according to analysts. strong leader. In the current political hood group changed from Khalil Anani, a senior fel- vacuum with weak parties the country’s foremost low at the Middle East Insti- and a rift in society, no sin- political force to a pariah tute in Washington, gle group is seen as able to organisation. Its senior believes the authorities ‘Detentions lead. leaders are detained and its want to cripple the organi- continue and Some fear reforms, such structures smashed. Egyp- sation before they offer to as phasing out fuel subsi- tian media calls it a “terror- talk. He is concerned, how- hate campaigns in dies – discussed by the ist” organisation and ever, that bloodshed and prime minister in an inter- blames the group – without lack of contact with leaders the media are view on page 2 – scaling evidence – for a recent could push young Brother- ongoing’ down bureaucracy or surge in deadly attacks in hood members to violence. imposing VAT, will prove the Sinai peninsula by He says: “The Brother- difficult. Islamic jihadis targeting hood know the use of “My concern is about security forces. violence would backfire what happens next econom- Mr Morsi is on trial for and hurt them, but the ically,” says a western dip- incitement to murder and heavy crackdown lomat. “Even if you have there are mutterings about has alienated the most perfect political a treason case. More than many younger process, you will have a 1,000 of his supporters have brothers. I can tell from government facing the most been killed, most on August comments on their incredible set of problems, 14 when police stormed two social networking web- but without much political Islamist protest camps lead- sites that some are turn- capital to manage them. ing to what Human Rights ing to a more hardline Financial support from the Watch called “the biggest ideology.” Gulf will not be unlimited.” mass killing” in Egypt’s modern history. Despite suppression, Brotherhood supporters hold near-daily demonstra- Real power: tions on streets and in uni- Abdel Fattah al­Sisi

Contributors »

Heba Saleh Valentina Romei Helen Barrett For advertising, contact Mark Cairo correspondent Statistical journalist Commissioning editor Carwardine, +44 (0)20 7873 4880, email: Borzou Daragahi Amira Ahmed, Amina Andy Mears [email protected]. Middle East correspondent Ashraf, Justin Cash, Picture editor Nadine Marroushi All FT Reports are available Siona Jenkins Freelance journalists Steven Bird on FT.com at ft.com/reports Middle East news editor Designer Follow us on Twitter at: @ftreports FINANCIAL TIMES WEDNESDAY DECEMBER 18 2013 ★ 5 6 ★ FINANCIAL TIMES WEDNESDAY DECEMBER 18 2013 Egypt Struggle to find Bathroom ware sales prove resilient a new order in base, Mr Gargour says. Company profile In Libya, the company has staged Lecico a comeback after it lost almost all business there in 2011 following the Manufacturer chased new ousting of Muammer Gaddafi and global relations subsequent unrest. Sales in Libya customers to stay afloat, were up 590 per cent in 2012, and Mr writes Nadine Marroushi Gargour is expecting another record year in 2013. “[In Libya,] it’s a demographic Despite more than two years of push first and foremost. Similarly, Foreign policy Government uses strategic political and economic turmoil in its after years of underdevelopment, main markets in Egypt and Libya, now you have a free market for position to flex muscles, says Borzou Daragahi Lecico, a listed tile and sanitary development, probably unregulated,” ware producer, has reported a he says. double-digit increase in sales. As well as grappling with turmoil onvulsed by domestic politi- official Egyptian attitudes toward the The Alexandria-based company in the Middle East, Lecico has had to cal troubles, foreign policy west. enjoyed an 18 per cent year-on-year face the challenge of weaker has been sidelined by Egyp- In the end, Egypt appeared to test rise in revenues for the first nine European markets since the financial tian governments since the boundaries of its geopolitical alli- months of 2013 to reach E£1.1bn crisis began in 2008. It has shut Hosni Mubarak’s downfall ances without breaking off relations ($160m). down its French arm, which Cin 2011. On big regional issues of the many consider vital. Western diplo- Increases in sales volumes were accounted for 15.2 per cent of day such as the Israeli-Palestinian mats in Cairo eye the political ges- driven by Egypt and Libya, a trend sanitary ware and tile sales in 2007 conflict or the allocation of Nile River tures with scepticism, saying Egypt’s that management expects to but by 2012 had fallen to 4.4 per cent resources, successive administrations longstanding military ties with the US continue. In 2012, Egypt accounted as the euro weakened. paid lip service to continuity while would make retrofitting its military for 44.8 per cent of group sales, and Analysts and the company regard perhaps tweaking longstanding posi- with Russian equipment an expensive Libya 14 per cent. the closure of the French division as tions. and lengthy process, though Moscow “Despite economic and political a positive move that will improve Which is why the international announced in December it would sell uncertainty in Egypt, I think the balance sheet in the long term, community was so startled when $2bn worth of military equipment to consumption continues, especially in Egypt’s unelected military-backed Cairo. the mass market,” says Taher government began making bold ges- Egypt’s new government enjoys the Gargour, Lecico’s managing director. tures that risked alienating the US, its wholehearted financial and diplomatic The weakening of the Egyptian ‘Sales must grow by longtime patron, and Europe, its most backing of Saudi Arabia and the state since 2011 has led to a surge in important trading partner. United Arab Emirates. Any Egyptian unlicensed housing, which has double digits every year to Within days of the coup in July that embrace of Moscow, a patron of both benefited manufacturers of sanitary maintain profit margins’ ousted the elected government of Syria and Iran, would upset Riyadh. ware, home furnishings and building Mohamed Morsi, the military-installed Saudi Arabia and other Gulf part- Egypt’s control of the Suez canal gives foreign powers a vested interest Reuters materials. The Egyptian pound has government criticised the Barack ners are crucial to the regime’s eco- lost about 16 per cent of its value, even if it means a short-term hit: a Obama administration and European nomic survival, having rushed in with prompting many to invest in real write-off of E£130m and an expected leaders for their criticism of its harsh billions of dollars of support after the administration] is something that we ousting], the only criterion guiding estate, regarded as a safe asset. overall loss this year. tactics against opponents and the coup, and forced a regional realign- are not happy with,” says Badr Abde- the principle of Egyptian foreign pol- Established in Lebanon in 1959 by They say the company’s challenge Muslim Brotherhood. ment. latty, an aide to Nabil Fahmy, the icy is the national interest of Egypt – Palestinian and Lebanese families, in the next few years will be to And when Washington withheld Cairo’s relations with Turkey and foreign minister. “But for the US to no more ideology.” Lecico began operating in Egypt in boost sales and maintain profit military aid over the violence, the Qatar, both rising regional powers shift and to change it takes time. You Others regard Egypt as trying to 1975, when the country opened up to margins as input costs rise. government signalled an embrace of seen as allies of the Brotherhood, have a lot of stakeholders playing an exploit its regional importance at a foreign investment under then- “They have to grow their sales by Russia, suggesting it would buy weap- have soured dramatically. important role in the decision making time of declining US influence. No one president Anwar Sadat. double digits every year to maintain ons from Moscow instead of US con- Western governments, meanwhile, in the foreign policy of the US.” can afford the collapse of Egypt, The civil war in Lebanon began in their profit margins,” says Loic tractors. are trying to keep a distance from the Mr Abdelatty describes “a major which straddles two continents and the same year and lasted for 15 Pelichet at NBK Capital in Dubai. In some ways it appeared the government until elections are held. shift” in Egyptian foreign policy, but controls the vital Suez Canal. years, while Egypt became Lecico’s In Egypt, the company is authorities were trying to recall “This is an interim government, so calls it a course correction from the Melani Cammett, a professor of biggest market. The size of Egypt’s budgeting for a 30 per cent rise in Gamal Abdel Nasser’s foreign policy we’re not investing a lot in it,” says ideological direction of the Brother- political science and Middle East spe- population – at 83.7m, the Arab energy costs every year for the next strategy of the 1950s, when Egypt one western diplomat, reflecting a hood government, which he said was cialist at Brown University in the US, world’s largest – helped fuel sales. three years, as the government plans played the cold war powers against sentiment heard repeatedly among overly sympathetic to Islamist move- says: “There’s a history of Egypt get- “We consider ourselves now an to remove subsidies to industry. each other. “I have the feeling that international officials representing ments in the region. ting away with human rights viola- Egyptian company with a Lebanese Labour costs have gone up, as what they are trying to do is what governments and aid agencies. “For instance, the Morsi regime crit- tions, violations of political freedom subsidiary, whereas we began the workers demand better pay following Nasser tried to do,” says Koert Egyptian officials acknowledge icised and opposed the French inter- and postponing economic change other way,” says Mr Gargour. the 2011 revolution. Debeuf, a former adviser to the Bel- some tensions with the west, but vention in Mali just to defend the because of its strategic international Lecico’s sales volumes were up 25 To improve its balance sheet, gian prime minister, now serving as insist they have made headway in jihadist violent people,” he says. “Also position. I think [its leaders] know per cent for sanitary ware in Egypt Lecico is limiting capital expenditure the representative of the EU’s liberal improving relations. Recently John look at the relationship with other they have leverage.” in the first nine months of 2013, and and focusing on efficiency gains for parliamentary faction in Egypt. Kerry, the US secretary of state, Islamists such as Hamas. They Mr Abdelatty predicts Egypt’s for- tile sales climbed 10 per cent. The better returns on existing assets. “It’s like, we’re independent and the accused the Brotherhood of stealing allowed oil and gas to be smuggled eign policy will appear less subservi- company has been chasing market “The exception is tile expansion, Muslim Brotherhood was friends with Egypt’s 2011 revolution in words that into Gaza in a systematic way while ent to world powers, even bending its share by offering new, upmarket and we still have scope for this in the US and we should be less friends pleased the interim government. Egyptians here can’t find fuel. This is position on Iran to conform to the products as well as supplying its the next year or two,” says Mr with them,” he says, caricaturing “What happened [with the Obama ideology. After June 30 [Mr Morsi’s wishes of its Saudi allies. traditional working-class customer Gargour.

