Egyptian economy still in the doghouse, but there may be hope ‎

Emerging Money
The Egyptian economy (EGPT, quote) continues to struggle in the wake of the transition to the post-Arab Spring government of Mohammed Morsi. However, there’s a glimmer of hope thanks to a face familiar to many American investors.

After Morsi’s historic victory, the macroeconomic conditions for the Egyptian economy improved somewhat, but the fundamental deficiencies unfortunately remain intact. Although bond yields have indeed improved and the stock market soared, inflation, a troubling current account deficit, and a potential foreign exchange shortfall are all a detriment to the Egyptian economy going forward.

Political instability as a result of an election that maybe did not live up to everyone’s expectations also remains problematic. Egypt did not magically transform into some Nilotic Utopia. Women are increasingly under threat, and their safety remains far from secure. Same with non-Egyptian Muslims. With violence still unfortunately present, the middle class in the Egyptian economy will continue to struggle.

The future of tourism in the country remains cloudy. While American investors may associate Egyptian tourism with the Pyramids and their neighbor the Sphynx, Europeans flock to Egypt in droves for the beaches along the Red Sea in places like Sharm-el-Sheikh, and represent as many as 80% of all visits to the country.

Tourism is a large component of the Egyptian economy, and with some in the Muslim Brotherhood threatening to ban bikinis and alcohol, the future of the Egyptian tourism industry remains uncertain. Because tourism makes up around 10% of the economy – and a substantial chunk of the informal economy, a precipitous drop in tourism will unequivocally affect the country.

It’s not all doom and gloom for the country. Rumors that PIMCO co-CEO Mohammed El-Erian may be appointed Prime Minister would bring much needed economic savoir faire to a government that is somewhat lacking in this area. As the co-head of the world’s largest bond fund and a native of Egypt, El-Erian is uniquely positioned to propose effective solutions that could obviate some of the nagging problems plaguing the economy.

That being said, El-Erian will be no panacea. This is still politics. Proposing solutions and implementing them effectively, in particular in a neophyte democracy, are two completely different ball games. That said, appointing El-Erian would be very bullish for foreign direct investment into Egypt as his presence would surely instill more confidence in Western investors.

EGYPT NEWS