Egypt’s Islamists Woo Mubarak Tycoons as Mursi Seeks FundsDavid J. Lynch
Black lacquered walls and crystalline lighting greeted attendees at a two-day London conference touting investment opportunities in Egypt.
For some of those in what the May Fair Hotel calls its “gorgeously opulent” Danziger meeting room, the Jan. 14-15 sales pitch was personal. Wealthy exiles from post-revolutionary Egypt, they were being invited home by representatives of the country’s Islamic government, including Hassan Malek, a leading businessman in the Muslim Brotherhood.
“Most of these investors, they own large projects in Egypt,” said Malek, who spoke at the conference. “Their coming back mostly would be a sign of reassurance to others who might want to invest their money here.”
Egyptian President Mohamed Mursi, struggling to reduce an unemployment rate of 12.5 percent, is wooing the cash, Davos-caliber rolodexes and management savvy of men such as auto and banking investor Yassin Mansour and Hamed El Chiaty, chairman of the Travco hotel and tourism company. They are among the insiders who fled the collapsing regime of President Hosni Mubarak in early 2011.
If they came home, the Mubarak-era tycoons would find a country in a state of political paralysis and economic decay. On Jan. 29, Defense Minister Abdelfatah Al-Seesi warned that the continuing turmoil risked “the collapse of the state.”
The courtship of the old elite by the new underscores both the political change that has occurred since the revolution and the difficulties involved in rebooting an economy growing at an annual rate of less than 2 percent.
Plummeting foreign direct investment, a stock index at half its 2008 peak and a stalled $4.8 billion International Monetary Fund Loan bring urgency to the effort. At the same time, Mursi, who was elected in a vote in which half of Egyptian voters abstained, can’t risk alienating his backers by being seen as allying himself with the business class that benefited from Mubarak’s rule.
That group’s lopsided profits from Egypt’s post-2004 economic liberalization gave free markets a bad name with the public, complicating Mursi’s efforts to unshackle the economy.
“We’re going to see new people coming up and their businesses flourish. We’re going to see people from the old regime bending down and making deals,” said Raymond Khalife, Cairo-based adviser to the chairman of Semiramis Hotels. “And we’re going to see people go out of business because they can’t get along with this regime.”
Speakers at the London conference, organized by Egyptian investment bank CI Capital, included Investment Minister Osama Saleh and Central Bank Governor-nominee Hisham Ramez, who has since taken office.
Officials are trying to ease the return of the exiles through legislation that would allow businessmen to settle their financial disputes with the government, the state-run Ahram Online reported today.
One fugitive Mubarak backer, Hussein Salem, 79, has offered to settle tax evasion and corruption charges by giving the government half his fortune, his lawyer told the Egypt Independent newspaper on Jan. 20.
Still, Magdi Tolba, chief executive officer of exporter Cairo Cotton Center, said he is skeptical the government’s campaign will work.
“They will not come back until they see a different environment,” he said in an interview. “It’s not enough for them to get promises in London. They take the plane and come back and tomorrow they’re in jail.”
Samir Radwan, who was finance minister in the months after the uprising, said the Brotherhood’s business allies also lack the global resumes of Mubarak’s tycoons. Under the old regime, members of the secretive opposition group were limited to retail or trading businesses of middling rank, forbidden to build the industrial and real estate empires helmed by Mubarak’s well-connected few -- and subject to occasional jail time.
Imprisoned on charges of money-laundering and illegally financing the Muslim Brotherhood, Malek, a furniture and clothing distributor, was released only after Mubarak fell, two years ago this week.
“The group of businessmen around Mubarak, in general, they were real businessmen and real entrepreneurs and they understood economics,” said Radwan, citing ex-trade minister Rachid Mohamed Rachid, a former executive vice-president of Unilever for the region, as an example. Malek and his counterparts don’t “have an economic vision on how to get this country out of this crisis.”
Egypt needs help. To cover its widening budget deficit and replenish dwindling foreign currency reserves, the government requires about $20 billion in annual external financing, according to the Institute of International Finance in Washington.
Investors are keeping their distance. Foreign direct investment has shriveled to almost nothing from more than 3 percent of gross domestic product in 2010, the IIF says. The benchmark EGX30 stock index is down 14 percent since the January 2011 start of the uprising.
The premium investors demand to hold Egyptian debt over similar-maturity U.S. securities has almost doubled since then, to 506 basis points. A basis point is 0.01 percentage point. And this week, Moody’s Investors Service cut Egypt’s bond rating to six levels below investment grade, the fifth reduction in two years.
Egypt’s pound is among the 10 biggest decliners in the world against the dollar this year, down 5.4 percent, and non-deliverable pound forwards show investors expect an additional 8 percent drop over next three months. Government domestic borrowing costs since the start of the uprising have climbed by about a third.
