By Farah Halime

CAIRO // When Ahmed El Naggar opened the world’s first Islamic bank in Egypt in 1963, the country looked as if it could harness that legacy to grow into one of the biggest Islamic finance hubs in the world.

But years of suspicion that the Muslim Brotherhood, illegal at that time, would use Islamic finance as a way to gain prominence in the country has left Egypt trailing behind its Arabian Gulf neighbours mainly because no tight regulation or laws have been implemented.

As Egypt’s first Islamist president Mohammed Morsi takes the helm, the country’s Islamic finance fortunes are beginning to look up.

The Muslim Brotherhood wants to boost the market share of Islamic banks to 35 per cent in five years from 5 per cent now. It also wants to add an Islamic banking section to the country’s banking law, which currently has no specific regulations covering the sector. Analysts say the draft amendments, although delayed by the dissolution of parliament, signal an opportunity to quicken the pace of Islamic finance development in Egypt.

“The Arab Spring opened the door to Egypt’s re-entry into Islamic finance in the coming six months and the pace is going to be quicker with Islamists in power,” said Shahinaz Rashad, the executive director of Metropolitan, a financial consultancy firm that has also worked on carrying out Sharia-compliant transactions.

She said Islamic finance could be one alternative to hugely unpopular taxes and cuts in government spending to reduce budget and balance of payments deficits inflated by a year of political and economic turmoil.

In February, the Egyptian government said it was preparing to raise US$2 billion (Dh7.34bn) through its first issue of Islamic bonds to help to plug the deficit gap, which is equivalent to 8.8 per cent of GDP. Soon after, the country’s regulator said it was finalising regulations that would allow local companies to issue Islamic bonds, a much-awaited move expected to boost market liquidity.

The Egyptian government also signed an agreement this month with the Islamic Development Bank, based in Saudi Arabia, that will provide $1bn to finance energy and food imports.

The finance, which is part of a previously announced agreement to provide Egypt with $2.5bn, signals that Egypt must operate some of its financing in a Sharia-compliant manner, said Ms Rashad.

Egypt’s economy was badly damaged after a drawn-out uprising that began early last year. International reserves had fallen to $15.53bn by the end of last month from $36bn in January last year and the balance of payments deficit has doubled to $11.2bn in the nine months to March this year from $5.5bn a year earlier.

Islamic banking may not offer a “fix-all” for Egypt’s economy, analysts say, but it would encourage a fairer playing field.

Egypt now has 14 Islamic banking licences but only three fully fledged Islamic banks, including Faisal Islamic Bank of Egypt, Al Baraka Banking Group, headquartered in Bahrain, and Abu Dhabi Islamic Bank of Egypt. Despite several more lenders with Islamic finance windows, the approximately 120bn Egyptian pounds (Dh71.66bn) of assets in Egypt’s Islamic banking industry are dwarfed by Egypt’s conventional banks.

Total assets of the entire banking sector are about 1.3 trillion pounds, according to Egypt central bank data.

Bankers say the country has to work more to convince international investors that Egypt’s sukuk is worth buying.

“There is no accepted benchmark for the sukuk business in Egypt …so for a company in Egypt to issue a sukuk instrument and be in a position to have an investment grade instrument is pointless because nobody would buy it,” said Douglas Johnson, an investment banker based in New York and the chief executive of Codexa, a specialised investment bank that creates Sharia-compliant financial structures.

He said better regulation and a stronger capital market law was needed before Egypt could begin to attract the billions of dollars of sukuk investment Saudi Arabia, Malaysia and other Islamic finance hubs were getting.

“The next government in Egypt is going to have to prioritise getting the economy back to shape before restructuring and, to be brutally frank, Islamic finance probably has to stand in line,” said Mr Johnson.

http://www.thenational.ae/thenationalconversation/industry-insights/finance/islamic-finances-fortune-turns-in-egypt

By Farah Halime

CAIRO // As politicians and economists start drawing up plans to bring Egypt’s economy back from the brink, the country’s small business owners say they are unlikely to reap benefits any time soon.

The election of a new president, Mohammed Morsi,has put the country on a firmer footing on the path to establishing civil democratic rule.

But changes to the cabinet and delays on rewriting the constitution have kept the economic situation uncertain.

On the streets of Cairo, vendors and small business owners say they are facing an uphill struggle to make ends meet as prices of food and commodities increase. The worry is that the benefits will not trickle down to the neediest.

