Hamid on the MB's "Arab Calvinism"

Shadi Hamid of Brookings-Doha does some great research, but I tend to disagree with what he has written over the past year about the Muslim Brothers — I think they are much more conservative and less democratic than he gives them credit for, and strongly oppose any special relationship or particular "engagement" between the US and the MB, which he seemed to advocate in this piece last May. And I don't think they're interested in the Turkish model in any meaningful manner. But Shadi has a very nice turn of phrase in his latest Foreign Affairs piece:

In years past, the Brotherhood distanced itself from the Turkish Islamists under Prime Minister Tayyip Recep Erdogan, whom they saw as unfaithful to the Islamist program, morphing into little more than European-style conservative democrats. But having emerged from Mubarak's repression with a real chance of ruling, the Brotherhood is increasingly looking toward the Turkish model. What the Brotherhood has absorbed from Erdogan's Justice and Development Party is that strong economic growth makes everything else easier. If you raise people's living standards, they are more likely to listen to you on noneconomic matters. Perhaps more important, the Brotherhood believes Egyptians will associate any such economic success with the "Islamic project" -- a sort of Arab Calvinist dream.  

He goes on about the potential for the MB to use parliament as a counter-weight to SCAF and, eventually, the presidency as well as their institutional culture. But I find what's interesting about the economic ideas of the Brothers is actually taking place away from parliament (although they did try to introduce a business court reform bill in 2006 I believe) and in their discreet reaching out to the business community since Mubarak's overthrow. As a group of mostly economic liberals that has many entrepreneurs in its higher echelons, the MB has been experimenting with business incubators and sending reassuring messages to the business community. But it also has some odd economic ideas with roots in an Egyptian tradition of populism that cuts across the political spectrum and makes little sense today, such as, in the FJP's program, "Achieving self-sufficiency in strategic commodities, particularly of wheat and cotton."

But in many other respects they favor free entreprise, economic rule of law, help to boost SMEs and other very reasonable ideas, interwoven with some religious concepts such as makign zakat more effective, reforming the awqaf charitable foundation system and more. Do check out their program, which we've made available in English and Arabic in our documents section.

Egypt's economy is a serious problem

John Kerry was in town yesterday, and he's scared about the state of the economy, according to Reuters:

CAIRO (Reuters) - Egypt urgently needs a massive cash injection and should strike a deal with the International Monetary Fund as soon as possible to reassure investors, said John Kerry, chairman of the U.S. Senate Foreign Relations Committee.

Speaking after meeting military and civilian leaders in Cairo, Kerry said he was hopeful that Egypt would emerge as a strong democracy following the unrest and uncertainty that has followed the toppling of Hosni Mubarak in February.

But he said the main priority should be to strengthen the economy.

"The most significant challenge right now is the economic challenge," Kerry told reporters at the weekend.

"It is very important for Egypt to work with the IMF and undertake to come to an agreement with the IMF for an immediate infusion of money," he said.

Kerry added that Field Marshall Mohamed Hussein Tantawi, who heads the military council temporarily governing Egypt, had indicated that there were "compelling reasons" for outside help given the state of Egyptian foreign reserves.

In a different Reuters report, a SCAF member indicated that they still did not want to borrow from abroad during the transitional period, unless there is "extreme need". Considering the contradictory statements from SCAF these days it's hard to know what to make of this.  

As I noted at the end of last month, an economic crisis is looming in Egypt. Not just the existing crisis of high unemployment and low growth rates — a much more serious fiscal crunch and imbalance in the banking sector.

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Qatar funds social services in France

Earlier today, Sultan Qassemi and I had an interesting conversation based on his tweet about this Qatar-funded project in France:

PARIS — Qatar has set up a 50-million-euro ($67-million) fund for entrepreneurs from France's often-deprived suburbs to set up businesses, the Gulf nation's ambassador to Paris said Friday.

"Qatar is not just words. We must act. The emir (Sheikh Hamad bin Khalifa al-Thani) decided to create a 50-million-euro fund to work with you," said ambassador Mohamed Jahan al-Kuwari.

"The fund can be increased," Kuwari told a group of 10 French elected local officials, all of North African origin.

I really think this is quite remarkable, in the current European context. Qatar, a tiny immensely wealthy country that 50 years ago was mostly a fishing village is now funding social services — or social entrepreneurship if you prefer — in one of the great powers of the last century. And it's specifically helping those people across the Arab world who share language and religious affinities with Qataris, but little else.

