Eqypt: Catching Up With The 21st Century

Economic changes have Egypt growing, but real democracy will have to wait

For most of his nearly quarter-of-a-century in power, Egyptian President Hosni Mubarak resisted calls for a radical restructuring of his country's moribund economy. Last summer, prodded by his son Gamal, a former banker, and other advisers, Mubarak finally decided that doing nothing was even riskier than administering strong medicine. He appointed a dynamic new Prime Minister, Ahmed Nazif, who rounded up an all-star team of economists and businesspeople for his Cabinet.

While Nazif is still a long way from creating a tiger on the Nile, the payoff has been better than just about anyone expected. Nazif & Co. have embarked on a whirlwind campaign of slashing taxes, reviving privatization, and stumping the world for investment. The markets like what they see. Inflation has fallen from 14% to under 7%; the Cairo & Alexandria Stock Exchange is up 51% this year; and the Egyptian pound, long one of the world's sadder currencies, has been rising against the dollar and the euro. "They are moving much more aggressively than we are used to," says Hani Genena, an economist at EFG-Hermes, a Cairo investment bank that is forecasting 4.8% growth in gross domestic product, up from about 3% the year before Nazif took office.

A great start. But to keep up his winning streak, Nazif will have to manage an even trickier problem than economic reform. They don't put it so baldly, but Nazif and other members of the Egyptian elite are engaged in winding down the Mubarak regime and, they hope, shifting to a political system more in tune with the contemporary world. Many Egyptians hope Mubarak will be the last of the line of military rulers that began when Gamal Abdel Nasser led a coup against the British-backed monarchy in 1952.


The trouble is that Mubarak is not necessarily cooperating. At 77, and after almost 24 years in power, the former air force general should be ready for retirement. Instead he shows every sign of planning to seek a fifth six-year term in elections scheduled for September. As long as the aging President hangs on, questions about who will succeed him are likely to dog Nazif's efforts to modernize. Sit down with business executives in Cairo and they will tell you that they worry another officer will come to power with a lot to learn about economic management. The fear: that the military might still insist on its own man.

Mubarak, who is under pressure from the Bush Administration to liberalize, has made one big concession this year. In February he called for constitutional changes that would allow, for the first time, more than one candidate to run for President this September. Previously, the Egyptian Parliament -- in which Mubarak's National Democratic Party controls 90% of the seats -- tapped him as President, and a national referendum ratified the choice. But critics of Mubarak's reform say it doesn't go far enough. For instance, it puts up huge barriers to independent candidates such as members of the Muslim Brotherhood, the Islamic group considered the most powerful opposition force.

Nevertheless, the political season could be hot this year. Already a group called Kefaya, or "Enough," is holding demonstrations against continued rule by Mubarak. Judges, who supervise elections, are threatening a boycott unless they have unfettered power over the vote. At the moment, Mubarak's most serious challenger looks to be Ayman Nour, leader of the Tomorrow Party, who was jailed and then released earlier this year on charges that he submitted forged signatures when registering his party. But most analysts expect Mubarak to win in a multiple-candidate poll because he's so much better known than his opponents and has the weight of the state apparatus and media behind him.

Nazif is trying to tamp down expectations about the coming political round, which also includes parliamentary elections in November. The dozen or so opposition parties, he suggests, aren't mature enough to put up a credible challenge to Mubarak. A system of one-man rule also makes it easier to ram through radical economic reforms. Nazif believes real political change will have to wait until the next presidential election in 2011. "The challenge is to get parties and candidates who really represent what the country wants," the Prime Minister said in an interview with BusinessWeek editors in New York. "That's what takes time."

The President's own party needs time to develop as well. A few years ago the NDP was a shambles, but Gamal Mubarak has rebuilt it into a serious force that now draws business leaders and academics as members. Those participating in the NDP's conferences and committees are hopeful that when Mubarak finally steps down, the party will have enough momentum to persuade the military to allow the country's future course to be determined by elections.

The most talked about potential candidate for 2011 is Gamal Mubarak himself, who says he won't run this year. Some Egyptians scorn the idea of a son succeeding his father, but others say Gamal is the best bet to ensure that sound economic policies continue. Nazif bristles when the controversial issue comes up. "You want him to say he's not going to run ever? Is that what we should do to Gamal? I don't think so," he told BusinessWeek. If the economy continues to improve, then Gamal's chances are bound to rise as well.

By Stanley Reed in London

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