Briefing with Angus Blair of Signet Institute on the economic stresses in Egypt, Lebanon and Syria
On Tuesday 10 December, Caabu welcomed Signet Institute for a talk led by CEO and President, Angus Blair on the economic stresses in Egypt, Lebanon and Syria. Signet is a think tank and consultancy dedicated to the MENA region; focusing on helping businesses, investors and governments better understand the region through economic and political trends forecasting, risk analysis and due diligence, through research and policy papers. Mr Blair has over 30 years' experience in the investment banking and financial services sector, and has won a number of awards for his coverage of the MENA region. He was joined by his colleagues Moustafa Bassiouny and Karim El Assir.
Mr Blair gave a brief overview of the situations in Syria and Lebanon before focusing on his particular area of expertise, Egypt. Speaking on Syria, Blair predicted that even with an end to the fighting, economic development in Syria will be a lengthy and slow process. In light of this, he stressed the need for immediate long-term provisions to provide for the growing refugee population. The international community, he said, will need to develop long-term and innovative solutions in order to address the strain millions of Syrian refugees are exerting on water, food, rent, waste management, and inflation in the neighbouring countries. In Lebanon, the economy has also been hit by a huge fall in tourism (13% in the past year alone) as well as a withdrawal of foreign investment. Although official estimates of the country’s economic growth is 2%, Blair believes it to be half that at 1%, and questions whether optimistic government rhetoric will ultimately help in resolving Lebanon’s economic problems. Blair said that increased rhetoric from political leaders in Lebanon, encouraging younger members to take to the streets, would inevitability be dangerous for the state, ultimately leading to a situation that they would not be able to control. Given that a lack of tourism in Lebanon is having a severe effect on the economy, one of the only economic hopes would be the discovery of offshore gas. This could benefit an energy hungry economy, providing a deal could be struck between Lebanon, Israel and Cyprus.
Blair then moved on to in an in-depth analysis of Egypt, where Signet is based. He described how, over the past two to three years, the country has been characterised by a series of unfinished transitions and unfulfilled roadmaps. A lack of stability has meant that governments have been unable to be proactive in developing and implementing policy. With the current constitutional timetable it looks as though an elected government will not be in place until the end of July or August next year at the earliest, meaning that real reforms could entirely miss 2014.
Blair emphasised the vital importance of immediate economic reform to stimulate the Egyptian economy. Egypt’s population of over 85 million is growing by nearly 2% every year. According to Signet, this level of growth necessitates a rise in GDP of at least 5-6% per year to provide enough new jobs. Egypt is now around 8% behind its long term trend due to the instability of the past two years. Despite this, Blair believes Egypt holds vast economic potential. Unlike GCC countries, the Egyptian economy is very diverse but it has been held back by a lack of investment. He suggested using tax cuts to change public sentiment and encourage greater spending and investment, as was seen under Mubarak in 1999-2004. Under President Morsi, taxes were raised from 20% to 25%; Blair said that by cutting corporate tax rates the government could kick start the economy and help to reduce the current budget deficit of 14% of GDP. Signet Institute argue that this will rise by at least 12.5%, but the Egyptian government's projection in 10%.
Blair said that after paying out salaries and subsidies the government only has about 20% of its revenue left to actually use. A move away from a culture of high pay and jobs for life is essential to scaling down the Egypt’s lumbering civil service, however he pointed to subsidies as the most urgently needed and achievable reform. 30% of Egypt’s budget is spent on subsidies, 20% on fuel alone. For every car journey from Cairo to Alexandria, the state hands out 80-100EGP (roughly £7-9) in fuel subsidies. Blair described this as equivalent to a tax on the poor, as those benefiting from these pay outs are those better able to afford it in the first place. He believes that if properly presented to the public, a shift away from fuel subsidies would not be as unpopular as some analysts and leading officials suggest. Blair also believes that economic stability will translate in better political stability – spikes in inflation have been seen to coincide with higher levels of protesting. Rising inflation, in particular food price inflation (currently 20%), tend to most affect the poor. In Egypt, where the average family spends 50% of its income on food, Blair said high food prices are politically toxic and socially dangerous. However, he estimates that half of all food is currently spoiled before it reaches the market and is confident that by improving industry standards Egypt could go a long way to addressing food security issues.
Indeed, despite the current political instability and economic challenges, Blair’s overall analysis of the future of the Egyptian economy was optimistic, assuming improved economic governance. He believes that by solving some of Egypt’s energy issues and by changing commercial laws, Egypt can become a manufacturing hub. Although there are significant problems at the top and the bottom, he said there is huge capacity in the Egyptian middle class, which has remained industrious throughout recent turmoil. There is a great deal of young talent that could flourish under a more robust education system and within a less hierarchical workforce. Egypt’s low debt means that once the economy is stimulated, people will have the capacity to spend and meaning faster growth will follow. If Egypt is able to face up to its vitally needed reforms it can begin to harness the vast potential of its huge labour force, natural resources and geopolitical influence.