This is happening at a time when countries like Qatar, the UAE, Kuwait and Saudi Arabia are probably the chief source of surplus capital in the financial markets, at a time when more established economies are reeling from excessuve sovereign debt, frozen banking markets and the rest. I wonder how much of the merger and acquisitions activity taking place in the West right now is funded by Gulf sovereign wealth funds. Or indeed what proportion of the money is the financial markets come from recycled petrodollars. Those right-wing idiots in the US and elsewhere who complain about the high price of oil simply don't realize that it goes back to a large extent into the Western financial markets. It's basically a direct transfer of money from the gas station to the big investment banks. And now, for those countries whose immigration policy are leaving some behind, there's now social welfare as well as corporate welfare. 

Incroyable mais vrai. 

Notes on the Egyptian economy

The Tahrir economy

That the elections received broadly positive coverage in the media will serve as a corrective to last week's negative mood about Egypt in the markets. That is a silver lining that is much needed a few days after S&P downgraded Egypt's debt and as alarm rises about the state of the reserves (about halved since January, leaving less than four months of imports), policy paralysis notably over the IMF/WB loan, terrible policymaking (borrowing locally at 11-13.5% since last June's rejection of the first IMF/WB package, which was at around 3%) and expectation of a coming devaluation of the Egyptian pound (which would help exports and tourism but contribute to inflation, the one thing brought under control in recent months.)

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How USAID underwrote Egyptian corruption

This is an important story in the Washington Post about the USAID underwriting of Egyptian crony capitalism in the 1990s and 2000s:

Formed with a $10 million endowment from the U.S. Agency for International Development, the Egyptian Center for Economic Studies gathered captains of industry in a small circle — with the president’s son Gamal Mubarak at the center. Over time, members of the group would assume top roles in Egypt’s ruling party and government.

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On Egypt’s supposed odious debt

The other day I linked to an article by Saifedean Ammous, a lecturer in economics at AUB, titled Egypt’s Odious Debts. It argued:

A glance at Egypt’s public finances reveals a disturbing fact: the interest that the country pays on its foreign loans is larger than its budget for education, healthcare, and housing combined. Indeed, these debt-service costs alone account for 22% of the Egyptian government’s total expenditures.

I mentioned in passing that this is wrong, Egypt’s biggest problem is domestic, not foreign, debt. Just take a look at the budget: it pretty clearly shows that Foreign interest expense was EGP2.8 billion in FY2009/10 (less than 1% of budget sector expenditures) and an estimated EGP3.4 billion (again less than 1%) in the year just ended. Whereas domestic interest expense was EGP69.5 billion in FY2009/10 (19% of spending) and EGP77.7 billion (20% of spending) last year.

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In Italy, Eulogies for Qadhafi's Wealth Mismanagement Fund

"Want to bunga-bunga or should we just zenga-zenga?"

An item in the Wall Street Journal reminds us that the ties between Libya and Italy's elites are very, very deep, and, as benefiting the lives of the rich and famous, sometimes produce strange little stories that illustrate much larger forces at work - in this case, the economic future of Libya following the National Transitional Council (NTC) and NATO's military successes: 

ANTRODOCO, Italy - Maurizio Faina, mayor of this small Italian town, has for three years been planning the construction of a lavish spa here thanks to one deep-pocketed financial backer: Col. Moammar Gadhafi.

Now that Col. Gadhafi is being ousted from power by his own people, "the whole plan is over, and it's sad," says the mayor, who had hoped to employ hundreds of people thanks to the €16 million ($22 million) resort.

Antrodroco's longing for Col. Gadhafi's largesse is a small, but significant, window into the vast economic ties between Italy and its former colony - a network that generated about $17 billion in annual trade before the conflict broke out.

Significantly, the spa deal began with a personal effort by Colonel Qadhafi (conduced alongside the Italian PM, Silvio Berlusconi, who has cultivated close ties with the deposed leader) and was, according to Italian sources, being managed by the Libyan Investment Authority (LIA), whose multibillion dollar assets were frozen several months ago. These assets include stakes in UniCredit, Italy’s largest bank (who largest foreign owner was, until recently, the Libyan government); Eni, the state energy company that produces the lion’s share (60%) of Libya’s oil exports; and Finmeccanica, a partly government-owned conglomerate with interests in Libya ranging from infrastructure to defense. The regime also had smaller stakes in various Italian sports, automotive, media and telecom interests – and was reported to be eying another, even larger, resort project in the Italian spa town of Fiuggi (so the Colonel would have a choice of resorts, presumably).