Tarek Fattouh, 47, has been in the tent-making business for 35 years, working near the Khan El Khalili market, a tourist hotspot. He says before the revolution that removed Hosni Mubarak last year he had five times more customers than today – now he has four or five a week, compared with 15 to 20 before the revolution.

“The work is not easy. [The tents are] handmade and can take up to two or three months to make one piece. If I go to an exhibition [abroad] I need to take at least 10 of these really hard-to-make pieces.

Mr Fattouh voted for Ahmed Shafiq, regarded by many as an experienced businessman who would offer a firm hand in helping the country return to stability.

With the election of Mr Morsi, however, Mr Fattouh is still hopeful but sorry his candidate lost. “Shafiq, well, he understands everything, he knows business and he knows the street.

“Not a lot of people know where we are, the street has to be closed for cars and we need better-quality streets”, Mr Fattouh says, looking out at a road riddled with potholes.

Over the past year and a half, Egypt’s economic growth has virtually ground to a halt, with real GDP growth forecast at 1.5 per cent this year. Official unemployment has increased to 12.4 per cent from 9 per cent before the revolution.

But the problem is especially acute for the estimated 20 per cent living below the poverty line.

Aliya, a widow and mother of four, depends on a fruit cart for her daily wage. The rising price of foodstuffs has made it more difficult to source the best produce and sell it at a competitive price, she says.

“A watermelon now costs 10 Egyptian pounds [Dh6.06] or 15 pounds, it was 3 or 4 pounds before the revolution”, she says. “The poor people get the scraps and the good stuff gets exported”.

Egypt’s desperate economic state in the aftermath of the revolution has driven urban inflation to a little more than 8 per cent and the unemployment rate to 12.6 per cent, the highest in more than a decade.

The public is pinning its hopes on Mr Morsi’s grassroots “renaissance” campaign, which he says will focus on the economy first. It envisions a more equal distribution of wealth by encouraging small and medium-sized business and increasing investments in health care and education.

Hisham Fahmy, the chief executive of the American Chamber of Commerce in Egypt, says it would be too optimistic to expect a quick recovery in the short term. Businesses have been forced to change strategies to cope with the political turmoil by storing more goods to protect against strikes or disruption at ports, and reassessing wages for employees, he says.

“But when you talk about “relaxed”, that’s a bit too optimistic, it’s going to be a couple of years before that,” Mr Fahmy adds

“For now, it’s all about waiting for stability.”

http://www.thenational.ae/thenationalconversation/industry-insights/economics/egypt-entrepreneurs-fear-for-future

By Farah Halime

CAIRO—The standoff over Egypt’s presidential elections is reverberating through the country’s financial markets, raising the threat of a collapse in the currency and driving investors away from its stocks and bonds.

Egyptian stocks have fallen 6.6% since this past weekend’s runoff elections ended in a political stalemate. The drop brings total losses to 20% since mid-May, when jitters about the vote surfaced.

The deepening uncertainty is raising doubts over whether Egypt will receive a $3.2-billion loan from the International Monetary Fund, a blow to investors who had expected a smooth transition to democracy would pave the way for the aid. On Wednesday, Egypt’s election commission said it would delay announcing the winner of the election.

Investors say the latest selloff in stocks signals worries that the close race, which still doesn’t have an official result, could spark a confrontation between Egypt’s military rulers and the Muslim Brotherhood.

“It reflects a clear fear factor,” Wael Ziada, head of research at EFG Hermes, an Egyptian investment bank, said.

Political instability has mostly driven away the foreign investors who flocked to Egypt’s market before the revolution that toppled former president Hosni Mubarak last year, attracted by the country’s high growth rate. The country’s stock index ended 0.5% higher at 4,108.40 on Wednesday.

The Egyptian stock market has a total capitalization of 306 billion Egyptian pounds, or roughly $50.6 billion—slightly less than the market capitalization of MasterCard Inc.

Earlier this month, Egypt’s stock market had the second-best year-to-date performance in the world, after Venezuela. Because of the earlier surge, Egypt’s stock market remains up 13% this year.

Salah Shamma, co-head of equity asset management at Franklin Templeton Middle East, said he doubled his fund’s exposure to Egypt after the first presidential elections in May, though he still keeps a “neutral” stance on the country that reflects the level of political risk.

