According to the third installment in Brookings’ Food, Fuel and Finance series (I love the alliteration!), an interview by Navtej Dhillon with Heba Handoussa, Egypt has the potential to benefit from the global economic downturn provided it plays to its strengths – lots of small businesses, cheap labor, and an economical option for Mediterranean travel. The American lesson that an excess of deregulation (insufficient regulation – my 6th grade English teacher would have a heart attack over that double negative) is bad for the markets has the potential to inspire further regulation in markets – like Egypt's – that are already subject to heavy regulation. Excerpt from the interview:
Dhillon: In the U.S. and Europe, we seem to be reverting back to greater regulation of the financial sector. Doesn't Egypt need the opposite?
Handoussa: What is alarming is that, in the financial sector, the message seems to be to increase regulation because of what is happening in the U.S., which is exactly the wrong thing to do in Egypt. Mortgage and insurance lending, all forms of credit needs to be enhanced and deregulated. Egypt has one of lowest levels of lending in terms of micro lending or mortgage lending, and the attitude has always been one of reluctance within the banks. They are very risk averse. We just started to make a dent in the market for credit to SMEs and to house purchasers. Housing finance and microcredit is relatively new to Egypt.
I also want to say that, when you compare Egypt with what is now happening in the U.S. and some European countries‚ the banks have excess liquidity in Egypt. The ratio of credits to deposits in the banking system is only 55% as compared to an international norm of 80%. So it's not that they are safe, they are too safe.
One of the important takeaways from this series is the message it sends about tailored responses: it's my experience, as a relative finance neophyte, that most of the news on the crisis (at least in English) focuses on the importance of coordinated responses between the US and Europe. (I may simply be reading the wrong news, but that's my impression). The Brookings series elucidates the unique experiences of the different Middle Eastern countries. This is a case in which, clearly, though international donors and organizations could theoretically provide assistance to those populations who suffer the most from seismic shifts in the global economy, the best antidote is thoughtful and decisive responses by central governments that are made with thorough knowledge of their nations’ specific economic situation.
The second Food/Fuel/Finance interview, with Ragui Assaad, also by Nadjev Dhillon, presents a slightly less sanguine assessment of Egypt's financial situation at present.