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Last update - 00:00 25/09/2008
Welcome to chaos: Arab nations hit hard as world markets crash
By Zvi Bar'el, Haaretz Correspondent
Tags: Egypt, Jordan 

The long tables set every evening at the entrance of Cairo's Khal el-Khalili bazaar are a traditional sight. They represent efforts by the Egyptian government, the city of Cairo and charitable organizations to feed hundreds of residents who lack the means to buy the basic foodstuffs for Iftar, the meal that breaks the daylong fast during the Ramadan holy month. Although this gesture is not enough to satisfy the millions of Egyptians who earn less than $1 a day, it does create the feeling that the state "is at least doing one good thing for the country's poor," as one worker who was organizing the tables told me in Cairo.

These very tables are also the center of a political struggle between the government and the Muslim Brotherhood. This year, for example, the government prohibited the Islamic organization from holding its annual collective holiday meal and separate public meals in the poor neighborhoods.

To undercut the Muslim Brothers' allegations concerning the government's poor economic performance - the government is blamed for the steep rise in the prices of basic commodities - the minister of economic development, Osman Mohamed Osman, has issued a new report on Egypt's economic situation. The report does not specify how many Egyptians are living below the poverty line, noting only that their number has decreased by half; the proportion of people earning less than $2 a day is said to be 43 percent of the population - some 38 million people. A year ago, the minister explained that anyone who earns $2 a day cannot be considered poor. Realizing that this explanation will no longer do, he has now declared that the government hopes the country will reach a poverty level of 10 percent by 2011.
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A few streets away from the tables in the bazaar, at the Cairo Stock Exchange, the poverty data are of no interest: The Egyptian stock market plummeted 10 percent in two days, and foreign investors withdrew hundreds of millions of dollars. "The state's roulette table is collapsing," a small investor was quoted as saying in the newspaper Al-Masri al-Yum. "This is the end of capitalism. Welcome to chaos."

The Egyptian pound has also fallen to its lowest level in half a year, and inflation has soared to 26.5 percent. The economic development minister's forecast of diminished poverty levels receded further into the distance, and the plan to privatize government companies, as a measure to improve the economy, has become a fantasy.

"When potential foreign investors see their capital evaporate in Western stock markets, the last thing they will want is to buy a failing factory in Helwan," says a journalist in the economic section of the daily Al-Ahram.

Jordan: 'The money's gone'

A Jordanian who returned to Amman this week related, in a phone call, that when he arrived at Queen Alia International Airport, he was informed that his investment broker had been arrested and that the fate of the money deposited with him was unclear: "The government may indict him, but how will that help me? Jordan is not Dubai or Saudi Arabia, and certainly not Washington, which can immediately inject billions into the market to allay fears. Here, if your investment broker is arrested, the money is gone."

This week, the Al-Arabiya network reported that indictments had been filed against 46 Jordanian companies traded on the stock market. The companies' owners will be tried before a special court for security offenses, as their actions are considered harmful to the national economy. If convicted, they face prison terms of up to 15 years. Now it turns out that these companies provided potential clients with false profit forecasts, and also broadcast fake presentations on TV screens about the stocks they recommended.

Thousands of investors filed complaints with the general prosecutor in Jordan, but are unlikely to recoup their funds, which are estimated to total half a billion Jordanian dinars.

The Gulf: Good times

Less concerned about the global market plunge are the Gulf states, which raked in a fortune from the rise in oil prices and created vast monetary reserves that allowed their governments to inject funds into their financial markets to stabilize them. This week, for example, the central bank of the United Arab Emirates (UAE) announced that it would transfer about $14 billion to the country's banks and financial institutions as a loan taken in extraordinary conditions, so they can maintain liquidity at a desirable level. The central bank is considering lowering the liquidity level from the current rate of 14 percent, and it will also buy bonds from the banks.

As was the case throughout the Arab world, foreign investors yanked capital out of the Gulf states immediately after the markets began to crash. The Gulf banks, which are underwriting colossal building projects in those countries, would have faced a real disaster if clients had demanded their money. Thus, after investing $7.5 billion last November to save Citigroup, the Dubai Development and Investment Authority had to repeat the move - this time to save the country's banks.

However, beyond the stability of the banks in the Gulf states and the inhabitants' certain knowledge that the state will not allow the banks to collapse - mainly because most of them are owned by the ruling families and their cronies - people in the Gulf are starting to worry that the big bubble is liable to burst in their faces. Their concern is specifically for the real-estate bubble, which attracted big investors primarily to the UAE, and more recently to Qatar and Kuwait. With all the luxury towers, the neighborhoods of seaside villas, the office buildings designed by the world's leading architects - local economists now think that the real-estate market has reached the saturation point and that a shift to different fields, notably industry, is desirable.

According to a report issued this week by the Gulf Organization for Industrial Consulting in Dubai, Gulf oil companies and governments indeed intend to divert a larger portion of their profits from petroleum to industry. Already now there are more than 12,000 industrial plants in the Gulf states, which employ about a million people. The plan is to expand the industrial sector by dozens of percent. Industrial growth demands knowhow and professional training along with long-term financing, which does not promise the quick profits that big investors became accustomed to in real estate.

The economic lesson from the fall of the stock markets will compel these countries to undergo a cultural transformation that will posit work in industry as valuable, and educate toward the nationalization of labor and its removal from the hands of foreign workers.

Every so often the Gulf governments launch campaigns to get rid of the latter by toughening the terms for importing them from Asian countries. Recently, the UAE prohibited the rental of villas to bachelors or foreign workers. These campaigns have not produced concrete results, because in the end someone has to build the huge towers and the villas - which is the kind of work the citizens of the Gulf states don't like to do.

In fact, Gulf residents are probably not very upset about these macro-economic analyses. Because when the state ensures the banks against collapse, and when the oil continues to flow, other areas are open to investment. For example, while the political squabbling over the public meals during Ramadan continues in Egypt, the Gulf states imported 119 million tons of food products, and that was only during the first half of Ramadan. Where did all that food go? Much was donated to other countries, a little went for domestic consumption. The good times in the Gulf are continuing, and worried eyes are turned to Washington, which may launch a war against Iran and put an end to the good life.


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      23.   in reponse 11:36  |  Murad 27/09/08
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