Though most foreign funds have fled Egypt since the uprising last year, there is still buying interest from Egyptian investors, he said.

“We like markets that don’t have to rely on hot money coming in and coming out,” Mr. Shamma said. “Equities is a big part of Egyptian daily life—it’s partly ingrained in their society. Even without foreign participation, there is enough pent-up demand from domestic buyers” to drive the market.

But tempering optimism is the threat of a sharp devaluation in the currency, which economists say could trigger inflation and boost the cost of Egypt’s food imports. The Central Bank of Egypt’s foreign reserves have fallen from $36 billion early last year to $15.5 billion as of the end of May as the bank sells dollars to support the Egyptian pound. One dollar currently buys about 6 Egyptian pounds.

With Egypt’s foreign-currency reserves at dangerously low levels, a prolonged delay in securing help from the IMF could cause the Egyptian pound to weaken by as much as 15% by the end of the year, according to Said Hirsh of Capital Economics, a London-based consultancy.

For now, sporadic injections of cash are helping Egypt’s economy limp along pending a wider deal to secure aid from the IMF. The country raised $1 billion by selling dollar-denominated treasury bills to domestic banks last month, and this month it secured $1.5 billion from Saudi Arabia.

Investors need to be convinced the election won’t lead to renewed violence, said Ahmed Fattouh, an Egyptian-American investor who heads Landmark Advisors, a New-York based investment management firm.

“We are long-term investors who think about owning businesses for many years, and we are a long away from having any clarity to make any long term decisions,” Mr. Fattouh said.

A version of this article appeared June 21, 2012, on page C1 in the U.S. edition of The Wall Street Journal, with the headline: Tumult Trips Egypt Stocks.

http://online.wsj.com/article/SB10001424052702304441404577478810392197298.html

By Farah Halime

CAIRO // Planet Investment Banking was until a fortnight ago a company known only to a relative few.

But it has been propelled into the spotlight as a bidder for the Arab world’s biggest publicly traded investment bank, EFG Hermes, in what could become the Middle East’s first hostile takeover.

In a tumultuous series of developments over the past week, Planet IB has revealed itself as a company run by a high-profile group of businessmen and women led by Ahmed El Houssieny, an Egyptian financier and a former managing director of Citadel Capital, a private-equity firm based in Cairo, and Mahmoud Abdel Latif, a former chairman of Bank of Alexandria and Egyptian American Bank.

Planet IB has said it has the backing of the Egyptian billionaire media mogul Naguib Sawiris. However, Mr Sawiris may pull out of the deal if Planet IB has no option but to attempt a hostile takeover of EFG Hermes without a due diligence process, according to Planet IB officials.

“He has a due diligence requirement. Naguib is not going to do a deal without due diligence,” said Mr El Houssieny, Planet IB’s chief executive.

Mr El Houssieny added that all the investors are prepared to stay on board on condition that a due diligence process take place as part of a potential offer for EFG Hermes.

In an open, white-washed office in Zamalek, an upmarket neighbourhood in Cairo, Planet IB’s team says it is working around the clock to win the approval of EFG Hermes shareholders,thus allowing Planet IB to make a full-fledged bid for EFG Hermes. QInvest, a Qatari investment bank, has made a rival offer for EFG Hermes.

A new, much larger office, with an open floor plan and hammocks, is being prepared for the Planet IB team.

A new website and advertisements by the company in local newspapers offer an explanation of the thinking behind Planet IB’s potential bid: “Together to protect Egypt’s national institutions.”

Planet IB executives say they want to prevent a brain drain among Egypt’s brightest businessmen and women, something they envisage will be a consequence of any deal between EFG Hermes and QInvest. QInvest and EFG Hermes said last month that they had entered into a joint venture to create a new firm, EFG Hermes Qatar. EFG Hermes shareholders voted in favour of the QInvest deal on Saturday.

The challenge for Planet IB is to convince those same EFG Hermes shareholders that it is serious about a bid. This would require proving the strength of Planet IB’s financial backing as well as laying out its plans for EFG Hermes.

Planet IB’s approach has been “very light” so far, said Angus Blair, the chairman of the Cairo-based think tank Signet Institute.

“What are their plans to develop long-term profit growth and value-added development through the takeover? We haven’t had that yet,” Mr Blair said.

