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Friday, November 25, 2011

Egypt's economy slumps under weight of unrest

Egypt's economy slumps under weight of unrest

CAIRO (AP) — Drivers passing Tahrir Square in downtown Cairo curse the protesters.

On radio shows, callers question whether the youth activists and others involved in the new wave of demonstrations over the past week are nationalists, selfish children or saboteurs.

Political differences aside, what has become clear is that the latest clamor against Egypt's military rulers is pummeling the country's already flailing economy at a crucial time when many hoped winter tourism would pick up. A financial crisis is looming, say analysts.

"We're not far off," said Neil Shearing, chief emerging markets economist with Capital Economics. "There's enough money left in the coffers to get through the year, but not much beyond that. Crunch time is two to three months away."

It took 30 years to engineer the revolution that ousted former President Hosni Mubarak in February. But it only took months to push the 7 percent annual growth rate of recent years to an anemic forecast of only about 1 percent this year.

The difficulties keep mounting. The stock market tanks daily and foreign reserves have fallen by almost 40 percent so far this year.

The drop is linked to the protests that have persisted since Mubarak's fall, and more specifically, the wide gap between the expectations of the population after the uprising and the reality of what the government could deliver.

From iconic Tahrir Square, the epicenter of the revolution, to the city's middle income neighborhoods and slums, the sobering realization that the hopes for democracy have not translated into a better standard of living is leaving Egyptians increasingly frustrated — with the military rulers, with the interim government that resigned a few days ago and, perhaps more troublingly, with each other.

"The move toward democracy is something that should be a beacon for the rest of the region," said Shearing. "But we've clearly reached a point ... where there needs to be some political stability because the financing risks are severe."

As of October, the country's net foreign reserves had fallen to $22 billion from $36 billion at the end of 2010. At least part of that money has gone to supporting the Egyptian pound, which economists worry could face severe depreciation if officials don't shore up the country's finances.

At the famed pyramids of Giza, when horse rides, papyrus prints and tours failed to entice some tourists, a young guide turned to the unorthodox.

"Girls?" offered 23-year-old Samir Adham, flashing a sly grin. "Hashish?"

He apologized when he realized the offer was made to a reporter.

"No one comes any more," he explained. "What can I do? I have to make a living," he said, bemoaning the hammering of Egypt's vital tourism industry, one of the country's top money-earners, since the revolution.

The troubles confronting Adham and others in the tourism sector are a window into the country's broader challenges.

Egypt's tourism sector has accounted for roughly 10 percent of gross domestic product and employs Egyptians in a range of supporting industries — from guides and camel touts to hotel workers and artisans.

"Most shops have either let go of most of their employees or cut their salaries by at least 50 percent," said Khaled Osman, who owns a shop near the pyramids employing about 20 people. Since the revolution, the unemployment rate has climbed to almost 12 percent in the third quarter of 2011, compared to just shy of 9 percent a year earlier.

If the uprising that pushed Mubarak from power marked the start of the industry's demise for the year, then the latest protests in Tahrir Square have further cemented the losses.

The most recent clashes began as protesters returned to the square calling for the military to hand over power immediately to a civilian government. Among their complaints was that the ruling generals were no different than Mubarak and that they had run the economy into the ground.

The images of activists and security forces hurling rocks at each other through a thick fog of tear gas is hardly encouraging tourists. The unrest hasn't sat well with investors either. The cost of government borrowing has gone up and the central bank on Friday was forced to raise interest rates for the first time in roughly three years.

Borrowing costs will likely climb even more after ratings agency Standard & Poor's on Thursday drove Egypt's sovereign debt rating deeper into junk status, citing what it said was "an ongoing high, and recently increased, risk of challenges to political institutions that will possibly involve further domestic conflict."

"These challenges could arise if populist demands for greater political participation are thwarted, or from demands for improved living standards from different sectors of the population no matter who is governing Egypt," the agency said.

The impact of the uncertainty is clear at Cairo's airport, where officials report that passenger traffic has fallen off sharply since the start of the latest clashes a week ago. Some flights arrive with fewer than 30 passengers.

In Luxor, home to some of the country's most prized archaeological sites, tourism officials said hotel occupancy rates have plunged to under 10 percent. The downturn there is especially troubling because the winter months are typically when tourists head to southern Egypt, and Luxor and Aswan rely overwhelmingly on tourism revenues.

The declines are mirrored in Cairo, where five-star hotels sit largely empty.

Only Red Sea resorts such as Hurghada and Sharm el-Sheik are still going strong, with occupancy rates of about 70 percent, according to Amani El-Torgoman, tourism operations manager at Travco, one of the region's largest travel companies. But even there, it has come at a price.

"We're running after clients with best offers and last minute offers," said El-Torgoman, noting that most properties had cut their rates by as much as 50 percent to lure in visitors with all-inclusive packages that can go for as little as $50 per night.

While the latest clashes in Cairo have yet to be reflected in tourism figures, officials expect the hit to be hard and to build on top of an already declining interest on the part of Europeans, the bulk of visitors.

Irina Tyurina, a spokesperson for the Russian Association of Tourist Agencies, said the sales had dropped by 57 percent over the past six months compared to the same period of last year.

The so-called "Classic tours," which involve trips through Cairo and then down to southern Egypt, are all but dead, said Travco's El-Torgoman.

"If things continue like this, there are a lot of people who will go out of business," she said. "A lot (of smaller companies and shops) can't afford paying the salaries or even sustaining small losses."

The same argument carries across other sectors of the economy and into the daily lives of Egyptians who complain that the only thing that has come from the ouster of Mubarak has been even more of an increase in prices, coupled with a surge in crime and the headaches that come with the daily protests in Cairo. Already nearly half the population of more than 80 million lives near or below the poverty line set by the World Bank of $2 a day.

"Why can't they see that they're destroying the country," railed Mohammed El-Sharkawy, an accountant who moonlights as an electrician to make ends meet. The activists say "they want democracy and freedom, but don't understand that it comes with responsibility."

> ____

> Associated Press correspondents Vladimir Isachenkov in Moscow, Nicole Winfield in Rome, Kirsten Grieshaber in Berlin and Alexander Besant in Cairo contributed.

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Photo 1 of 3

FILE - In this Sunday, Nov. 20, 2011 file photo, an Egyptian trader reads a copy of the Al-Masry Al-Youm local newspaper fronted by pictures of clashes between protesters and security forces, at the Egyptian stock exchange in Cairo, Egypt. More than nine-months after the ouster of President Hosni Mubarak, the country is reaching an economic crisis point as the stock market posts daily plunges, foreign reserves have fallen by almost 40 percent and a ratings agency pushed Egypt's sovereign ratings deeper into junk status.(AP Photo/Amr Nabil, File)


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