Egypt's economy slumps under weight of unrest

By Tarek El-tablawy

Associated Press

Published: Saturday, Nov. 26 2011 12:00 a.m. MST

FILE - In this Wednesday, Nov. 2, 2011 file photo, tourists and holiday makers enjoy camel rides at the historical site of Giza Pyramids, Giza 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.

Amr Nabil, File, Associated Press

CAIRO — 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.

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