The Africa PreBrief Blog
Cedric Muhammad Discussing Egypt On South Africa’s SAFM Financial News Program |
| Feb 15 2011 |
Bright and early this morning – U.S. time - I gave a wide-ranging 45-minute interview on South Africa’s SAFM Financial Market News program discussing two topics: 1) my prediction made last March that Vimpelcom would be the telecommunications company that would end up purchasing Orascom Telecom of Egypt and 2) my short and mid-term economic and political outlook for Egypt.
Essentially my view is that what is taking place in Egypt is a populist uprising that is the second phase of the unwinding of Egypt’s business monopoly (the control the State has over economic rule-making). The first phase was getting out of the visible yoke of British colonialism/occupation last century.
While I am impressed with the espirit de corps of the movement in Egypt – particularly as it has played out among the Youth and Women I do not believe it will result in the development of a commercial society where entrepreneurs, investors, and small business owners can thrive in an environment where contract certainty is maintained and risk-taking by talented individuals is financed and rewarded.
While I see the Egyptian government (read military) giving up many entrenched rights and political freedoms which have been denied I do not believe capital will be ‘democratized’ in the short-term. I believe we have one more cycle to go – post September elections - before discussion of real economic reform that will thoughtfully include two of the power centers most feared by governments – entrepreneurs and capital markets - takes place.
As I said on South African radio – the Egyptian military is not simply just the most respected institution in the country. It also has a lesser-known grip on the economy with current officials and ex-generals owning land, farms, factories, water companies and hundreds of enterprises with interests in every sector of the economy. In that sense the near 500,000 strong military is an army protecting commerce and a business monopoly as well as a country.
If the Egyptian military was ideologically driven with the kind of socialist impulse of a Hugo Chavez or Fidel Castro I would be much more inclined to suggest that State control will transition into a significant redistribution of capital. But Egypt’s Defense Minister, Field Marshall Hussein Tantawi gives no indications he is willing to attempt something as ambitious as Chavez’s mass cooperative initiatives – where the poor were funneled into business activity (in most cases before they were prepared for it). We don’t see either Wealth Of Nations by Adam Smith or Das Kapital by Karl Marx bulging out of his highly decorated uniform, much less Risk, Uncertainty and Profit by Frank Knight.
What is more likely is that a broad cross-section of disgruntled laborers – with strikes and protests – will extract salary wage increases (which will at best keep up with inflation) and job security, further straining the country’s resources and weakening the Egyptian pound. In effect the military’s control of the national budget and commerce will subsidize the most dissatisfied, an arrangement that cannot be sustained past this year.
I told SAFM that I expect – as soon as within a month – that the unifying hatred for Mubarak’s presence will be converted into frustration with the reality of military control. This frustration will be converted into an increasingly caustic debate over the external control of the Egyptian government by the United States and we will begin to see a greater geopolitical discourse emerge – where demands for the opening of the Rafah crossing on the Gaza-Egypt border are conflated with calls for investigations into the wealth of military leaders and the ill-gotten gains of rich families (if you see the Sawiris family who own the Orascom group of telecommunications, construction, tourism, industries and technology enterprises, heading for the door, we have a major problem).
Generally speaking, in emerging economies I informally monitor the ratio of the the demand for a democratic society and political reforms (18 elements in all I track courtesy of my read of Colin Legum’s view of the evolutionary process of post-liberation African governments) relative to the demand and movement toward a broad-based commercial society (inspired by Reuven Brenner’s identification of 8 characteristics and elements which are the shared responsibility of government and civil society; a much more thorough worldview than Hernando De Soto’s single variable insistence on simply giving Egyptians title to land, which he says requires political reform – but who other than De Soto and within civil society agitates for this?).
The ratio is democracy-society heavy at this stage with little emphasis on political reforms that lead to bottom-up economic development and therefore I do not see Egypt’s revolution as one that will generate long-term economic growth policies or greater wealth equality. Rather, I believe that efforts to redistribute wealth – primarily through political patronage and the military’s ‘business monopoly subsidy’ will be messy, unsettled, and even volatile. And although Egypt has made strides in easing the ability to do business within and across its borders – continued movement in that direction is not a battle cry for the protesters.
Here is where and why the Muslim Brotherhood matters.
