Economic losses in Lebanon

The Neue Zürcher Zeitung’s excellent Cairo correspondent Kristina Bergmann today writes on the economic losses to Lebanon as a result of the current war. She refers to a report by Lebanon’s state-run Council for Development and Reconstruction (CDR) which argues that today’s losses are much more substantial then those the country suffered during its civil war as the Israeli air-force has systematically targeted Lebanon’s infrastructure, while the civil war was characterized by small-scale wars between different groups. CDR puts losses at $2.5bn, while damages to infrastructure have reached $785mn, according to CDR. I’m also translating some paragraphs of Bergmann’s article:
When Siniora became Prime Minister in June 2005, public debt stood at $36bn and the trade deficit reached $2bn. Lebanon’s new government realized that reform was inevitable. A plan “revival of the economy� was drafted. It aimed at privatizing the state’s power station and its telecom, at raising taxes and at increasing control over funds – more precisely: the fight against corruption. With the beginning of the war, the plan was without further ado dubbed “plan for reconstruction�. Translated, this meant that corruption in trade in industry will flourish again, Lebanon’s former Minister of Finance Georges Corm recently said. When in fall 2001 Arab capital feared being frozen in the US, Lebanon became the favourite place for Arab financiers. Now, however, Golf Arabs are withdrawing their money discreetly but very quickly. To where will they transfer their capital which has been increased by the explosion of oil prices? One destination are “stable� and economically open countries of the region such as Egypt, Morocco and Turkey, financial experts say. Is this arguably the reason, why those countries are reluctant in criticising Israel’s campaign?
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The Egyptian ADSL black market

If you have ever looked up to the sky while walking around in a Cairo mid- or lower income neighborhood, you must have seen a net of white cables above you, coming out of a window on one side of the street, stretching to balconies and windows on the other side, some fifteen meters above street level: A business-minded resident subscribes to a 1 Mb connection, and then informally rents out connectivity to his neighbors.  I recently spoke to an executive of a leading ISP in Egypt, and he estimated that no less then 40% of all ADSL lines in Egypt are shared between apartments, which technically is illegal. Sometimes the number of sub-subscribers can reach up to 50 people.   The problem for ISPs is that people call and complain about services who are not their customers. They thus would like to legalize this black market by being allowed to offer multi-party contracts (which would also bring legal protection to the actual subscribers who are now held accountable for whatever their neighbors are doing on the web). But the government appears to be hesitating. I find it interesting to see how creative Egyptians are in distribution when the offer doesn't suit market conditions for whatever reason (while the government two years ago brought prices down, the market would now be big enough for prices to further decline, but the government keeps them up in order to protect smaller ISP from being driven out of the market). A similar thing happens in the mobile market, where operators in vain kept trying to introduce packages where you buy both a mobile and a line at the same time. But distributors would in most cases tear them apart and sell both separately anyways to better tune their offers to the market. The next round is coming up, as one of the operators is about to import handsets and SIM cards that via a code system can only be used together.  
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The Ikhwan and the money

Right now, the Brotherhood has other problems, with continuous arrests taking place and PM Nazif thinking that they should not be in parliament in first place. But a while ago, I thought it was time to document what the Brotherhood thinks about how to regulate the Egyptian economy. After all, with 88 seats in the People's assembly, they are the second strongest political force in the country and possibly the most popular one. After their surprisingly strong showing in the parliamentary elections, I also heard a number of people in the Egyptian business community already voicing concerns, with corporate HQs abroad calling their Egyptian operations to find out whether their business would still be safe. I rather thought it might be time to look for alternatives to an economic policies of the NDP, which as a whole, despite some decent reform measures of the economic reform ministers, is still catering to certain interest groups, combined with a state bureaucracy that all too often shelves good initiatives coming out of the cabinet. Below is an excerpt of my piece on the Brotherhood's economic policies, the full text can be read here.
As far back as the 1980s, years before the Egyptian government actually implemented a programme of privatisation that was forced on them by the international community, the Muslim Brotherhood demanded a less marked public sector and more support for small companies. The organisation champions the free market economy.
As a result of their moral standpoint, two points in particular are at the heart of their economic theories. It must be said that these two points are indeed the key weaknesses of the Egyptian economy: high unemployment and corruption. According to the OECD, unemployment in Egypt currently stands at over 17 per cent.  
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A second Alex?

At the WEF in Sharm last week, Prime Minister Ahmed Nazif fed the national press with some projects to be announced soon, in tourism, real estate and transportation, which will mostly be financed by UAE or Kuwait based investment groups. I am under the impression that the government over the past months has focused its efforts to attract foreign investment to Gulf investors. An oil price at around $70 per barrel is a solid reason for the government to do so, but now they are exaggerating:
Gulf and Egyptian investors were planning to develop a $US40 billion ($53billion) tourist resort on the coast of northern Egypt, an Egyptian official said. "It will be the biggest Arab construction project in Egypt," covering more than 100 million square metres, government spokesman Magdy Rady said. He did not name any of the investors involved in the project, details of which will be released in mid-June. The consortium planning the resort included companies from the United Arab Emirates, and the signing ceremony in June would be attended by Dubai's Crown Prince Mohammed bin Rashid al Maktoum, Al-Ahram said yesterday, citing Prime Minister Ahmed Nazif. Al-Akhbar eported that the resort would be as big as Alexandria, Egypt's second-largest city, and take 20 years to build.
Is there no more space in the Emirates for mega-projects? To me this looks like Egypt is now the Sheikhs' mega playing ground. A few weeks ago, there were some press reports that Gulf investors wanted to invest no less then $4billions in an ArabDisneyland in Egypt, providing jobs for half a million young Egyptians. This was denied by Disneyland -  looks like Mickey Mouse has a better sense of reality then some of those oil investors at the moment.
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The return of a taboo?