Proposed minimum wage adds to factory owners’ list of troubles

to raise the wages of Textiles unskilled staff, which he says would be difficult. Unskilled workers “The profit margin of the would be entitled to factory has been low . . . [it would] not allow us to give salary rises if pay law a woman making E£400 a is extended, says raise of E£800,” he says. Mr Arafa says the over- Amina Ashraf valued Egyptian pound holds back exports. Indeci- sive government policy, he Alaa Arafa, chief executive says, has resulted in high of Arafa Holding, Egypt’s costs and an overvalued largest textile exporter, is currency. anxious about his indus- Allowing the currency to try’s prospects for 2014. float would lead to price He is not convinced that a increases for the general government plan to intro- population, because most duce a minimum wage in consumer goods and refined January is going to help fuel come from abroad. workers or the textile Other inflationary pres- industry in the long run. sure comes from a subsidy “Any increase in the mini- regime on imported wheat mum wage is just going to and fuel, which makes up cause inflation,” he says. more than a quarter of the The textile industry is state budget and many say one of the country’s biggest Industry under pressure: workers at Arafa Holding is unsustainable. employers, providing a Despite the government’s quarter of all industrial interim nature, Mr Arafa jobs. But despite proximity according to the General Mubarak was overthrown believes that the political to European markets, trade Authority for Investment. A they handed over their fac- aspirations of ministers are agreements and compara- collapse of the industry tory keys to the bank and causing them to hold back tively low labour and utility would damage the wider moved to the US. on reforms. costs, manufacturers say economy because textiles Mr Kouko is considering Dalia Rady, executive one of Egypt’s vital indus- are an important export. following them. director of the Textile tries is at risk because of According to the coun- “Every month I get by Export Council, says that rising costs and what try’s General Organisation with difficulty,” he says. industrialists have been exporters consider to be an for Export and Import Con- “Expenses for workers are asking for years for a freer overvalued exchange rate. trol, textile exports have becoming so high and I exchange rate even if it To add to Mr Arafa’s and slid more than 8 per cent know that if things con- means the cost of living will the industry’s woes, a draft since the ousting of Hosni tinue this way and the mar- rise for the general popula- law, which is likely to be Mubarak, from $2.4bn in ket doesn’t pick up, I will tion. implemented in January, 2011 to $2.2bn in 2012. “You have to think of the will introduce a minimum More than 600 textile fac- best interests of the coun- wage to public sector work- tories have closed in recent try,” she says. “We have an ers of E£1,200 ($174) a months in Shubra el Khe- ‘If the market export subsidy to help month. Many in the private ima, an industrial district of doesn’t pick up, that,” referring to the sector believe the new law Cairo, and several hundred exchange rate. will pave the way for the have closed in Mahala, a I will have to close High interest rates put minimum wage to be textile manufacturing cen- pressure on cash flow, and extended to private sector tre in the Nile Delta, the business’ some factories have not workers as a solution to the according to Mahmoud Shereen Kouko, paid salaries for three rising cost of living. Sayem, director of the Spin- company owner months. Dozens of striking Although some of the tex- ning and Weaving Syndi- workers ended up in hospi- tile industry’s skilled work- cate, a union of textile tal last month after police ers earn more than the min- workers. have to close the business forced them off railway imum wage already, the Mr Arafa, whose company and sell the factory.” lines which they had bulk of the labour force is Egypt’s largest exporter Mr Kouko says that Egyp- blocked in protest over late earns less. Textile manufac- of ready-made garments, tian textile products are salaries. turers say the latest move pays some workers less less appealing to importers Ms Rady says the imple- is an indication of a lack of than the proposed mini- every year, as instability, mentation of the minimum nuance in economic policy mum wage, although he strikes and port closures wage law is likely to lead to making and a short-term says he provides for trans- jeopardise supply chains. more unrest and strikes, solution to poverty. port to factories and work- Mohamed Adel, head of unless companies adjust They fear competition ers’ childcare and schooling the export department at their entire pay scales from low-cost exporters costs. Union Textiles, says he upwards. such as Bangladesh will Shereen Kouko comes pays skilled workers above She says: “If you give destroy their industries if from a family of factory the proposed minimum somebody at entry level the they have to increase work- owners. He still works in wage because qualified same as someone who has ers’ salaries. the business, but his cous- employees are scarce. been working for you for 10 There are about 7,200 ins recently left the indus- If a minimum wage were years, you’ll have a riot. It textile-related companies try. Eight months after Mr introduced he would have has to be finessed.” FINANCIAL TIMES WEDNESDAY DECEMBER 18 2013 ★ 7 Egypt Economy Natural gas is in abundance but every day the lights go out

