CAIRO (Reuters) — Egyptian Army chief
Field Marshal Abdel Fattah al-Sisi may not look like a model democrat,
but foreign and local businessmen believe he can deliver stability to
open up investment opportunities in the most populous Arab nation.
Sisi — whose smiling face, framed in sunglasses and capped by a
beret, appears across Egypt on posters, t-shirts and even chocolates — inspires fear in his opponents that the country will soon have a
military man as its president once again.
But to investors, and many Egyptians, Sisi offers the hope of relief
from three years of political turmoil that began with the Arab
Spring uprising, even though he was the man who toppled Egypt's
first freely-elected president, Islamist Mohamed Mursi.
"I think most investors would say it doesn't appear all that
democratic, but it's more stable, so my investment will be safer,"
said Gabriel Sterne of Exotix, a frontier market bank in London
which handles investments in Egypt.
Sisi deposed Mursi last July after mass protests against his Muslim
Brotherhood government and unveiled a political roadmap that
includes presidential elections. Given his strong popularity he is
widely expected to run and win, albeit after probably giving up his
Once in office, he will need to deliver on the economy which he has
acknowledged presents huge "challenges", without saying publicly how
he intends to tackle them.
Sisi is regarded as a decisive figure who can take bold decisions.
After two changes of government in three turbulent years, Egyptians
crave economic and political calm, and Sisi is seen as the man who
Western investors appear to agree. "He does seem to have support
that has been absent from any single politician. Whatever it is,
it's a sign of stability," said Sterne.
Egyptian industry and investment minister Mounir Fakhry Abdel Nour
says he realizes Western governments are wary of Sisi's change from
camouflage fatigues to a president's business suit, but he believes
investors will thank him for it.
"In the West, a candidacy and maybe the election of an army officer
or an ex-officer to the presidency of a developing, third world
country would raise eyebrows and call to mind the image of a
Pinochet rather than a George Washington, ... a dictator rather than
a reformer," he said.
"(But) this country as it stands today needs a strongman that can
pull it together ... Law and order is good toward investment and
toward the economy," he added at Cairo's ornate 19th century bourse.
Generals-turned-politicians have earned varying reputations across
history. Washington, who led American forces in the war of
independence and became the first U.S. president, is widely regarded
as a statesman. Strongman Augusto Pinochet, who ousted an elected
Chilean government in 1973, oversaw economic reforms but was accused
of major human rights abuses during his dictatorship.
Security forces killed hundreds of pro-Brotherhood activists
protesting against Mursi's overthrow and have gained the upper hand
in stamping out the Islamist movement, partly through curbs on
dissent and public gatherings.
However, Sinai-based Islamist militants have claimed responsibility
for several high-profile attacks, including an assassination attempt
on the interior minister last year.
GULF AID POURS IN
Serious progress on the economy remains elusive. Massive debt, a
weak Egyptian pound and political uncertainty had scared away much
foreign direct investment (FDI).
However, billions of dollars in aid from the military-backed
government's allies in the Gulf have improved prospects for
infrastructure growth and bought time for economic reforms.
The current account ran a $757 million surplus between July and
September last year, driven by a massive increase in official
transfers from Gulf monarchies such as Saudi Arabia and the United
Egyptians' household spending climbed last year. Analysts say
Samsung of South Korea is likely to pour tens of millions of dollars
into its local assembly plant, and Coca-Cola announced a
half-billion dollar investment in Egypt last week.
"Strong business and strong communities go hand-in-hand and our
investment not only helps to create good jobs, opportunity and a
better tomorrow for Egyptians but also sends a strong signal about
Egypt's future," said Curt Ferguson, President of Coca-Cola's Middle
East and North Africa Business Unit.
Overall, FDI remains sluggish. It edged up to $1.25 billion between
July and September last year from $1.16 billion in the same period
of 2012. FDI totaled $3 billion in the year ending June 2013, when
Egypt was in turmoil, almost $1 billion less than in the previous
Before the 2011 revolution which toppled autocratic president Hosni
Mubarak, a former air force commander, Egypt was attracting net FDI
of around $8 billion annually, according to central bank data.
But with Egypt's stock market hitting a five-year high and the
global economy in a much better state than in Mubarak's last years
in office, Sisi should enjoy an easier investment climate.
A report by Bank of America Merrill Lynch last month described a
Sisi presidential bid as "market-friendly in the near term", saying
that keeping up the Gulf aid or agreeing a loan from the
International Monetary Fund (IMF) was crucial.
But it sounded a warning over Sisi's holdover of officials and
policies from the Mubarak era. Mubarak enjoyed some economic
successes, but his rule was widely seen as corrupt and inept.
"The Egyptian political transition is likely to be complete in 2014
but could result in a watered down version of the pre-revolution
regime ... This will likely weigh on growth and keep fiscal and
external financing vulnerabilities high," it said.
Though Sisi has been omnipresent on Egyptian television, he has
offered few pointers on economic policy beyond stating the obvious
in a speech last week: "I am saying it with the utmost sincerity.
Our economic conditions are so, so difficult."
More interestingly, he broached the issue of fuel subsidies that
cost the government $15 billion a year, a fifth of the state budget,
but gave no clear prescription.
The subsidies, in place for half a century, drain foreign currency
that could be used to pay off debts to overseas energy companies and
improve payment terms to encourage investment.
Investment minister Abdel Nour hinted that Sisi may be able to
absorb the public anger that major cuts to the subsidies are likely
to provoke. "I think he will be able and probably willing to draw on
his popularity to take the difficult and often painful decisions to
reform the Egyptian economy and face the fiscal problems," he said.
LIFELINE FROM THE GULF
Dubai firm Arabtec signed a $40 billion deal this week to build a
million homes in Egypt, a possible sign of politically-inspired Gulf
investment in the country's infrastructure. Arabtec's CEO said the
UAE would provide initial financing, signaling that Gulf companies'
Egyptian investments will enjoy government backing and protection.
Because many Gulf firms are partly state-backed or family-run, their
more cohesive base of shareholders may be more easily convinced to
plunge into Egypt when Western firms would hesitate.
"They've got a different variety of people they have to answer to,
and not all of them work in conjunction in the West," said Angus
Blair, chairman of business and economic forecasting think-tank
Western investors, worried by repeated spasms of violence in recent
years, are more sensitive and shareholders have a more short-term
outlook, according to Blair.
Analysts agree that the flood of cash and confidence from the Gulf
into Egypt has encouraged Western investors to follow, but are split
on whether long-lapsed negotiations for an IMF loan, which would
demand tough budget reforms, are the answer.
"In the end there's nothing like a good old-fashioned IMF-type
fiscal adjustment to put the position on the straight and narrow to
provide long-lasting confidence, because you never know when these
(Gulf) gifts finish," said Sterne of Exotix.
But legal obstacles, not a binding international agreement to curb
Egypt's rampant corruption and soaring subsidies, may be what holds
Western companies back. "Legislation is as badly needed as subsidy
reform, it is just not in the spotlight," said Moheb Malak,
Cairo-based economist at Prime Securities.
A draft investment law aims to prevent third parties from
challenging contracts made between the government and an investor, a
move designed to attract investment.
The clauses are intended to reassure investors unnerved by previous
legal challenges to such deals, some of which have left companies
sold by the government in legal limbo. "Yes, Egypt needs a strongman
but it needs a lot more than just a strongman, it needs to correct
its investment policy," Malak added.
(Additional reporting by Shadia Nasralla;
editing by Michael Georgy
and David Stamp)