“Businessmen abroad and investors, both domestic and foreign, have a real wait-and-see attitude,” said Mohsin Khan, former head of the IMF’s Middle East department and now at the Washington-based Atlantic Council. “They’re sitting on their hands. They’re sitting on their wallets.”
What’s holding the exiles back is fear. In the two years since Mubarak’s ouster, several businessmen and former government ministers have been prosecuted for corruption. Steel executive Ahmed Ezz, a former official in the ruling National Democratic Party who was already serving a 10-year sentence for corruption, was sentenced in October to a seven-year term for money laundering and fined more than $3 billion. His 10-year sentence was overturned and a new trial ordered in December.
Mubarak’s sons, Gamal, 49, the fulcrum of the regime’s business clique, and Alaa, 52, are among the imprisoned government officials awaiting trial.
The exiles include former finance minister Youssef Boutros Ghali, 60, and Rachid, 58. Both were tried last year and convicted in absentia -- Boutros-Ghali’s trial lasted six minutes -- and are listed as wanted for fraud on Interpol’s web site.
Cairo is scarred by political tumult, which flared following Mursi’s Nov. 22 decree temporarily placing his decisions beyond judicial review. Outside the Intercontinental Semiramis Hotel, which was ransacked by a mob in an hours-long Jan. 29 assault that drew no police response, a row of five decorative palm trees has been decapitated. Scorch marks dot the curb, which is lined with small drifts of broken glass.
In nearby Tahrir Square, street toughs idly tossing rocks and toddlers coated with filth populate a squalid tent city. Vendors peddle black masks worn by a shadowy anti-government group of protesters called the “Black Blocs,” which has no identified leaders. The government has blamed the group for recent acts of violence.
“We haven’t had a revolution. We’re in a revolution,” said Angus Blair, president of the Signet Institute, a Cairo-based financial research institute.
Under Mubarak, prominent families were represented atop both large companies and the government agencies whose decisions determined profit and loss. Mansour, the former chief executive officer of Palm Hills Development Co., one of Egypt’s largest developers, has a brother and cousin who served in Mubarak’s cabinet. The privately owned Mansour Group also is involved in automotive, retailing and banking.
Phone calls to Mansour’s companies weren’t answered. El Chiaty’s representatives didn’t reply to questions sent at their request by e-mail.
Public-private ties contributed to state companies being sold for a fraction of their actual value, Egyptian courts found in 2011. Several privatizations, including that of the iconic state-owned department store chain Omar Effendi, have been reversed since Mubarak’s overthrow.
Wary of stirring public anger, Malek, 54, stressed that only those businessmen who aren’t facing corruption charges are welcome back. Mansour, for instance, was acquitted in July 2011 of making illegal profits and facilitating profiteering. Likewise, if Mursi now embraces the policies associated with Mubarak’s moguls, he risks a backlash.
That’s why the government has been reluctant to embrace the subsidy cuts and tax increases required to win the IMF financing, desperately needed to offset declining reserves.
“They’re squeezed politically,” said Steven Cook, a senior fellow at the Council on Foreign Relations in Washington. “They have to show things are different than under Mubarak, even though they’re on board with neoliberal reforms.”
The Muslim Brotherhood, outlawed during Mubarak’s 30-year rule, began reaching out last year to business executives who doubt the Islamic group’s commitment to market principles.
Khairat el-Shater, 62, the brotherhood’s deputy supreme guide and himself a wealthy retailer, told a May 2012 American Chamber of Commerce in Egypt luncheon that “private financing” should lead Egypt’s economic revival.
The intersection of government and business lies in the 550-member Egyptian Business Development Association, headed by Malek, whose Malek Group owns a stake in Turkish furniture company Istikbal among other investments. The business group aims to support the small and medium-sized businesses that were neglected under the old regime’s top-down strategy. Open to Christians and Muslims, EBDA provides advice and vocational training and is raising a $200 million venture capital fund.
Osama Farid, 59, chairman of Project Engineering Co. and head of EBDA’s international-affairs unit, said that open trade, anti-corruption efforts and transparency will distinguish Egypt’s new economy. Countries such as Singapore, Malaysia and Turkey will be Egypt’s role models, he added.
“We have to look at what’s going on in the global economy,” Farid said. “Egypt should be a global hub.”
On a recent day, the Cairo headquarters of post-revolutionary Egypt’s leading business lobby wasn’t much to look at. The elevator was broken and electrical wires protruded from holes in the wall along the darkened staircase.
Inside the third-floor office, recessed lighting, brown faux leather couches and a conversational buzz betrayed an air of deals being done.
Wearing a dark blue suit bearing a faint pinstripe and speaking in measured tones, Malek laughed off an assertion by Radwan that he and other Brotherhood members had been buying at deep discount the assets of the former regime’s supporters.
Such suspicions, he says, are based on the erroneous assumption that the Islamist government’s business allies will be as rapacious as the capitalists they’ve supplanted. “We’re using a different set of rules now,” he says.