Energy As international producers wait to be paid, households’ fuel subsidies are crippling the economy, writes Nadine Marroushi Left in the dark: a student studies by candlelight for his morning exams during a power cut in the northern city of Toukh Reuters

uring the summer in Cairo, hard place,” says Mike Sigalas, a commitments stood at about 16bn cu government says it has agreed a time- BG is owed $1.4bn from the state- year, he says, which will pave the way as air conditioners were board member. “Titan would like to m before 2011. Since the 2011 revolu- table to pay $3bn of the $6.3bn it owes owned Egyptian General Petroleum for natural gas imports before next switched on and demand use coal to make up for the shortfall, tion the government has slashed to foreign oil companies. Corporation. BP, another of Egypt’s summer. for electricity peaked, daily but Egypt’s environmental concerns exports and prioritised local needs. International oil companies have largest producers, declined to say how Saudi Arabia, Kuwait and the power cuts left whole dis- are putting this on hold.” Egypt has long subsidised a range found it uneconomical to continue much it is owed. It has reserves of United Arab Emirates have promised Dtricts without supply for hours. According to Mr Sigalas, officers of energy products to its population. developing Egypt’s mainly offshore more than 28bn cu m of gas offshore, Egypt aid packages worth more than The blackouts have become a regu- from the environment ministry vis- Subsidies cost the government gasfields. At issue, industry insiders which it has yet to develop because of $12bn, including fuel supplies, since lar feature for many Egyptians, a con- ited Titan’s factories to prevent the E£129bn in 2012 and the figure may say, is the price paid by the govern- delays in resiting an onshore process- Mr Morsi’s overthrow. But, some are sequence of overburdened power sta- company from adopting the coal plan. rise to E£150bn ($22bn) in 2013. They ment for supplies pumped into the ing terminal. asking, how long can the lifeline last? tions and natural gas shortages. Ahmed Heikal, chairman of Citadel eat up 20 per cent of its budget reve- domestic grid. As well as making repayments, the “Egypt can’t afford to live on Gulf The impact has extended beyond Capital, an investment company, nues and amount to more than health- In October, the UK’s BG Group, one government is in the process of rene- aid for ever,” says Mr Heikal. “It has domestic consumers to energy- faces a similar problem to Titan’s, care and education spending com- of Egypt’s largest natural gas produc- gotiating a “fair price” for gas with to face its issues, and energy is one.” intensive industries, whose supplies although he is looking for a different bined. Many, including Mr Heikal, say ers, said: “Further assurances regard- international oil companies, says Successive governments have long of natural gas have been reduced after solution. At Asec Minya, a cement the country cannot afford them. ing future domestic offtake levels and Taher Abdel Rahim, chairman of the talked about reforming the costly the government prioritised house- producer and subsidiary of Citadel, The budget is running at a deficit, a material improvement in the out- state-owned Egyptian Natural Gas energy subsidy programme, but little holds over industry. Though Egypt capacity was cut by 50 per cent this which widened to almost 14 per cent standing debt position are required Holding Company. has been done, because officials feared has an abundance of natural gas summer. Mr Heikal wants Egypt to of gross domestic product during before releasing funds for the next Egypt pays offshore gas producers that price increases would risk fur- reserves, analysts and business people begin importing natural gas. 2012-13, the year in which Mohamed phase of development.” on average $2-$3 per million British ther social unrest. say that not enough have been devel- “Egyptian domestic gas consump- Morsi, Egypt’s deposed president, was thermal units. The current government accepts oped to meet surging local demand tion grew at about 10 per cent a year in power. The government says it is Egypt produces 93m cubic metres of price rises are inevitable. “[We are] and export commitments. over the past three years and reached aiming to reduce this to about 10 per gas a day and needs to reach 165m- serious about dealing with the subsi- At two local subsidiaries of Titan 55bn cubic metres in 2012, while pro- cent this fiscal year. ‘Egypt can’t afford to live 170m to meet demand, he says. The dies issues,” Sherif Ismail, petroleum Cement, a Greek-owned company, gas duction stood at about 60bn cu m,” As a result of the widening deficit on Gulf aid forever. It has target for 2014 is 160m cu m a day. minister, said in an interview with a shortages have caused a 20 per cent says Ahmad Shams El Din, research and a foreign currency crunch, Egypt The government expects to make a state newspaper last month. “We production capacity loss. director at EFG-Hermes, the regional has fallen behind in payments to face its issues’ decision on building a floating regasi- don’t want to raise prices to the inter- “We’re stuck between a rock and a investment bank. Egypt’s export to international oil companies. The fication terminal by the end of this national level, just the cost price.”