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Egypt's new finance minister and the rentier state

Egypt's new finance minister is the respected economist Hazem al-Biblawy. I am not sure why he was appointed (or why his equally respected predecessor, Samir Radwan, left) but it's interesting to note that one of his academic specializations is the rentier state. He even edited a book about the rentier state in the Arab world in the 1980s, with Giacomo Luciani. An excerpt:

Good theoretical grounding to have as Egypt tries to finance its fiscal deficit by leveraging its strategic rent-value in the Gulf and the West — a policy I like to call Mubarakonomics.

Why did Egypt reject IMF/WB loans?

This post has been updated below — now with feedback from the World Bank.

It's a question whose answer escapes me. Egypt is facing an economic crisis in the year ahead, even if there are some signs of recovery from the dire months immediately during and after the revolution, and has a long-running fiscal deficit problem that's only getting worse. Why is it not taking money that comes fairly cheaply (in the sense of low interest rates and not many strings attached) and that it could use for some stimulus spending to accelerate the recovery?

Reuters reported:

Egypt will not borrow from the World Bank and International Monetary Fund after revising its budget and cutting the forecast deficit, even though a loan had been agreed, Finance Minister Samir Radwan said Saturday.

The 2011/12 deficit in the first draft budget was forecast at 11 percent of gross domestic product, but was revised to 8.6 percent because of a national dialogue and the ruling army council's concerns about debt levels, the minister told Reuters.

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Iran, a model for Egypt?

Don't get me wrong: Iran is absolutely not a model for Egypt in terms of its bizarre, unelected Ayatollah-led Islamic republic, or in terms of its nasty and repressive security apparatus. But it might be in terms of economic policy, if the IMF is anything to go by. Here's a statement from the latest IMF Article IV consultation for Iran, the annual "inspection" of economic policy and performance review it does in every country:

“The mission reviewed recent economic developments and revised its macroeconomic estimates and projections in light of new data and discussions with the authorities. Real GDP growth recovered to an estimated 3.5 percent in 2009/10 despite the drop in oil prices, reflecting strong non-oil growth and an exceptional agriculture crop. The positive growth momentum continued in 2010/11. The authorities’ monetary policy successfully brought down annual average inflation from 25.4 percent in 2008/09 to 12.4 percent in 2010/11. Gross external reserves also remain comfortable with improved prospects for the external sector on the back of higher oil prices.

The mission commended the authorities for the early success in the implementation of their ambitious subsidy reform program. The increases in prices of energy products, public transport, wheat, and bread adopted on December 19, 2010, are estimated to have removed close to US$60 billion (about 15 percent of GDP) in annual implicit subsidies to products. At the same time, the redistribution of the revenues arising from the price increases to households as cash transfers has been effective in reducing inequalities, improving living standards, and supporting domestic demand in the economy. The energy price increases are already leading to a decline in excessive domestic energy consumption and related energy waste. While the subsidy reform is expected to result in a transitory slowdown in economic growth and temporary increase in the inflation rate, it should considerably improve Iran’s medium term outlook by rationalizing domestic energy use, increasing export revenues, strengthening overall competitiveness, and bringing economic activity in Iran closer to its full potential.

Cutting energy subsidies and rationalizing other subsidies so that they target the poor better is exactly what Egypt needs to be doing. Mohamed ElBaradei is the first Egyptian politician who had the courage to bring it up, to my knowledge, in last night's appearance on the Amr Khaled "Boukra Ahla" show. Rather than borrowing money from financial institutions to finance increases in its budget, Egypt should cut the subsidies. It will be politically unpopular but it's necessary.

The previous government knew it and the next one better know it. An economic policy that delivers better social justice and poverty reduction doesn't just have to create jobs, improve infrastructure and deliver better social welfare — it also has to finance itself without systematically resorting to debt and to be efficient and fair in the way it delivers subsidies. The businessman who lives in a villa in Maadi and drives a gas-guzzling Range Rover should not be getting subsidized fuel — better to spend that money on the poor villagers who need affordable cooking gas. So perhaps there is something to learn from Iran after all.

On Egypt's minimum wage

Rashad Mahmood, an independent consultant and journalist who until last year was based in Cairo, sent me his thoughts on the campaign for a new minimum wage in Egypt. I agree with him that the inflationary impact of arbitrarily increasing the minimum wage is not being talked about enough. Nor are other issues: for instance, if the minimum wage is drastically increased, why not end the bonus system in place in many workplaces? And optional extra like additional months of wages that are paid out by some employers? A new wage system cannot only be about a living wage, it should also be about a clearer, enforceable system that provides labor flexibility and increases productivity. That's something missing from the public discussion thus far.