Planet IB also appears to be up against the management of EFG Hermes, which has criticised theoverture, saying Planet IB has not shown proof of its financial capacities or named all the investors behind the proposed bid.

EFG Hermes has threatened legal action to protect its shareholders, while Planet IB has appealed to the regulator to intercede.

Planet IB has said that if all else fails it will not shy away from attempting a hostile takeover. But that could prove costly, and financial regulations in Egypt are untested for such a tactic.

Banking experts say the deal could go either way – the regulator could postpone the deal with QInvest, allowing Planet IB to carry out due diligence, or if the QInvest deal goes ahead as planned, Planet IB might take drastic measures and start buying shares in EFG Hermes on the open market.

Either way, the arrival of Planet IB on the scene has become one of the most exciting business developments in the region.

http://www.thenational.ae/thenationalconversation/industry-insights/finance/egypts-business-scene-shaken-up

By Farah Halime

CAIRO (Zawya Dow Jones)–Just days after Egypt’s EFG Hermes received full shareholder support for its planned alliance with Qatar’s QInvest , the Planet IB consortium that is attempting a hostile takeover of the bank said shareholders should force the board to either allow the group of investors to conduct due diligence or resign.

“EFG shareholders should view our offer as superior and force the board to allow us in or resign,” Planet’s Chief Executive Ahmed Housseiny said in an emailed statement to Zawya Dow Jones.

Housseiny added that the consortium, backed by Egyptian business tycoon Naguib Sawiris and United Arab Emirates’ Sheikh Tariq bin Faisal Al-Qassimi, is currently in talks with EFG Hermes shareholders to obtain approval and undertake due diligence.

“We are absolutely in dialogue with EFG Hermes shareholders and, indeed, held a call with a number of them as recently as this afternoon [Monday, June 4],” Housseiny said in his emailed statement. He didn’t identify any of the shareholders approached.

EFG Hermes said on Sunday that its shareholders–including the Abu Dhabi Investment Authorityand the Dubai Financial Group –had overwhelmingly voted in favour of the alliance with QInvest and dismissed Planet’s offer as “lacking any legal commitment nor guarantee to the bank or to its shareholders to conclude such a tender offer.”

Abu Dhabi Investment Authority declined to comment. Dubai Financial Group wasn’t immediately available for comment.

Housseiny said discussions with shareholders centred around Planet’s vision for EFG, including a focus on debt capital market products and expansion to “virgin frontier markets”.

The firm is due to meet the Egyptian regulator Tuesday regarding an appeal it submitted, claiming it hasn’t had an opportunity to conduct due diligence in order to place a tender, Housseiny said.

“We would file the tender offer once we complete due diligence. Under Egyptian capital markets law there is no mechanism to launch a public tender offer which is subject to due diligence,” he added.

Hours after EFG Hermes said Monday it would take legal steps to protect its shareholders from a hostile takeover attempt by Planet IB, the consortium responded with a pledge to match all guarantees and legal obligations provided by QInvest .

“Planet IB intends match the financial and legal guarantees and undertakings made by its competitor so that Planet IB may undertake due diligence… immediately,” the statement from the Arab investors said.

Planet’s statement Monday called on shareholders to allow it “an immediate opportunity to submit its offer, which it believes safeguards shareholder interests” by also postponing the conclusion of theQInvest deal.

“To do so, Planet IB requires approval to carry out the necessary due diligence within the legal timeframe,” the statement said. “Planet IB further requires that EFG Hermes Holding postpone conclusion of the sale of the firm’s core assets under what the company has called a ‘strategic alliance’.”

http://www.zawya.com/story/ZW20120605000078?q=By%20Farah%20Halime%20daterange:2011-07-27..2012-07-27/

By Farah Halime

CAIRO // Finding a president who will revive Egypt’s failing economy has left voters with a stark choice between a candidate who favours massive state intervention and one who believes that small businesses are the key to prosperity.

The role and power of the state divides the economic manifestos of Ahmed Shafiq, Mubarak’s last prime minister, and Mohammed Morsi, the candidate of the Muslim Brotherhood.

For the next two weeks, both will attempt to win the support of the defeated candidates from the first round of polling.

Mr Shafiq’s supporters portray him as a strong hand who can restore stability, while his detractors brand him as the military’s choice for president. His campaign pledges to boost state and private partnership through the creation of “national agencies” to combat unemployment, boost training and incorporate small and medium-sized businesses into the mainstream economy.