Trading picks up but real returns will come with political stability

controls and the fragile eco- market specialist at UK- Hussein, co-head of sales Stock market nomic situation,” Mr Ziada based Investec Asset Man- trading at CI Capital, a says. “While real estate is a agement. regional investment bank. The EGX 30 index good investment, it’s not as “The relief to the dollar Mr Hussein explains that has shown resilience liquid.” crunch that followed the the increased activity of Capital controls may have aid from the Gulf is seen as retail investors should not despite a turbulent steered local retail investors finite – it kicks the can that be viewed negatively and year, reports Amira towards Egypt’s bourse, but is pound depreciation risk that it is important to diver- they also created a persist- down the road. sify and expand the inves- Salah-Ahmed ent repatriation problem “Once there are some tors’ mix. that has made the market “Institutions balance out less attractive to foreign volatility,” he says. Egypt’s stock market has investors. Three of the bourse’s rebounded significantly in Easing these capital con- ‘Egypt’s financial main blue-chip companies – the past six months, defy- trols can happen only when Orascom Construction ing a period of political tur- the central bank replen- markets are Industries (OCI), Mobinil moil following the ousting ishes foreign reserves in a under­owned by and National Société Géné- of Mohamed Morsi as presi- more sustainable manner. rale Bank – have recently dent in July and the subse- Gulf aid money is seen as a foreign investors’ moved out of the market, quent suppression of his short-term relief. leaving only residual Muslim Brotherhood group. Investors outside Egypt shares. The market reached a will be looking for more milestones, such as a They left for different rea- peak in November after bot- political stability and clar- strongly mandated govern- sons, including changes of toming out in late June. ity around the transitional ment that begins making ownership and, in the case While trading volumes have process, which would in bold fiscal decisions, foreign of OCI, a multinational that remained low amid waning turn lead to improved eco- investors are likely to derives most of its revenue interest from foreign inves- nomic conditions. return,” he says. from outside the country, a tors, local retail investors “Foreign investors con- Local institutional inves- desire to improve access to have helped sustain the tinue to be on the side- tors have also played a role credit by avoiding Egypt market’s positive perform- lines,” says Tarek Shahin, in moving the market in risk. ance. frontier and emerging recent months, says Tariq Under Mr Morsi, OCI The main EGX 30 index agreed to pay a disputed broke a resistance level of Egyptian stocks $1bn tax claim from the sale 6,000 points on October 20. of a subsidiary five years Egypt EGX 30 index One month later, the bench- earlier, in what was seen by mark index jumped another the business community as 500 points. 6500 an illegitimate demand. “Trading volume was But while “the departure quite low throughout this of these names reduces the year until September,” says current breadth and depth Wael Ziada, head of of the market, it shouldn’t research at EFG-Hermes, a affect the decisions by regional investment bank. active investors too much”, In the third quarter, how- says Mr Shahin. ever, average daily turnover 6000 “Active investors largely surged to $80m from $37m make stock-by-stock deci- in the previous quarter, he sions and there are still adds. But those volumes good companies on the remain low: in 2010 average exchange,” he adds. daily turnover was $180m. Looking ahead, he says: The latest movement was “Foreign markets will be driven mostly by local retail 5500 happy to see a newly investors, who have seen elected government, even if “an increase in liquidity on it includes some of the the back of an expansionary people in the interim gov- monetary policy from the ernment.” central bank”, Mr Ziada Analysts say investors says. will be looking to the refer- An influx of aid from Gulf endum on the constitution, countries this summer to 5000 expected to take place in the tune of $12bn offered January and to be followed some relief to the Central by parliamentary and presi- Bank of Egypt, which had dential elections, and also been struggling with to a healthier economic cli- depleted foreign reserves. mate with more transpar- It led to an upgrade in ency and efficiency. ratings from agencies after 4500 “Egypt’s financial mar- successive downgrades kets are under-owned by since the January 2011 Jun Jul Aug Sep Oct Nov Dec foreign investors, relative uprising. 2013 to other comparable emerg- “Options outside Egypt ing markets, so it will not for local [investors] are Source: Thomson Reuters Datastream take much to lure [them],” limited due to capital says Mr Shahin. 8 ★ FINANCIAL TIMES WEDNESDAY DECEMBER 18 2013 Egypt Security state tightens its grip Diversification helps car company survive