If this report is correct, I think the arrests could have a broader significance.
CAIRO - Egypt’s prosecutor general ordered eight activists on Monday to be held for 15 days on charges including insulting President Hosni Mubarak, security officials said. The police arrested the activists on Sunday at a protest in support of other detained pro-reform activists. 
“The detained people are charged with disrupting traffic, obstructing the state from carrying out its duties and insulting the president,� one of the security officials said.
Over the past 18 months or so, sharp criticism of the President in the press and on the street has been tolerated. Over the next few weeks, it will be interesting to observe whether the red lines will be re-moved to previous limits.
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More attacks in Sinai

About an hour ago and two days after the terrorist attack in Dahab, news broke that the multinational force on Sinai has come under attack, probably by a suicide bomber. There seem to be few casualties, but this has already happened before, once in August 2005. The force has recently increased protective measures. Here is some background on its mission.
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Maximum Effectiveness at Egypt’s Social Fund?

It is the Near East foundation telling us that everything is fine at Egypt’s Social Fund for Development. The fund is the government’s agency for implementing development projects and financing SME’s.
How are they doing? Near East Foundation's Center for Development Services was selected--after competitive bidding--to find out. NEF zeroed in on 39 projects in 18 communities in both Lower and Upper Egypt to investigate just how results jibed with original objectives, getting very specific: to what extent has poverty been reduced and people been empowered, and if so, how. They studied seven areas--potable water, sanitation, roads, environment, micro-credit, education, and health--at the household and community levels.
I haven’t read the full report, but it appears to give good grades to the Social Fund’s work. Single projects of the Social Fund might very well improve the situation of ordinary Egyptians, but overall, I always doubted the Social Fund was an effective institution, and this assessment seems to fall short of addressing broader issues. For instance, given the enormous funds the fund has at its disposal, rumours on corruption persist. Back in 2002, an insider told me that corruption was common, although recently an international donor working with the fund also told me that he was satisfied with its effectiveness and management. However, every time I’m on my way to the airport, I see the fund’s new show-room growing and growing, at a site between GAFI and Cairo International Fair, wondering how much money goes into the massive building that will serve to display the fund’s projects. I also think that the micro-lending activities of the Social Fund are crowding out the private sector, at least to a certain extent. The limited availability of lending offers to poor households as well as SMEs is a chronic ill of Egypt’s banking sector, reducing economic growth. Interesting to see how one development agency applauds another.
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A fuelish budget

The government on Tuesday gave first hints on its budget figures for the coming financial year 2006. The deficit amounts to LE57.6billions which is almost 10% of GDP. The release has been delayed for several weeks, probably as the government was divided over the future of different subsidies, but also wanted to wait and see how last year’s tax cuts would affect its tax income. Yesterday, Finance Minister Bouthros Ghali said that the number of tax payers increased by 100% thanks to a national awareness campaign, bringing the percentage of people paying taxes to over 40%, up from previously as little as 20%.
“The point of this new law is to say what you want; whatever you claim you make, we will believe you, no questions asked, but you will be held responsible and accountable for your claims,� says the minister. He gives an example of one citizen, a prominent doctor, who, based on his paperwork, claimed to make LE 20 a year. “Of course we don’t believe that, it makes no sense. But we did not question him,� he says.
The Ministry in a first step has increased its basis of tax payers and will make them actually pay in the years to come. That is the good news for the budget, but then the oil price comes in. Because of high oil prices which almost reached $70 per barrel these days the Ministries of Finance and Petroleum were forced to ask parliament to approve subsidies on oil products of LE40billions for the budget, earlier calculations envisioned LE29billions. For the first time, the subsidies are part of the general budget and not under the budget the Egyptian Petroleum Corporation, a move to make the amount of subsidies spent in this area more visible to the public. As a comparison: the government spends only LE30billions on health and education. There was a lot of talk recently in the papers on the government intending to reform its system of subsidies. Recent Ministers’ statements suggest that electricity, fuel and gas prices will be increased, where as the government does not appear to be ready to cut food subsidies as well, except for better targeting those who are in dire need.
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Egypt's marble kids

IRIN recently carried an interesting piece on child labour in rock quarries around Minya.
CAIRO, 9 April (IRIN) - When Ahmed left school at age 11 to work in the rock quarries near his village, he was happy to earn a little money to help support his family. "But as soon as I went to work, I found it very hard," Ahmed, who is now 14 and still working the quarries, recently told a local NGO. "We've seen lots of accidents – terrible accidents – because the blades on the [rock-cutting] machines spin so fast. They have injured lots of people." Ahmed is one of the 2,000 to 3,000 children under the age of 18 being illegally employed in more than 500 rock quarries in and around the central Egyptian town of Minya, located some 250km south of Cairo. Because of the severity of the work and dangerous nature of the rock-cutting machines used in the quarries, the children work in risky environments where the slightest slip-up can lead to disabling injuries, or even death.
Egypt is set to become a leading exporter of marble and the Ministry of Trade and Industry via its EU-funded implementation agency Industrial Modernization Centre is very keen on promoting the sector that has been developing quite informally. This can be visited until today in the informal area dubbed Shaq Tabaan near Maadi, where 60% of Egypt’s marble processing takes place. Some 50,000 people are working in the area, and during several visits I have not come across child labour there but in the quarries around Minya the situation could very well be completely different. The Ministry wants to double marble exports to reach $500millions within 5 years. Until now, the main issue for the Ministry and the industry has been to increase the share of finished products exported, as opposed to selling raw blocks to the next best Chinese trader at much lower prices per ton. Now it seems the industry has another issue to take care of.
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