His policies would create residential and industrial cities and water desalination plants, much in the vein of Mubarak’s “mega-project” agenda that saw cities rise out of the desert and billions of dollars of investment sunk into agricultural to boost domestic food production.

By contrast, his opponent talks of galvanising the private sector to generate growth and jobs. Mr Manzi says he will limit the state’s role to core essentials such as health and education.

An engineer by trade, Mr Morsi has the backing of the powerful Muslim Brotherhood and, while he is not as popular as the Brotherhood’s first choice candidate, Khairat Al Shater, he espouses the same principles of applying Islamic law and drawing on the grass-root community to win a majority.

If Mr Morsi wins the presidency, economists say the Muslim Brotherhood would be able to take advantage of its majority in parliament to push through legislation without the political jockeying that Mr Shafiq might face.

With Egypt creaking under the pressure of a long-winded and messy transition to democracy, there are increased calls for a delicate balance to aligning the economic agenda with social priorities.

“We need liberal economic policies with an eye on the social dimension,” said Hussein Choucri, the chairman and managing director of HC Securities & Investment in Egypt. “We need soft-hearted capitalism in a way.”

The Brotherhood’s “Renaissance Project” emphasises support for grass roots businesses, but is more ambiguous when it comes to large enterprises.

Instead, the Brotherhood talks about developing Egypt within Islamic principles, including proposals for a Zakat fund, funded by the 2.5 per cent donation from Muslims to help the poor and to improve education, and an increased emphasis on Islamic bonds and Islamic finance alongside conventional financial instruments.

The group’s platform also advocates increased privatisation of industry, deregulation and tax cuts to spur growth.

At the highest level of Egypt’s business community, Mr Shafiq is broadly seen as a safe bet.

His polished business experience – including his role in restructuring Egyptair, the state airline, and securing World Bank funding for the construction of Cairo International Airport’s new terminal – could leave him well-placed to negotiate with the military and the parliament on economic policy, including securing the much-needed International Monetary Fund loan.

But whoever wins, it is unlikely that either candidate will be able to swiftly cut the burgeoning budget deficit, boost revenues and invest in huge infrastructure projects within their first term as president.

“We still have a huge step to go,” said Mazan Hassan, a political science professor at Cairo University. “Egypt will suffer for quite some time, and I don’t see a huge pick-up in growth in the coming year to generate enough revenues to cut the deficit”.

http://www.thenational.ae/business/egypts-economic-choices-in-presidential-election-run-off

By Farah Halime

CAIRO (Zawya Dow Jones)–The chief executives of Egypt’s biggest investment bank along with the sons of former President Hosni Mubarak and five others have been charged for alleged insider trading on the country’s stock market.

Yasser El Mallawany and Hassan Heikal, co-Chief Executives of EFG Hermes (HRHO.CI), the Arab world’s largest publicly traded investment bank, are among the nine alleged to have made an illegal profit of more than 2 billion Egyptian pounds ($331 million) through corrupt stock exchange transactions.

The prosecutor general, who referred the case to the Cairo Criminal Court, accused El Mallawany, Heikal, Gamal and Alaa Mubarak, and five other businessmen of breaking stock market regulations by buying a controlling stake in Al Watany Bank of Egypt and then selling it without ever declaring their ownership. The charges allege they hid their transactions through a web of affiliated offshore companies and other funds, according to a charge sheet obtained by Zawya Dow Jones Wednesday.

At one point the men controlled 80% of the shares of the bank, the prosecutor general’s statement said.

When contacted by Dow Jones Newswires, El Mallawany said he had not been arrested. Heikal referred queries to the bank when reached.

Hussein el Sherbini and Ayman Fathi Suleiman, two of the former board members of Al Watany Bankand co-defendants in the case, said in phone interviews Wednesday they were innocent of any crime.

Suleiman said the charges appeared to be a political move designed to prolong the detention of Alaa and Gamal Mubarak just days before they are scheduled to receive a verdict for other corruption charges relating to allegedly accepting villas in Sharm el Sheikh as a bribe. They will appear in court on Saturday, along with their father who is facing additional charges. The brothers face up to three years in that case. They are currently being held without bail. All three have pleaded not guilty and have fought the charges.