broadly flat year on year, although Human rights A mother’s story highlights a return to authoritarianism, writes Siona Jenkins Company profile the company has kept 30 per cent GB Auto market share. But Ms Sadek is confident that car hen Wael Hamdy took for police and state accountability do Good performance in other sales will improve. “Egypt is an his 16 year-old brother not get airtime or find themselves underpenetrated market, with only to pick up groceries on condemned in the state media as a sectors makes up for poor 32 cars to every 1,000 people,” she June 24, he promised his “fifth column”. points out. “In comparable regional mother he would be Rasha Abdulla of No to Military Tri- sales, writes Siona Jenkins countries, it is far higher: Iraq is 77 Wback in a couple of hours. als, a group campaigning to end the per thousand and Algeria is 114.” The next time she saw him was the trials of civilians in military courts, Buying a new car is not a priority Despite uncertainty, GB has stuck following day in a police station bath- says that her group has found it “very for most people during a political to its pre-2011 plans to move into room, where the 27 year-old’s bruised difficult to find a voice in the press” crisis. Yet Egypt’s leading auto other sectors of the home market to body hung from a window after what in recent months. supplier has not only weathered the strengthen its business. It spotted an the police claimed was a suicide. A new draft constitution offers turmoil of the past three years, it is opportunity in the lack of consumer Swathed in black and choking on some rights protection, particularly expected to emerge stronger when financing options for people wanting her tears, Um Wael describes how her for women and minorities, but makes calm is restored. to buy cars in Egypt – 70 per cent sons were accused of trying to steal a no changes to the institutions charged Ghabbour, or GB Auto, is a are paid for in cash, making them handbag. Although no charges were with implementing the articles, which household name in Egypt. Founded unaffordable for many. pressed, they were taken to a police some say undermines the document. by two brothers in the 1940s, it went “We decided to launch our own station in eastern Cairo, where they Zaid Al-Ali, senior adviser on consti- public in 2007 and is now the largest consumer finance in the second were beaten to get them to confess. tution building at the International automotive company in the Middle quarter of 2012 and it’s going very “They killed him,” she says. “It was Institute for Democracy and Electoral East and north Africa, assembling well,” Ms Sadek says. clear he hadn’t died from hanging. He Assistance, says: “It is very disap- and manufacturing passenger cars, The company has embarked on a had bruises and blood on him. He pointing to see that the new constitu- motorbikes, commercial vehicles and micro-financing venture to boost looked like he was asleep.” tion makes very little effort to make construction equipment and offering sales of the Bajaj brand auto- Police brutality has been the norm the state’s main institutions [the judi- financing and aftersales service. rickshaws it assembles. Known in Egypt for decades and was one of ciary, local government, the security Diversification, including regional locally as “tuk-tuks”, sales have been the main drivers of the 2011 revolu- sector] more accountable.” expansion, has insulated GB from resilient in the past three years. GB tion that overthrew Hosni Mubarak. A new law on public assembly has the battering its home economy has sold nearly 70,000 in 2012, up from But hopes that a new political order led to fears that the government and taken in the past three years. In 40,000 before the revolution. would bring justice for ordinary citi- its military backers are reinstituting 2010, it began a joint venture in Iraq Although it may seem risky to zens have yet to be realised and, authoritarianism. The law allows the that now accounts for 30 per cent of lend money to the poorest part of nearly three years on, many rights interior ministry to ban gatherings of car sales, and has begun operations the population, Ms Sadek points out activists say police impunity has more than 10 people and the police to in Algeria and Libya as well as the microfinancing project, called increased as the security state has use lethal force in self-defence. Jordan. It is also developing export Mashroey, has been successful. “We tightened its grip on power. Despite criticism from local and markets to sub-Saharan Africa. have had no non-performing loans The overthrow of Islamist president international rights groups and some But the majority of GB’s business for our tuk-tuks. Zero,” she says. Mohamed Morsi last summer was fol- foreign governments, the ministry has remains in Egypt. “If you look at our Despite these successes, she admits lowed by a violent campaign against defended the law as a necessary business, you get the economy in a 2013 has been challenging. “The third his Muslim Brotherhood, as the mili- response to the near daily protests nutshell,” says says Menatalla Sadek, quarter was a perfect storm,” she tary-backed interim government staged by Mr Morsi’s supporters. director of corporate finance and says. Unrest after the coup that vowed to end what it called “terror- When secular activists held two investments. It has been a variable overthrew Mohamed Morsi in July ism”. Mr Morsi and the Brotherhood peaceful protests in defiance of the picture, particularly in the third shook consumer confidence, affecting leadership, along with thousands of law on November 26, the response by quarter of 2013 when, as Raouf passenger vehicle sales. Violence also its followers, remain in custody. the security forces was swift. Arrest Ghabbour, chief executive, wrote in hit the company’s supply chain. Since the coup, an estimated 1,300 warrants were issued for a number of the Q3 earnings release, “consumer “Usually good performance in people have been killed by the secu- high-profile secular activists. confidence hit its nadir”. other sectors makes up for poor car rity forces – several hundred of them Most activists remain optimistic Net income in the third quarter fell sales, particularly three-wheelers,” during the bloody clearance of anti- that Egyptians will eventually win 89 per cent from E£65.4m to E£7.5m says Ms Sadek. Although demand for coup protest camps in August. There Strong arm: police detain a man protesting against curbs on gatherings Reuters their basic rights. “I don’t think you year on year. The second quarter tuk-tuks was strong, GB could not have been no investigations into alle- can underestimate the change in peo- was only marginally better, with a 72 maintain supply after unrest in Sinai gations of excessive use of force, ple since 2011,” says Mr Abdulla. “It per cent drop on Q2 2012. prompted the army to close a bridge despite widespread witness reports rates,” says Hossam Bahgat, executive After three years of turmoil and may take longer than we hoped for Despite the economic gloom, the linking the mainland to the port that live ammunition was used director of the Egyptian Initiative for increasingly dire economic problems, change, but I’m optimistic.” company is seeing an increase in where parts are imported. against unarmed protesters. Personal Rights, a campaign group. many Egyptians want to get on with But for Um Wael any change will be sales. “September through to The gloom seems to be dissipating, Rights advocates point out that the In 2013, the sense of police impunity their lives and public criticism of the too late. Her attempts to hold the November have been phenomenal,” reflecting a general improvement in return to business as usual for the has intensified, with an increasing police and the military-backed interim police accountable for her son’s death says Ms Sadek. business sentiment. Sales of police began under Mr Morsi, who intolerance of dissent. “There is a per- government has been muted. have met with repeated stonewalling Passenger car sales, about 70 per passenger cars and commercial vowed to restore law and order to the ception that the police are now back Islamist television stations have by prosecutors and police officials. cent of GB’s business, are a main vehicles have jumped in the fourth country when he appointed his first in power,” says Mr Bahgat. He added been closed down and increasingly “We poor have no rights,” she says. indicator of middle class consumer quarter. “Only time will tell if this is cabinet in August 2012. Deaths in that the lack of any legal consequence nationalistic media vilify the Brother- “I know I’m not going to get justice sentiment and have followed the pent-up demand or a sustainable detention and fatal police shootings for the deaths has emboldened the hood as terrorists. for my son.” vagaries of the political situation. improvement,” she says. “We’re not slowly began to climb. “By November police. “The normalisation of killing Those in the middle who oppose They have dropped in Egypt by seeing signs of a slowdown, but the 2012 we were back to the Mubarak has a deep impact.” both political groups and campaign Additional reporting by Amina Ashraf about a third since 2010, staying next few months are critical.”

Optimists look to arrival of Ikea and return of European tourists

Investment Relief at the ousting of Morsi is tempered by realism, writes Amira Salah-Ahmed