As I said in response to several questions from South Africa regarding them, the Muslim Brothers, not a political movement at their essence - their motivation is more spiritual and cultural – do hold the balance of power in terms of influencing the outcome of the democratic society oriented debate due to their strongly held views on Western imperialism and the relationship between Egypt and Israel (which the majority of Brothers find problematic or illegitimate).
While the Brotherhood does have consensus in its desire to establish an Islamic State (but not unanimous agreement), which would have economic implications toward and away from a commercial society; it is its emphasis on Egyptian sovereignty that tips the scales in favor of a more narrow political discussion.
As I mentioned on SAFM, it will therefore be the internal debate within the Muslim Brotherhood as represented by two poles that may determine the real meaning of Egypt’s electoral process. One will be 29-year old Moaz Abdel Karim whom the Wall Street Journal this morning describes, “among a handful of young activists who plotted the recent protests here, is the newest face of the Muslim Brotherhood. His political views on women's rights, religious freedom and political pluralism mesh with Western democratic values. He is focused on the fight for democracy and human rights in Egypt.” Opposite Moaz Abdel Karim in some respects is a 66-year old godfather figure, Mohamed Badi of whom the Journal says, “recently pledged the Brotherhood would "continue to raise the banner of jihad" against the Jews, which he called the group's ‘first and foremost enemies.’ He has railed against American imperialism, and calls for the establishment of an Islamic state.”
While the youth wing of the Brotherhood is more likely to recognize the revolution’s economic impulse – with the country’s massive youth unemployment making everyone from 15 to 24 a potential economist – it is not likely to recommend a well-developed policy prescription that addresses the problem. In that sense, and in terms, of a generational divide, I encouraged the listeners of South Africa to consider the internal Muslim Brotherhood as another version of the kind of debate that taking place within the African National Congress (ANC) where a young firebrand, Julius Malema, struggles to match practical economic policy with wealth redistribution rhetoric.
Our bottom line then, is that the math simply doesn’t add up in favor of Egypt. U.S. efforts to raise capital for Egypt – it currently gives $1.5 billion annually which ultimately boosts the military – are no match for the capital flight underway and on the way. The Los Angeles Times properly reports “The Egyptian Finance Ministry has estimated that the unrest cost the economy about $310 million a day, and some private analysts have estimated that investors have been withdrawing funds at a rate of about $1 billion a day. Before the protests, Egypt was expected to have 5% annual economic growth; now the consensus is closer to 1%.”
We never liked the much celebrated Market Vectors Egypt Index (EGPT) – the only exchange-traded fund dedicated to Egypt and explained why at Africa PreBrief in March of 2010 – it doesn’t have sufficient representation of Egypt’s tourism sector which represents a third of the economy, and we definitely are not a fan now, despite its surge on the news of President Mubarak’s departure from power. We’d also not be in any hurry to pour capital into index or mutual funds advertised as providing significant access and exposure to Egypt. That would be any fund where Egypt receives a 10% weighting or more: Widsom Tree Middle East Dividend Fund (GULF); PowerShares MENA Frontier Countries Portfolio (PMNA); or Market Vectors Africa (AFK)
Cedric Muhammad is a business consultant, political strategist, and monetary economist. He’s a former GM of Wu-Tang Management and currently a Member of the African Union’s First Congress of African Economists. Cedric’s the Founder of the economic information service Africa PreBrief (http://africaprebrief.com/) and author of ‘The Entrepreneurial Secret’ (http://theEsecret.com/). He can be contacted via e-mail at: cedric(at)cmcap.com
Last changed: Feb 15 2011 at 8:32 AM
Comments
| Ja'Far Farrakhan | By Guest on Feb 15 2012 at 5:50 AM |
| TickeYour view of Egypt's Military-Industrial Complex is very enlightening. The picture you paint of the Muslim Brotherhood, brings up the question - are they that much different than the Tea Party. I think ETF plays are best suited for Endowment style investing, to take advantage of market correlations - whether Domestic or Emerging Markets. However I am long ticker JYF, WisdomTree Dreyfus Japanese Yen. Great timing with this post, Senator Rand Paul filibustered to end aid in Egypt today as well! @jafarfarrakhan |
|
Add Comment