“We can see that it’s all purely political,” said Suleiman, who was chairman of Al Watany Bank at the time of the transaction.

A statement from EFG Hermes sent Wednesday said “its two Chief Executive Officers have no personal dealings, interests or benefits in any transactions related to the trading on Al-Watany Bank of Egypt’s shares.”

National Bank of Kuwait (NBK.KW) bought almost 100% of Al Watany Bank of Egypt in 2007, which EFG said in its statement was in connection to the charges. The prosecutor general statement did not mention National Bank of Kuwait ’s acquisition of Al Watany Bank of Egypt .

“The firm is taking all necessary legal action to defend its position in this matter,” EFG said in the emailed statement sent Wednesday, adding the “accusations has not in any way affected the firm in terms of its operations, interests, assets, licenses, liabilities or its commitments to its clients or third parties.”

EFG’s board of directors has convened in an extraordinary session this evening, the bank added, where it received full briefing from its external legal counsels.

The secretary of Farid el Deeb, the Mubarak family lawyer, el Deeb declined to comment.

The nine men were involved in a conspiracy that allegedly began in December 2006 and included concealing their investments through offshore companies in Cyprus and the British Virgin Islands, according to the prosecutor general’s statement. They never disclosed their ownership to the stock market, the statement said.

EFG said in an earlier emailed separate statement Wednesday that the bank “nor any of its subsidiaries has had a financial relationship of any form with any member of the former president’s family with the exception of two securities trading accounts opened to trade shares on the Egyptian Exchange.”

Alaa Mubarak and his wife Heidi Rasekh “managed their own accounts personally, as is common practice at all securities brokerage firms and with all clients,” said the bank.

The general prosecutor ordered in February 2011 an investigation into Alaa and Gamal Mubarak and their financial dealings and their assets directly and indirectly in Egyptian companies, the statement from the general prosecutor said.

Alaa and Gamal Mubarak will continue to be held in prison until the case is resolved, while the rest of the accused should be released on bail and prevented from travelling, the statement said.

http://www.zawya.com/story/ZW20120530000142?q=By%20Farah%20Halime%20daterange:2011-07-27..2012-07-27/

By Farah Halime

In Boulaq El Dakrour, the largest informal settlement in Giza, Cairo, two widows sit in a cramped room facing each other listening to the tinny sound of prayer recital on the radio.

One begins to cry.

Wafa’s husband died from cancer just over a year ago and she has only his pension, equivalent to just under $100 (£64) a month, to provide for her family.

Egypt’s desperate economic state in the aftermath of former president Hosni Mubarak’s abdication has driven urban inflation above 10% and the unemployment rate to 12.6%, the highest in over a decade.

Problems that were bad before the uprising have become devastating for families living in poverty such as 48-year-old Wafa.

Education and healthcare

With Egypt’s historic presidential elections going ahead this week, candidates have been vying for votes by promising more money on social and welfare issues.

Almost all the main presidential candidates said they would raise the budget allocation for education and healthcare by between 15% and 25%, but it is too early to say what will actually happen.

In the meantime, the widows have a plan.

They have resorted to using an age-old Egyptian tradition called the Gameeya, which roughly translates as association, to pay for essentials.

“After my husband died, I stopped being able to pay for our food and drink, even for the gas I get up the street and other simple things,” says Wafa, a mother of two, who lives in one of the dwellings illegally built on privately-owned agricultural land in the slum area.

The Gameeya, a popular savings scheme where a group of individuals agrees to meet for a defined period in order to save and borrow together, has become a vital source of income to the women.

Wafa and her neighbour Sumay, 39 years old and also a widow and mother of three, are in a Gameeya where each of the 20 members contributes 200 Egyptian pounds ($33; £21) a month, for 20 months.

Costly medicine

Earlier this year, it was Wafa’s turn to get the jackpot; 80,000 Egyptian pounds.

Sumay has cancer and is reliant on the money she gets from this community saving scheme for her chemotherapy treatment.

“I was getting treated in a government hospital, but after the revolution, things changed,” she says.

“The medicine is a lot more expensive and hardly available.”

Widows such as Wafa and Sumay have turned to Gameeyas following the revolution for help as inflation is pushing up the price of basic foodstuffs and gas.

Lack of trust

For many of the 14 million people who live below the poverty level and who feel the deepest impact of Egypt’s dire economic situation, the Gameeya is the only sustainable income option.