Egypt’s business circles have been buzzing with pos- itive sentiment in the past few months, but the turbu- lence of yet another transi- tion period is taking its toll on economic recovery. The optimism is born out of relief after the ousting of Mohamed Morsi as presi- dent in July. But it is tem- pered by the realities of Egypt’s economic condi- Open for business: Egypt’s first branch of Ikea in the Cairo Festival City development tions as well as much- needed structural reforms that have yet to be tackled. from 49.5 in October to 52.5 says Alaa Ezz, secretary- Cairo-based economic think- The Muslim Brotherhood in November. Figures above general of the Federation of tank, says: “We see a very group, which Mr Morsi led, 50 indicate an expansion, Egyptian Chambers of Com- significant expansion in the was regarded as attempting and HSBC notes that this is merce. Twelve industrial overall retailing sector. A to create an alternative the first positive reading zones are under construc- number of companies we business elite during its since September 2012. It tion, but will take at least know are planning signifi- brief time in power. underlines, however, that two years to complete. cant investment...more Egyptian business might output is still below 2012 “Egypt is facing the high- than they have invested now be returning to nor- levels. est unemployment in its over the past decade.” mal, but investors are wor- Mr El-Khazindar points to history. Real estate and Business people and ana- ried that the authorities Citadel Capital’s recently tourism have declined, both lysts agree that an improve- may yet again shy away approved capital increase as of which employ 10m ment in economic condi- from long-needed reforms evidence of improvement in directly and indirectly,” he tions hinges on better secu- that would make the econ- the business climate. says. Still, he adds: “Busi- rity and a smooth transi- omy sustainable. The company had applied nessmen see problems as tional process through the Hisham El-Khazindar, co- to the regulator for opportunities.” constitutional referendum founder and managing approval last year, but its Industries that have and parliamentary and director of Citadel Capital, request languished for nine presidential elections. a regional investment com- months until the change of Security is regarded as a pany, says: “People are regime. prerequisite for the recov- more optimistic, but this is Mr El-Khazindar says Cit- ‘Real estate and ery of tourism, a sector that tempered by caution and adel received approval has been one of the biggest the realisation that things within weeks and the capi- tourism have gone revenue earners. need to fall in the right tal raising will be the larg- down. Both employ Before Hosni Mubarak place, both on the political est in Egypt since the 2011 was ousted from power it and economic fronts.” uprising, when it is com- 10m directly and was worth $12.5bn per year; The sensitive issue of pleted in January. by 2011, it was worth 30 per restructuring costly energy He and others would like indirectly’ cent less. subsidies which eat up a to see the government move Visitor numbers plum- fifth of the budget, for faster to tackle the fuel sub- meted this year following example, has been pushed sidy system that lies at the proved resilient by continu- the ousting of Mohamed from one cabinet to core of Egypt’s persistent ing to draw new investment Morsi’s Muslim Brother- another, without implemen- large deficit and weakness are those targeting Egyp- hood. But travel operators tation. in balance of payments. tian consumers, such as and the tourism ministry Even so, analysts and Heavy industries continue retail or food processing. are reporting signs of a ten- entrepreneurs are reporting to suffer from disruptions In late November, the tative recovery. an increase in business to power as the country’s first phase of Cairo Festival Elhamy Elzayat, chair- activity, reflecting insufficient gas supplies are City, the latest commercial man of the Egyptian Tour- improved sentiment, directed to power plants, centre, opened in the New ism Federation and chief though most note that a sig- which are given priority to Cairo district. The project, executive of Emeco Group, nificant rise in investment combat the electricity cuts which boasts Egypt’s first says: “The plan for the time will not materialise until that peaked last summer. branch of Ikea, was devel- being for investment in political stability returns. The gas shortages are oped by the United Arab tourism is to complete Figures published this now a brake to investment Emirates’ Al-Futtaim Group existing projects. month by HSBC that track in industry. with investments that will “There is no talk of new non-oil private sector activ- The difficulty of acquiring total E£17bn on completion. investments in big projects. ity show an increase in the land for industrial plants is Angus Blair, president of This will not happen until purchasing managers’ index also holding up investment, the Signet Institute, a tourism recovers.” FINANCIAL TIMES WEDNESDAY DECEMBER 18 2013 ★ 9 Egypt Bedouin tribes Violence keeps visitors away caught in the larly Russia, are returning. Tourism Amr el-Ezaby, an adviser to the minister of tourism, Dwindling numbers is confident the winter sea- have hit the son will see a jump in num- crossfire in war bers. “Tourists are resilient economy, writes and are searching for an Siona Jenkins easy destination,” he says. Egyptian tourism has often been fickle. In the against jihadis Cairo’s Egyptian Museum is 1990s, a violent anti-govern- a world-famous collection of ment campaign by Islamists artefacts. Containing the led to falls in visitor num- treasures of Tutankha- bers, particularly after the mun’s tomb and a cache of 1997 attack on Hatshepsut royal mummies, it is a lead- temple in which 58 tourists Sinai Army raids have wreaked devastation on ing tourist attraction. were killed. But on a sunny November Then, tourism bounced impoverished area, writes Nadine Marroushi morning, most of the back relatively quickly in museum’s rooms are empty, contrast to the past three a vivid indication of the cri- years, the longest sustained he village of al-Muqataa and blogger who represented Sinai on sis facing Egypt’s tourism decline the sector has seen. bears the evidence of the the 50-member committee that drafted sector. Nearly three years All tourism-related busi- army’s heavy handed tactics. Egypt’s new constitution. “They are of political unrest have nesses have suffered. Karim A shelled-out mosque, con- terrified by terrorists, who have killed scared visitors away and Nabhan, president of 5 Con- crete houses pockmarked more than 20 of Sinai’s people with left the industry reeling. tinents Travel, a family- Twith bullet holes, and burnt animal bullets and knives, and they’re fright- Tourism provides 14.4 per owned travel company huts huddle among sand dunes and ened of the army that is conducting cent of the country’s for- based in Cairo, has olive farms a few kilometres from the its campaign mindlessly.” eign currency and accounts switched the focus of his borders of Gaza and Israel in the A Salafi jihadist group has threat- for about 4m jobs, accord- business from foreign tour- north of Egypt’s Sinai peninsula. ened to kill anyone found aiding ing to the ministry of tour- ists to domestic travel; The army carried out a recent “raid Egyptian security forces. ism. Before the 2011 revolu- three years ago 75-80 per and combing” operation here against Attacks by armed militants against tion that overthrew Hosni cent of his business came Islamic militants. On November 26, police and military targets in Sinai Mubarak, it was worth from tourists to Egypt; now, Mohamed Hussein Mohareb – also increased sharply over the summer $12.5bn a year; by 2011, it he says, about 80 per cent of know as Abou Munir – was killed by after the coup in July that ousted was worth 30 per cent less. it is “outbound”. the military with his son and one Mohamed Morsi, the Islamist presi- Visitors have stayed away Small businesses are at other during a shootout. dent, and the subsequent killing of Burnt ground: peninsula with offensives launched bombers, and car bombings suggests following 2013’s political the sharp end of the crisis. He was one of the most wanted mili- hundreds of his supporters. boys in Sinai against the Suez Canal, Cairo and the an increased level of sophistication.” turmoil – particularly after Mohamed Hosni, who works tants and the religious guide of The army began its Sinai campaign survey damage Nile Delta. The attacks have become He says security forces seem to lack the coup at the end of June. in a bookbinding shop extremist Takfiri groups in North in September, when it increased after army raids more sophisticated, analysts say. a holding strategy for the villages The bloody suppression of behind al-Azhar mosque in Sinai, responsible for attacks against efforts to root out armed militants Reuters One of the groups, Ansar Beit al- they attack, which allows the mili- Mr Morsi’s Muslim Brother- the capital’s medieval souk, security forces, according to the mili- from the restive peninsula, a moun- Maqdis, claimed responsibility for the tants to slip through their fingers. hood group and a wave of says that in July his sales tary. The mosque in Muqataa, where tainous region and a haven for jihadis November 17 shooting of Lieutenant “[The security forces] show up at the anti-western sentiment led dropped sharply and staff he preached to hardline Islamists, had in recent years. Most are homegrown Colonel Mohammed Mabrouk, a sen- village in the morning, carry out the many governments to issue numbers have since been been reduced to rubble by the army militants, but some are alleged to ior national security officer, in Cairo. operation and leave at night,” he says. warnings to their citizens halved. several months earlier. His death have links with extremists in Gaza. It said in a statement that the attack “If militants know in advance what against travel to Egypt. “We have seen a 99 per came soon after a car bomb killed 10 The impoverished area, long was in response to the arrest and villages will be targeted, they just Amani el-Torgoman, chief cent fall in sales,” he sighs. soldiers on a bus travelling in North neglected by central government, is a interrogation of Islamist women by leave and don’t get arrested.” operating officer of Travco, Back in the Egyptian Sinai towards Cairo. crossroads for weapons, drugs and Egyptian security forces. Lt Col Mab- The unrest in Sinai has already Egypt’s biggest tour opera- Museum, two lone tourists But the military suppression has people smuggling, and its economy rouk had been involved in the arrest claimed the lives of more than 120 tor, says: “We have seen a wander through the animal brought death and ruin to people has been based for several years on of senior Muslim Brotherhood mem- army and police personnel and 168 50 per cent drop in business mummy room, marvelling other than its intended targets, say the flow of contraband through under- bers in recent months, according to militants since July, according to Col since 2010. For three years, over a mummified baboon. many of Sinai’s Bedouins, particularly ground tunnels linking it to Gaza. state media. Ali. He would not speculate on an end we’ve been living on Kirrily and Aaron Moyler those living in the villages that have “We are determined to do whatever The same group carried out an date, only saying: “Terrorist activity savings.” live in London and have been subjected to the army’s cam- it takes to create security and stabil- assassination attempt against cannot be eliminated in a few days.” The interim government always wanted to come to paign, and in Arish, North Sinai’s ity for the people of Sinai,” says Colo- Mohamed Ibrahim, the interior minis- A western official, speaking on con- has tried to mitigate the Egypt. But in their three main coastal city and capital. Resent- nel Ahmed Ali, a military spokesman. ter, in Cairo in September. dition of anonymity, says a long-term damage. It lobbied hard to days in the capital they ment is rising, they say, because of “It’s never been the army’s job to deal David Barnett, a research associate strategy is needed. “Without address- improve Egypt’s image have not left their hotel mass arrests, indiscriminate destruc- with terrorism, but we are doing it for at the Washington-DC based Founda- ing Sinai’s developmental shortages abroad and get interna- without a guide. tion of homes and the killing of inno- the country’s security, and for the tion for Defence of Democracies, a pol- and historical grievances, even if tional travel bans lifted. At “It’s the first time we’ve cent locals. international community’s security.” icy institute focusing on terrorism, Egyptian security forces’ tactics are least 23 countries have visited a city and not gone “Sinai’s tribes are squeezed between More worrying for officials is that says: “The increasing use of bombings successful in suppressing the current lifted or eased their out on our own,” says Ms terrorism and those fighting it,” says Sinai’s militants have claimed respon- over shootings, including remote wave of violence, it won’t in the long- warnings. Visitors from Moyler. “We’re feeling Mosaad Abu Fajr, a Bedouin novelist sibility for attacks outside the improvised explosive devices, suicide run resolve Sinai’s challenges.” northern Europe, particu- scared.” 10 ★ FINANCIAL TIMES WEDNESDAY DECEMBER 18 2013 Egypt Public opinion Salafis risk credibility with backing for new regime

