CAIRO: On the morning of Monday Sept. 15, the board of directors of venerable investment bank Lehman Brothers, which had been in frantic meetings all weekend, decided to declare Chapter 11 bankruptcy.
And with that, the wheels fell off the proverbial bus.
The Dow Jones Index continued to rally for some time, investors unwilling to abandon the markets completely. The Index rose as high as 11,388 by close on September 19 – before the politicians stepped in.
As of close last Friday, the Dow had sunk to 8,852.
Like an earthquake, the shocks spread quickly from the epicenter at Wall Street, hitting much of the Western world before moving onto the developing world.
Today, the fate of the economy is the shared responsibility of legislators around the world, the corporations that shape the economy, and investors.
International leaders have begun to sound an urgent alarm on the economy.
“We are living through the most dangerous financial crisis since the one that led to the Great Depression, said IMF Chairman Dominique Strauss-Kahn in Washington last week.
In his waning months in office, President George Bush has sought repeatedly to reassure individual and institutional investors around the world that the US government, in conjunction with international partners, is working to ease the crisis.
“This is an anxious time, he said, “But the American people can be confident in our economic future. We know what the problems are, we have the tools we need to fix them, and we re working swiftly to do so.
The deep intertwining of the world’s developed economies meant that when Wall Street collapsed, many of the world’s economies suffered similar hits.
It took longer for the developing world to begin feeling the full effects of the economic tsunami.
Today, many of these countries have taken a hit, though China and the Gulf countries have faced more moderate impacts.
“So far, Egypt is doing very well, especially compared with other countries, especially the developed countries, said Shafqat Anwar, deputy CEO and chief general manager of finance, risk and operations for Ahli United Bank Egypt.
But Egypt is also doing considerably better than many of its developing competitors.
“Egypt, amongst many other emerging markets, is weathering very well, said Omnia El Nosairy, head of corporate affairs for Barclays Bank.
El Nosairy also argued that Egypt and the rest of the emerging markets were part of the solution for the current crisis.
“There is a very high focus on emerging markets, she said, “In terms of restoring balance because they do have quite interesting growth rates.
The Egyptian stock market has taken a dramatic hit, falling over 5,000 points since the summer, while sectors like real estate continue to languish.
Experts suggest that much of the trouble currently facing Egypt comes from the withdrawal from the markets of international investors.
Anticipating this, the Central Bank several weeks ago moved to guarantee currency exchange, expecting a major rush by foreign investors to get out of the market.
Most experts expect Egypt to experience something of a slowdown over the coming period – though few are eager to define the duration of ‘coming period.’
In addition to an anticipated slowdown, the global economic crisis has derailed some of the key reform programs that have promised to lead down the road to a more robust Egyptian economy.
Energy subsidies, for example, were expected to be phased out over the coming years. Reversing course, Minister of Finance Youssef Boutros Ghali announced recently that this phasing out was to be indefinitely postponed.
Furthermore, the Central Bank this year has taken an aggressive stand to combat inflation, which has remained steadily above 20 percent. At the expense of slowing the economy, the Central Bank raised interest rates six times and this month saw the first significant decline in inflation this year.
Now though, with global pressures threatening to stall economic growth in the country, signs indicate that the Central Bank is prepared to abandon its strategy in order to promote growth.
There are hopeful signs, however, that Egypt will be able to pull through the slowdown with minimal damage.
Among Egypt’s closest economic partners are the Gulf states, which have not suffered the full burden of this economic storm.
Though oil prices have fallen somewhat precipitously, that no serious threat of the oil market collapsing exists, the Gulf states are expected to avoid any serious impact.
With steady partners in the Gulf who are unlikely to lose their appetite to invest, Egypt will likely to be able to count on continued foreign investment.
Last week, Minister of Trade and Industry Rachid Mohamed Rachid visited Saudi Arabia and Qatar to discuss the impact of the international economic crisis on the region’s economies, according to a ministry press statement.
Rachid and his counterparts explored a possible coordinated regional response to the expected international economic slowdown as well as ways to strengthen the economic cooperation with Saudi Arabia and Qatar, including increasing trade flows and investments.
“We do know that the current banking crisis affecting Europe and the United States will translate into an international economic crisis, said Rachid.
“This economic slowdown will inevitably have a global impact with the best case scenario being zero growth for many of the countries that have been experiencing high growth over the past few years.
“Economists also predict that the growth over the next few years will come from the developing world. So it is important for us to have a clear strategy on how to achieve this growth.
Rachid and officials from Saudi Arabia and Qatar discussed ways to help countries in the region secure growth during the crisis. “Whenever there is a crisis, there are opportunities. The key is identifying ways to capitalize on these opportunities and minimize threats.
“In the case of Egypt, we are not facing a banking crisis due to high liquidity within Egyptian banks.
“In light of this, the Ministry of Trade and Industry will adopt an aggressive strategy to help grow our international markets through increased exports by developing our current markets as well as identifying new ones; developing our domestic markets to help grow local consumption; and seeking new investment opportunities.
“This plan includes sector-specific support packages that are designed based on the needs of each sector and to provide the right support tools.
Viewed even as an opportunity, this economic slowdown might present Egypt with a chance to refine many of its trade and investment regulations in order to better appeal to investors with money to invest once the economic storm has subsided.
“Investment climate remaining open and positive is a key to inviting investors, said Anwar.
“Providing more support to exporters and “Supporting your infrastructure are also important to luring investors, added El Nosairy.
“You will have benefited by having investors in your countries early on, she said, if Egypt can successfully create an ideal climate for recessionary investors now.
Though the effects of the global slowdown are only now beginning seriously to influence the Egyptian economy, the bigger cost of the international crisis might be the derailment of long-term reforms.