For a little background on the minimum wage in Egypt, last year an administrative court ruled that the government had been negligent in not holding a meeting of the Supreme Council for Wages, which sets the minimum wage, since 1984. The official minimum wage had thus been frozen at the ridiculous level of LE36 per month. The NGO that had filed the suit meanwhile issued a report that, based on cost of living estimates, the minimum wage should be LE1200. Business associations countered that it should be LE400, the government agreed, and I had bet that, were it not for the revolution, Hosni Mubarak would have decreed that the government should set it at LE500-600 as a pre-electoral populist measure. After the revolution, some labor activists even called for a new minimum of LE1500. For the moment, different wage levels are set for the public and private sector (which does not make sense to me) and many workers earn a good part of their income not from salaries but from bonuses. 

Here are Rashad's thoughts:

While it may sound appealing to institute an LE 1200 minimum wage in Egypt to ensure prosperity for all Egyptians, there are better ways to help the poorest, and it would lead to rampant inflation and reduce employment when Egypt needs to be hiring. As economists like to say, there is no such thing as a free lunch, and this is a clear case of that. 
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Discontent in Tunisia

A good AJE report on social discontment in Tunisia. A very good example of why it's not enough to change the leaders, the very model of economic distribution has to be changed. Too many Arab countries basically adopted a economic model after decolonization where an elite replaced the old colonial class and the fundamental distribution of wealth remained the same.

Are Arabs, on average, getting poorer?

The Daily Star - Lebanon's stresses are also the region's:

World Bank data shows that per capita Gross Domestic Product (at constant 2000 prices) for the entire Arab world actually declined from an average of $2,671 for the decade of the 1980s to $2,556 this decade (going even lower to $2035 for the decade of the 1990s in between). In other words, in the last 30 years, the average income or personal wealth of Arabs on average has been simultaneously low, dropping and erratic. For every BMW and Mercedes car you see in Arab capitals there are 50 families you do not see that cannot provide their children with sufficient nutrition, school supplies or heat in winter.

Rami Khouri, presenting five points about the Arab predicament. This one requires further verification but is quite striking. I'd like to see a chart not of average income but of the rate of income growth over the 1950-2010 period, to see whether the acceleration (or deceleration) of the rate of growth of average household income. Of course it might be more meaningful to do this per country than for the whole region.

Update: See this chart and the long comment by Non-Arab Arab below.

 

Data from World Bank

 

Growth is good for dictators

Here's an interesting theory courtesy of The Monkey Cage:

Contractions in economic outputs due to drought increase the likelihood of democratic reform while short-term weather-related jumps in output decrease that likelihood. That is the core finding of a new article in the American Economic Journal: Macroeconomics by Paul Burke and Andrew Leigh (ungated version here, h/t to Kevin Lewis). The effects are substantial. The authors estimate that a one-year recession in an autocratic nation that reduced GDP per capita growth by 6 percentage points increases that country's probability of undergoing significant democratic reform in the next year by 8 percentage points. The authors are careful to point out that these are short-term effects that do not necessarily tell us anything about long-term relationships between income and democracy. That is: shocks in economic outputs may determine the timing of regime change rather than whether a country eventually becomes (and stays) more democratic.

I wonder if you were to track agricultural output and (as much as they can be quantified) democratic openings and closings in the Arab world, you would find such a correlation. Could the current regression seen in Morocco be explained by good crops in the last year, contributing to decent GDP growth? Can you explain the opening of 2004-2006 by a poorly performing economy in 1999-2003 that demanded that a new management team be put in place (in the shape of the Nazif government)? Did Egypt's relatively strong performance (in terms of GDP growth) between 2005 and now make it easier for the regime to pull back from that opening?

Interesting questions all, but I would still look first to specific contingencies: electoral cycles, the policies of external actors, psychology of key regime actors, etc.

Getting real about the real estate tax

The Boursa Exchange has a good post on what he sees as the Egyptian middle and upper class rejection of a new real estate tax could signify the slow but ineluctable rise of a demand for better representation in government: the classic "no taxation without representation" dictum that motivated those calling for American independence from Britain. 
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The Kingdom of Monopoly

I came across this interesting blog, devoted in part to Saudi Arabia's economics, by Essam al-Zamel [Ar]. In this post he discusses land speculation in Saudi Arabia and its dampening effect on entrepreneurship. The graphic is from his site.