Bypassing banks and other official financial institutions, the Gameeya removes the financial pressure of signing a bank loan, and is a guaranteed source of funding for emergency bulk payments and large expenditures.

Many Egyptians are wary of banks and anyway, the majority Muslim population’s ban on interest means conventional loans are not a viable alternative for many.

Said Abdel Aziz, 42, a retired government employee who also lives in the Boulaq El Dakrour area, says he would never sign a cheque that he is not able to pay because then he “would find [the bank] come knocking on my door”.

“People who take these loans are stuck for life,” he says.

Instead, he has used his Gameeya savings to open a small corner shop.

Formalised system

But there is evidence the Gameeya system is making its way into the corporate world, with banks and big financial institutions finding ways to service the massive number of unbanked Egyptians, estimated at about 65% of the population.

UK-based Barclays Bank launched a financial savings scheme modelled on the Gameeya system in 2010, though it added interest to the loans distributed.

Two years later, the project has led to the formation of more than 2,000 savings groups with 27,200 members in Egypt.

The total amount saved in these groups rose more than 50% to 2.24m Egyptian pounds between July and December 2011, even as the revolution tightened its grip on Egypt’s economy during the last six months of last year.

Banks have realised that recreating this system inside their institutions could counteract Egyptians’ wariness of the banking system, thus help boosting their customer base.

“The aim is that members of these informal financial associations will in the future be able to access a wider range of services offered by formal financial institutions, including Barclays,” says Barclays Egypt chairman Omar El Sayeh.

Reliance

Egypt already has a two-decade long history of microfinance services, mostly lending to small and medium-sized businesses.

Opportunity to remedy financial hardship with a Gameeya-style system, post revolution, is ideal, experts say as the emphasis shifts to funding small projects and away from big business.

Mahmoud el Gamal, professor of economics at Rice University, Texas, who has studied informal savings practices in Egypt extensively, believes it is easy for Egypt to copy US and European style structures for mutual savings banks and credit unions.

He compares Egypt to 19th century rural Germany and 20th century rural US, when this type of scheme was rife.

“That was the main reason for the rise of financial mutuals, mutual savings banks, and my favourites: credit unions,” he says.

But aside from corporate opportunities, the government’s failure to attend to the masses in terms of welfare has left millions relying on the Gameeya as a source of income.

“Definitely, life is harder after the revolution,” says Wafa.

“But what can I do but continue in this Gameeya?”

By Farah Halime

GIZA, Egypt—Businesses relying on tourists visiting Egypt’s ancient sites are counting on the post-revolution presidential elections later this month to calm political turbulence, allowing their companies to return to something resembling normal after suffering their worst slump in three decades.

Until the revolution last year that toppled the long-standing regime of President Hosni Mubarak, tourism in the land of the Pharaohs was a major source of income, at one point accounting for 10% of gross domestic product.

Last year, however, tourism revenues dropped by nearly a third, amid the worst stint of political instability here since the assassination of President Anwar Sadat in 1981. More than a year after the Arab Spring, potential visitors have been deterred by the regular flare-ups of protests and sectarian violence as the country seeks a new political balance. The hope is that calm—and tourists—will return after the May 23-24 presidential elections, but this is by no means guaranteed.

The cruise ships that would travel up and down the Nile stopping at traditional tourist havens are largely tied up at docks. Those tourists who still come to Egypt bypass the Nile region in favor of the more modern beach resorts on the Red Sea at the southern tip of Egypt’s Sinai Peninsula.

Hisham Zazou, Egypt’s deputy minister of tourism, describes the Red Sea area as if it is another country; President Mubarak fled there as the protests in Cairo that led to his downfall escalated.

“Demonstrations in Cairo are one of the main challenges we’re facing because when the media transmit this type of image, it reflects negatively on efforts to promote Egypt as a destination,” Mr. Zazou says.

The Nile has lured tourists to Egypt for more than 100 years to board the storied cruises. The trip takes passengers on a leisurely seven-day passage to view the ancient monuments in Luxor and Aswan—a glimpse into an ancient world. For many, it is the epitome of genteel adventure, celebrated by artists and novelists. But where at least 300 boats once provided cruises along the world’s longest river, just 50 are still plying their trade today.

