AUC Today

	NATIONAL IMPLICATIONS OF AN INTERNATIONAL CRISIS
			Alumni and faculty share insights into the global economic downturn and its effect on Egypt Eskandar Tooma
	Adel El-Labban The current global financial crisis has taken its toll on different countries around the world, and Egypt has not escaped. Two alumni, who are experts in the world of finance, share their insights on the consequences of the economic crisis on Egypt: Adel El-Labban ’77, ’80 is the group chief executive officer and managing director of Ahli United bank in Bahrain, and Eskandar Tooma ’98 is associate professor of finance at AUC and financial adviser to numerous respected real-estate and development groups.
	TO WHAT EXTENT HAS EGYPT BEEN AFFECTED BY THE GLOBAL ECONOMIC CRISIS? __________________________________		Egypt is part of the global economy and has, therefore, been affected on several fronts. For instance, international trade proceeds from the Suez Canal, which are a major source of revenue for Egypt, have seen a reduction of 25 to 30 percent. Tourism has plummeted, and the overall demand for Egyptian exports by harder-hit countries has decreased. The Egyptian capital market has also seen a significant drop. When the global economy began to shrink, Egypt suffered a quick selling scheme in which investors tried to switch to other markets. This led to a reduction of greater than 60 percent of the market, dropping from 11,000 to 4,000 points. This drop affects many different types of businesses, but new and small existing companies feel it the most because it is significantly harder to attract investors and capital in a slow market.

	Egypt is not immune to the crisis, but has fared better than other countries for several reasons. First, Egypt’s banking system is more risk averse than that of the United States. National banks only lend up to 50 percent of their deposits, and a large majority of that is risk-free because it is loaned to the government. Egypt’s Central Bank is very risk-averse because it requires a high reserve ratio. Also, because Egyptian salaries are low and constitute only a small percentage of total expenditures, we have heard far less about layoffs here in Egypt than in other countries. In addition, Egypt is a cash-based society. More advanced, developed countries lean more toward credit and away from cash and are, therefore, more at risk when the economy takes a downturn.		COMPARED TO THE UNITED STATES AND EUROPE, WHERE THERE IS A GENERAL STATE OF PANIC, MASSIVE LAYOFFS AND SHUTDOWN OF CORPORATIONS, EGYPT DOESN'T SEEM TO BE STRUGGLING SO MUCH, WHY? __________________________________

	DUE TO ECONOMIC CONDITIONS IN THE GULF, LARGE NUMBERS OF EGYPTIANS HAVE LOST THEIR JOBS AND ARE RETURNING. DOES THIS POSE A PROBLEM FOR EGYPT AND IN WHAT WAY? __________________________________		This is a very serious challenge. All Gulf employers, government and private, are scaling down their investment plans and reviewing their labor costs with a focus on reduction of expatriates. The larger oil and gas producers (Saudi Arabia, Kuwait, Abu Dhabi and Qatar), who have accumulated cash reserves relative to their smaller populations, will maintain positive economic growth and a generally better employment environment for Egyptian expatriates. Greater stresses will be felt in Oman, Bahrain, Dubai and the rest of the United Arab Emirates. Additionally, the global crunch has driven many qualified U.S. and European professionals to seek greener employment pastures outside their home markets currently facing an extended recession. This talent pool was previously not too keen on pursuing Gulf-based employment opportunities, but has now emerged as a serious new competitive challenge for Egyptian white-collar job seekers in the Gulf.

	The basic shift that has already started is a greater focus on assisting the broader masses, who will feel the brunt of this crisis on their already precarious living standards. In my opinion, a better-managed foreign-exchange policy, smaller scale –– particularly rural-based –– investment spending and selective social programs, including better-targeted food subsidies, are critically needed and will have a more direct and effective impact than fiscal spending on large-scale projects. The latter have a longer gestation period and involve a significant capital outflow to purchase foreign components. The current crisis should also lead to improving efficiency and productivity in the Egyptian export and tourism sectors, setting higher standards for quality and delivery, and developing new, less expensive, more innovative products to address the reduced buying power of their customers across the world. A gradual devaluation of the Egyptian pound may be required, if a sharp slowdown continues, and should be carefully managed to reduce associated inflationary pressures.		WHAT CHANGES SHOULD EGYPT MAKE TO ADJUST TO THE ECONOMIC SITUATION? __________________________________

	WHEN DO YOU PREDICT THE GLOBAL ECONOMY WILL BEGIN TO REBOUND FROM THE CURRENT CRISIS AND WHAT ADVICE WOULD YOU GIVE THE AVERAGE EGYPTIAN AT THIS STAGE? __________________________________		The size of the damage is large. All major economies (United States, United Kingdom, European Union and Japan) will decline between 3 to 5 percent in Gross Domestic Product (GDP) in 2009, as per International Monetary Fund estimates. This is unprecedented in magnitude and geographic scope. Accordingly, any recovery will not be earlier than 2010 and will be slow, if not anemic, at the initial stages. For Egypt, the impact will be more felt in the second half of 2009 and into 2010 as the recession intensifies with the country’s major trading partners, resulting in economic slowdown, job losses, reduced investments and real-income contraction. Consequently, this is the time for prudence and realism. The crisis is coming and will last for more than one year. To the extent possible, budgets should be tailored to basic needs, as jobs and salary increases are under threat. Times of adversity traditionally bring out the best in Egyptians in terms of social solidarity, resilience and creative adaptation. I hope that this difficult period will be no exception.