have alienated a portion of its former says. “The Brotherhood...are the however, caution that Nour should Islamists Nour party supporters. reason the army stepped into politics. not be written off. “Nour betrayed the whole Islamic We advised them repeatedly and said “I think they can get back on their has alienated many current,” says Salah Abu Abdel Rah- we feared that the army would inter- feet,” says Stéphane Lacroix, a profes- man, a worshipper at the mosque. vene, but they gave them the opportu- sor at the Institut d’Etudes Politiques of its core supporters, Almost two years ago, Nour nity [through their mismanagement].” in Paris and an expert on Salafis. stunned observers by its success in The party, which has cast itself as Mr Lacroix notes that the Salafi Call writes Heba Saleh the first post-revolution election for a an implacable defender of Egypt’s society has an infrastructure of shortlived parliament which was later Islamic identity, insisted on imparting branches that can still mobilise the dissolved by court order. It garnered a a heavily religious hue to the 2012 vote. he rows of worshippers spill- quarter of the vote, coming second constitution written during the Broth- Keeping Nour on board has been an ing on to the street outside after the Brotherhood’s Freedom and erhood’s brief rule and intended to important objective for Egypt’s mili- the al Aziz Billah mosque in Justice party. pave the way for a stricter implemen- tary-backed authorities. The Salafis’ Cairo broke into chants But in contrast to Brotherhood cad- tation of religious law. against Egypt’s ruling mili- res who have been fighting elections But, bowing to new realities after Ttary as soon as Friday prayers ended. for decades, Nour’s electoral achieve- the ousting of Mr Morsi, it accepted a “Down, down with the rule of the ment was all the more surprising seat on a constitution-writing panel. ‘They don’t want to govern, soldiers,” they shouted, flashing the because it came barely months after Its leaders say they will urge support- they want a religious four-fingered salute promoted by the it was established as a party by an ers to vote “yes” in next year’s refer- Muslim Brotherhood as a sign of soli- Alexandria-based informal religious endum on the new charter, in which presence in parliament’ darity with the hundreds of its sup- organisation called the Salafi Da’wa – Islamist provisions have been watered porters who were killed when the or the Salafi Call. down compared with last year’s docu- military-backed government sent This summer, in lending its backing ment. endorsement of the new political police to break up a massive Islamist to the ousting of an elected Islamist “The charter preserves Islamic iden- order is regarded as necessary to an sit-in in August. president and by, implicitly at least, tity and sharia,” says Mr Makhyoun. inclusive image after the suppression Al Aziz Billah, in the poor district of acquiescing to the often brutal sup- “There is nothing in it which contra- of the Brotherhood. Zeitoun, is a Salafi mosque frequented pression of the Muslim Brotherhood, dicts Islamic law and it does not allow Efforts were made to accommodate by ultraconservative Islamists who it appears to have taken a huge gam- Power balance: Salafis hold a copy of the Koran during a religious protest Reuters legislation to be issued which con- some of Nour’s demands and last- aspire to a more purist implementa- ble with its support base. flicts with religious law.” minute changes to the constitution tion of Islam than that espoused by “I voted for Nour in the past, but With the Brotherhood sidelined, were made, with terms to which it the pragmatic Brotherhood. never again,” says Mohsen Nabhan, a “it opted for a path opposed to that Nour, disagrees with those who argue there is little certainty about how had objected struck out. But many of the worshippers here businessman among the worshippers which the people chose”. his party has damaged its electoral Egypt’s Islamist constituency will “The strategy of the Salafis is much are furious with Nour, the main Salafi at the mosque. “I come from an Islam- A poll by the US-based Zogby chances. He says Nour has placed the vote when parliamentary elections are more compatible with the state,” says party, because it sided with the popu- ist family. There are about 300 of us, Research Services in September 2013 “public interest” above its own held next year. Mr Lacroix. “They don’t want to gov- lar coup in July which ousted but not a single one will now cast his found that public confidence in Nour narrow partisan benefit and that the Some observers fear that increased ern but to have a religious presence in Mohamed Morsi, the elected president vote for Nour.” had dropped to 10 per cent from 29 per people appreciate its actions. repression of the Brotherhood could parliament. They want to have the who hails from the Brotherhood. The Mohamed al Sayed, a teacher, says cent in May and 22 per cent in July. “We did not flatter Morsi because backfire, destroying the credibility of religious field in exchange for some party’s political stance appears to Nour has lost his support because But Younes Makhyoun, the head of he belongs to the Islamist current,” he the forthcoming election. Analysts, political quietism.”

