From Arab Spring to Economic Winter?

The uprisings in Egypt may have been good for democracy, but it was bad for the stock market, which has seen major losses.

Tea, coffee, popcorn, sandwiches and soft drinks are now the most lucrative items to sell in Cairo. These are good times for the dozens of peddlers who fill Tahrir Square, offering their wares to the hundreds of thousands of demonstrators who have come here from all across Egypt.

"On a slow day I make at least 50 Egyptian pounds. But now, thank God, there's plenty of work," said one of the peddlers to a correspondent of the Egypt Gazette.

Egypt - AP - 24.11.2011

Before the revolution, 50 pounds would be about 10 percent of the peddlers' monthly income. But while they are making more, the pound has dropped since the demonstrations began and is now traded at over six pounds a dollar - more than 10 percent less than its value last year. In fact, the higher the income of the peddlers in the square, the closer the Egyptian economy comes to a breakdown.

Egypt's new-old prime minister, Kamal el-Ganzouri, appointed to the post last week by the Supreme Council of the Armed Forces, is considered a talented administrator and economist (he received his Ph.D. in economics from the University of Michigan ) who has tended to Egypt's underprivileged classes.

During his previous term some 10 years ago, he succeeded in advancing important economic projects, including a privatization campaign.

But over the past decade he has completely disappeared from public view, and at the age of 78 he will have to deal first of all with constitutional questions, with preparations for elections, and above all, with putting together his interim government. Will he be able to confront the difficult situation in Egypt and prepare a reasonable economic plan with only temporary and limited powers at his disposal?

Egypt's foreign currency reserves are dwindling. Estimated at $36 billion at the beginning of 2011, in October that figure dropped to $22 billion, and it is unclear how the reserves are to be filled. Tourists have almost entirely left the country, new foreign investments are staying away, and local manufacturing has taken a beating due to the country's instability.

Iron and steel production has dropped by some 40 percent since January, as new projects, such as a $4 billion project to build new refineries, have stalled.

Egyptian real estate agents told the Al-Shorouk newspaper that no new houses are being bought. Instead, young couples prefer to rent. Nevertheless, homeowners and contractors have been reluctant to lower prices, hoping the market will change for the better after the elections.

In the meantime, residents of the Cairo's newer suburbs have been moving elsewhere. This is because these neighborhoods have lost police protection, since most of the security forces in Cairo are concentrated in the city's center and around Tahrir Square - allowing gangs of thugs and burglars to act with impunity elsewhere.

The lack of security, as always, also frightens off foreign investors in Egypt's stock exchange. Investors have lately been withdrawing alarming amounts, causing the stock market to lose about $8 billion in the last month alone. Egypt, with a chronic budget shortage of some 8 percent relative to the GDP, will be finding it ever more difficult to build new factories after over a thousand small and medium-size factories have closed over the past two months.

Soon, the country may also face "million-strong" demonstrations of the unemployed, rather than demonstrations by democracy-seekers.

Last week, leaders of funding institutions and Arab banks also realized that popular revolutions can cause a profound economic crisis not only in the countries where they occur, but throughout the region. At a conference of the directors of leading Arab banks last Thursday in Beirut, Joseph Torbey, chairman of the World Union of Arab Banks, warned that "if the regional crisis continues, the Arab Spring will become a rough economic winter."

To prove his grim forecast, he said the scope of foreign investments for the entire region has dropped by some 83 percent, from over $20 billion to less than $5 billion, and that the expected growth in Egypt, according to the World Bank, will be no more than 1.2 percent, as compared to the country's economic growth under Mubarak's reign, which reached 5.5 percent during his last year in office.

Taking into account the economic difficulties in Tunisia, Yemen, Syria and Libya, the revolutions in the Arab world may thus bring about a collapse of regional banks. Faced with this grim prospect, Torbey suggested that private financial institutions should create an emergency fund to support the states undergoing revolutions.

The question remains, though, which banks will agree to participate in such a fund. Will the Lebanese banks, now in the throes of a serious crisis due to recent events in Syria? Will the banks of the Gulf States, which prefer to saddle their governments with the burden of economic assistance? European banks can hardly be relied on to assist at this time, while the American government is waiting to see what kind of regime will be established in Egypt.

Until such a fund is created, if at all, Egypt is seeking urgent assistance both from the International Monetary Fund and from Arab governments. At the same time, the central bank resolved last week to raise the interest level on deposits to 9.25 percent and the interest on loans to 10.25 percent, in order to stall inflation which is now at over 8 percent.

In the meantime, it seems the peddlers of Tahrir Square will continue to be the solid stanchions of the Egyptian economy.