Egypt’s Economic Reforms Release A New Genie

by Emad S. Mekay

In its struggle to free itself of its socialist legacy and inaugurate a new era of economic liberalization, the Egyptian government is depending upon a new class that promises to assuage the hardships connected to the economic reform program and limit the widening influence of Islamists. The government’s new friends roam Cairo’s streets in fancy cars, wear the best suits, and live in imposing mansions. But they also carry a corruption-tainted history and have little appeal to average Egyptians. These are Egypt’s newest elitebusinessmen.

On the run during the Nasser era, they now are everywhere. Last December, Egypt elected the largest number ever of businessmen—most of whom ran as independents—to the nation’s parliament. Their seats on President Hosni Mubarak’s presidential plane are on the increase. And when a new cabinet was sworn in last January, it was not designed to gratify the intellectuals, the opposition parties or the religious leaders. It was picked to please the business community and to create what the new prime minister, Kamal al-Ganzouri, called “a business-friendly environment.”

Now, when major business entrepreneurs such as Mohammed Farid Khamis, owner of the Oriental Weavers and head of the commanding Egyptian Industries Union, and Mohammed Abu al-Inein, owner of the gigantic Cleopatra Ceramics, are mentioned in the press, it is more likely to be in connection with such foreign policy issues as the Partnership with America, Free Zone with Europe and a Middle East market than with purely business issues.

The vanguard position which businessmen are occupying is clearly seen in the area of normalization with Israel. While intellectuals and religious leaders are still, after 17 years of peace, vehemently opposed to even the idea of visiting Israel, businessmen are meeting with Israeli counterparts on an almost weekly basis at the Gulf of Aqaba resort of Taba on the Egyptian-Israeli border. At the Amman summit, while representatives of the government of Egypt stayed aloof, Egyptian businessmen were seen talking and joking with their Israeli counterparts.

A $2.1 billion project is underway to build an oil refinery in Alexandriasignaling a major change in Egyptian-Israeli relations. The two men carrying out the project are businessmen Hussein Salem of Egypt and Yosef Maimam of Israel.

Businessmen are meeting with Israeli counterparts on an almost weekly basis.

Domestically, the Egyptian government welcomes the business community as an alternative to the Muslim Brotherhood, the largest and most popular Islamic group, and its seductive rallying-cry: “Islam is the solution.” The government hopes that businessmen will provide the panacea to problems in employment and education and buffer negative consequences of the stringent reform measures demanded by Egypt’s creditors as a condition of rescheduling its massive $40 billion debt.

A tug of war already is budding between businessmen with their financial might on one hand, and the Islamists wielding the services furnished by the Islamist-controlled professional syndicates on the other. Government officials still remember their embarrassing inability to move with the same speed as the Islamist and syndicate relief programs in the wake of the 1992 earthquake in Cairo. However, during the November 1994 floods in Upper Egypt, businessmen responded by donating money, blankets and household items and showed that they, with the government’s blessing, could outperform the Islamists.

Charitable fund-raising activities, long the monopoly of Islamists, now are being sponsored by prominent businessmen like Ahmed Bahgat of Goldstar, Egypt.

By virtue of such services, the business community has acquired easy access to high-ranking officials. President Mubarak’s son, Gamal, is on the board of the “Presidents Council,” an Egyptian-American lobbying group of businessmen. Many other sons and daughters of high-ranking officials are actually business people, guaranteeing that administrators view the interests of the business community with both a sympathetic and parental eye.

However, these cozy relationships between business and government also at-tract condemnation. “This is corruption,” protests Magdy Hussein, editor-in-chief of the Islamist-oriented Al-Shaab newspaper. But Gouda Abdel Khalek, a prominent Egyptian independent economist, argues that the real danger in the rise of this new wealthy class is that it may undermine its own potential. “There are two definitions for a businessman: parasiticthose engaged in non-productive business activitiesand productive,” says Mr. Abdel Khalek. “So far the majority belong to the first category.”

Benefiting a Few

In fact, the activities of some businessmen put the whole notion of development and institutional reform at risk, says Abla Abdel Latif, professor of economics at the American University in Cairo. Businesses such as timeshares, brokering, and importing such luxury items as automobiles require little capital outlay and yield quick profits, while benefiting only a small percentage of the population.

This is not exactly what Egypt expects from its economic liberalization program. A debt-ridden country like Egypt hopes for technology transfers from the West, job creation, export opportunities, access to international markets and eventually a healthy tax base, little of which is being delivered as promised by the mostly profit-hungry business community. Western technology turns out to be factory products such as cars, television sets and VCRs. Job creation is limited to employment of a minimal workforce of highly qualified graduates, often hired on commission or on a temporary basis. Export opportunities have been overtaken by Western demands for easier access for imports, to which the government is capitulating.

The legitimization of the business community is hampered by more than its broken economic promises. The excesses of Egypt’s previous periods of capitalism have not been forgotten.

For example, horror stories about massive fraud from the open door policy under Sadat remain vivid in the minds of many Egyptians. Examples include selling date-expired foodstuffs, the import of animal food resold for human consumption, and the use of poor quality materials to construct apartment buildings that collapsed on residents as they slept.

Such scandals are as widespread today as they were 10 or 20 years ago. Older generations recount tales of injustices perpetrated by the feudalists before the 1952 revolution, and of how traders used to make money by supplying the British occupation forces with food and transport.

Today, business excesses fuel misgivings that the economic reform program is redistributing wealth even more inequitahbly in favor of the already affluent elites. Egyptians jealously whisper about businessmen who now have helopads for their private and preferred means of transport. The Arabic slang for herion, “powder,” now is used to refer to deluxe carsa telling indication that Egyptians still believe in the Nasserist-era hypothesis that only drug dealers can afford expensive automobiles.

It follows then that the government must not be seen openly siding with the rich and powerful. On several occasions, President Mubarak has defended the so-far unhurried pace of the economic reform program with the claim that the livelihood of the “ordinary citizen” is his unwavering priority. His government’s conversion to capitalism also has been explained as designed to “make the rich feed the poor.” But now that the selling-off of public companies and waiving of customs duties on a whole host of items has begun, all eyes are on the government to see if its action matches the rhetoric.

Mubarak’s political considerations may not be restricted to keeping angry redundant workers off the streets. Opening his house to the business entrepreneurs could produce rivals for his own position. In the early 1980s when the government’s main aganda was to reintegrate Egypt into the Arab world, Mubarak’s confidantes were technocrats and academicsmen who could not develop power bases of their own and become potential rivals for the presidency. Similarly, when Nasser was in power he was careful to cultivate the military leaders. Those same leaders failed him in the 1967 war.

Likewise, when Anwar Sadat released Islamists from their Nasserist exile in order to use them against leftists in the ruling elite, it cost him his life. As Mubarak encourages businessmen to out-promise the Islamists who have declared war on his state, he would do well to watch what his new-found friends are doing behind his back.