Immigrants flee as xenophobia rears its head

another for the educated Nationalism wife of a diplomat,” the American says. Conspiracy theories “Nationalism is used as fuel popular anger at the solution for Islamism,” says Mahmoud Salem, also foreigners, writes known as the blogger Sand- Borzou Daragahi monkey, who has written about Egyptians’ new xeno- phobia. A fashion designer from He describes the xeno- Latin America visited Cairo phobes as self-serving. “It’s eight years ago. She fell in the easiest way to point to a love with Egypt and moved foreigner as the problem. to the country, becoming Using xenophobia to expe- enamoured with its textures dite short-term political and colours, and the easy gains at the price of long- familiarity of the vendors term political catastrophe is who sold her fabric. short-sighted.” She joined a cosmopolitan Under Mr Mubarak’s 30- scene of artists and models, year rule, Egyptians com- designers and writers, plained their country’s pol- Egyptian and foreign, Chris- icy was subservient to US, tian and Muslim. western and Israeli regional She rallied behind her aims. Part of the goal of the Egyptian friends as they country’s 2011 revolution threw off the rule of Hosni was to restore what was felt Mubarak. And she sympa- to be a balance lacking in thised with them as the Egypt’s relations with more country’s economy and powerful nations. security slid in the revolu- “Unfortunately, that has tion’s afterglow. morphed into anger at for- But after the July 3 coup eigners as well as conspir- against the elected govern- acy theories about western ment of Mohamed Morsi countries,” Mr Salem says. and his allies in the Muslim The xenophobia this time Brotherhood, she describes extends to other Arabs, how a fiercely intolerant especially Syrians and Pal- side of Egyptian society estinians, some of whom emerged. She has asked not are viewed as sympathetic to be named in order to to Mr Morsi and his Muslim avoid more trouble. Brotherhood group. After Syrians were Mahmoud reported to have joined Salem, an pro-Brotherhood demonstra- influential tions, the public mood blogger, is turned against Syrian refu- alarmed by gees. The government intro- rising hatred duced restrictive visa and security clearance require- ments for Syrians, revers- The same security forces ing a longstanding policy of Egyptians fought as corrupt visa-free entry. and brutal in Tahrir Square Talk-show hosts on pri- in 2011 were killing people vate television channels in other squares occupied whipped up anti-Syrian sen- by Islamist protesters, and timent. her friends were cheering “Syrians, if you meddle in them on. our affairs, our boots will Discussions with some kick you in the streets,” became impossible shouting Youssef Hosseini, a talk- matches. They demanded show host, told viewers on she adopt their point of channel ONTV. The chan- view or be ostracised. They nel later apologised for his began unfriending her on comments. Facebook when she refused. One Syrian was stabbed Saddened, she is packing up more than a dozen times on to return home. a bus by youths who The summer saw a surge detected his Levantine of anti-US sentiment, with accent. Thousands of Syri- many Egyptians accusing ans have boarded rickety the US and particularly boats to escape hostility Anne Patterson, its then and difficult economic con- ambassador, of trying to ditions in Egypt. Hundreds weaken Egypt because of those arrested while try- some in Washington had ing to leave have been criticised the overthrow of detained and some have Mr Morsi. The US adminis- been deported. tration refrained from call- Syrian opposition leaders ing it a coup. who had in Egypt carved Conspiracy theories, often out a space for political touted by the media, started activity against Bashar al- to circulate about foreign Assad, the Syrian president, plots to undermine Egypt. have been harassed or “‘If I knew you were an barred from entry. American, I would have Under pressure, the oppo- never shared a taxi with sition Syrian National Coa- you, because your govern- lition has moved its offices ment supports the Brother- from Cairo to Istanbul. hood,’” an educated, upper “It’s an absolute insane class Egyptian woman told shame,” says Koert Debeuf, one American living in a representative of the Cairo. European parliament in The woman said her hus- Egypt. “There’s nothing band was a diplomat. rational about this. It’s a “It’s one thing for a day wave of ‘everyone con- labourer to buy into these nected with the Brother- conspiracy theories, but it’s hood is bad’.”