Links for Dec.26.09 to Dec.28.09

Get Elected; or, al-Baradei Tryin’ (Part 1 of ???) « THE BOURSA EXCHANGE | TBE translates that ElBaradei interview from al-Shorouq. ✪ Could the Mullahs Fall This Time? - The Daily Beast | Interesting ruminations on whether Iran is near a revolution and the importance of Ashura as a symbol of the fight for justice. ✪ Op-Ed Columnist - The Big Zero - NYTimes.com | Economically, the decade produced nothing. ✪ The Angry Arab News Service/وكالة أنباء العربي الغاضب: Saudi Wahhabi Physiognomy: this man should be teaching at KAUST | Funny. ✪ Rasheed el-Enany on modern Arabic lit: not quite a Renaissance | Al-Masry Al-Youm | "I think the status of translated Arabic literature is better than it's ever been." ✪ Two Hamas members killed in Beirut explosion | Unusual... this attack was in a safe, Hizbullah-controlled area. ✪ Activists appeal to Mubarak over entry into Gaza - Yahoo! News |
Egypt said it would prevent their passage because of the "sensitive situation" in Gaza and warned Monday of legal repercussions for anyone defying the ban. Around 1,300 international delegates from 42 countries have signed up to join the Gaza Freedom March which was due to enter Gaza via Egypt during the last week of December.
Exclusive excerpt from Joe Sacco’s groundbreaking new book: Footnotes in Gaza | I'm awaiting my copy of this book from this great cartoonist. ✪ Sic Semper Tyrannis : Men on Horseback | Pat Lang on the Afghan policy war inside the Obama administration. ✪ Ardebili's laptop - Laura Rozen - POLITICO.com | Iran holding hikers and others because US holding Iranians? ✪ Anis Sayigh: and Israeli history of letter bombs | Angry Arab has an interesting post on the Israeli use of letter bombs against civilians. ✪ Officials Point to Suspect’s Claim of Qaeda Ties in Yemen - NYTimes.com | Rather suspicious, this Yemen angle at a time when people are trying to confuse the Huthis and al-Qaeda... ✪ The Lives They Lived - Ben Ali - The Chili That Shaped a Family - NYTimes.com | Sausages and chilli, served to Obama by an Indian Muslim Trinidadian. ✪ Mainstreaming the Mad Iran Bombers | Marc Lynch | Lynch on NYT op-ed's call for war. ✪ The Nevada gambler, al-Qaida, the CIA and the mother of all cons | The Guardian | "Playboy magazine has revealed that the CIA fell victim to an elaborate con by a compulsive gambler who claimed to have developed software that discovered al-Jazeera broadcasts were being used to transmit messages to terrorists buried deep in America."
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Links for Dec.13.09 to Dec.16.09

â�© Egypt puts archives on Web to boost Arabic content | But what's the address? â�© Muslims in Europe: A Report on 11 EU Cities | Open Society Institute | Tons of interesting questions raised by this ground-breaking poll. â�© Abkhazia Is Recognized by Even Smaller Nauru - NYTimes.com | Sharqeya next? â�© Pro-Israel Lobby Group’s Iran Petition Features Lots of Questionable Names « The Washington Independent | Such as "Porn Sex Video" and Comfylovely". â�© LedgerGermane: Karzai Says Afghan Army Will Need Help Until 2024 | Yikes. â�© Future of US-Egypt Relations: A View from the Next Generation | Notes on another POMED event. â�© POMED Event: U.S. Military Assistance: Obstacle or Opportunity for Reform? | Steven Cook, Emile Hokayem, etc. some discussion of Egypt-US military relations. â�© Mideastwire.com | Zaitout: reports about Algeria-US agreement over temporary military bases | Handle with care. â�© British court issued Gaza arrest warrant for former Israeli minister Tzipi Livni | The Guardian | More of this please. â�© Nights to remember - The National Newspaper | Arabian Nights conference in NYU Abu Dhabi. â�© Obama's Big Sellout : Rolling Stone | Must-read Matt Taibbi story on Obama's bailout of Wall Street. â�© Al-Masry Al-Youm | Police raid home of prominent blogger | Wael Abbas sentenced to six months of prison in absentia for stealing his neighbors' internet??!?! â�© We will not bow to this Moroccan king | Paul Laverty and Ken Loach | Comment is free | The Guardian | Strongly worded op-ed for Aminatou Haidar. â�© David Ignatius - Jordan's ex-spy chief wasn't too good to be true | On former GID chief Saad Kheir - a dubious tribute. â�© Orientalism in Reverse | Brian Whitaker critiques Joseph Massad's "Gsy International" theory.
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