The collapse of Egyptian tourism has had wide-reaching implications. Thomas Cook Group TCG.LN +1.27%PLC, Europe’s second-largest tour operator, was badly hurt by the collapse of its North African business, especially in Egypt. A pullback in investment by tour operators contributed to foreign direct investment in the country falling to $2.2 billion in the fiscal year ending June 2011, from a high of $13.2 billion in 2008.

Thomas Cook’s larger rival, TUI Travel TT.LN -0.62%PLC, confirms it is seeing a recovery at the Red Sea resorts. But “Cairo remains weak,” a spokesperson says. Both companies serve the Red Sea resorts, and offer Nile cruises and tours to the traditional destinations.

The comparison between the Red Sea resorts and the inland destinations is stark. Hotel operators in resorts like Sharm El-Sheikh report occupancy rates of 80% to 90%, compared with rates of about 45% for hotels in Cairo.

Nahed Samir, vice president of operations and business for Sonesta Middle East, a luxury hotel chain, said the company’s cruise ships will take part in a new government initiative to try to boost Nile cruises by September, by which time presidential elections will be long finished and the industry hopes to be booming once more.

With an average capacity of 53 luxury suites costing between $300 and $450 a night, each of its five boats can generate as much as $2.5 million in revenue in a good year, Ms. Samir estimates. But it has been a difficult 18 months for the company, which had to lay up one of its cruise ships because of the lack of business. Occupancy on the four remaining boats has barely risen past 35% on average, Ms. Samir says.

By Farah Halime

CAIRO // Egypt’s petroleum ministry is struggling to keep its spending under tabs. Now overspending threatens one of the most important projects in the nation: the contract for natural gas.

Having made significant gas discoveries over the past decade, Egypt has the 16th-largest proved natural-gas reserves in the world at 78 trillion cubic feet, or 1.6 per cent of the world’s total known gas reserves.

Yet despite the country’s immense known and possible gas reserves, debts owed to international oil and gas companies by the Egyptian government are said to be at least US$4 billion (Dh14.69bn), potentially hindering further production, analysts and industry experts say.

After years of buying gas at international prices and selling at significantly subsidised prices in the local market, the overstretched oil ministry is being forced to reschedule payments to its international suppliers.

Dana Gas, the Gulf’s only listed natural gas firm, has reported payment delays for gas delivered to Egyptbecause of political unrest. In a statement to the Abu Dhabi bourse last week, the company said the Egyptian gas sector was facing “financial challenges”.

“We are working together with the host governments to maintain their supply of gas whilst agreeing payment plans for overdue monies that are aligned to our shareholders’ interests and the respective countries,” said Hamid Jafar, the company’s chairman.

Dana Gas collected a total of $177 million in cash last year attributable as part of of receivables from Egypt and Iraqi Kurdistan, the company said in January. A source familiar with the repayments said Egypt was still paying Dana Gas but that the payments were sporadic.

“There are no monthly and quarterly instalments. This is a country in revolution and the metre is going higher,” the source said, asking not to be named. “Egypt is behind on payments, but at least it is paying.”

Dana Gas, based in Sharjah, has substantial interests in Egypt and fully owns three concessions onshore. It also has a 26.4 per cent interest in a gas liquids plant on the Gulf of Suez, which is due to become operationalthis year. Meanwhile, the Egyptian government has also agreed to pay British Gas $500m it owes, a British Gas official said on condition of anonymity.

British Gas, like the other main foreign operators in Egypt, including BP, Eni and Repsol, work in the framework of joint ventures with the state-owned Egyptian General Petroleum.

As the country’s economic environment becomes more treacherous for investors, analysts say oil and gas companies may seek to renegotiate contracts.

“These international oil companies are having difficulty getting their money back, but the government is putting pressure on them to be reasonable,” said Magdi Nasrallah, the founding head of the petroleum and energy engineering department at the American University in Cairo.

“We could see a round of negotiating of different prices of contracts, but this won’t be now,” Mr Nasrallah said. “You’re also talking about a government that is in a state of limbo.

“They are not able to implement bold decisions immediately before a presidential election.”

Heavy subsidies have limited Egypt’s ability to offer international oil companies competitive deals for deepwater natural gas exploration, and as a result some exploration work has stagnated.

In November, the local unit of Royal Dutch Shell handed back an offshore exploration block – the Northeast Mediterranean Deepwater concession – to the government because of the high cost of developing gas discoveries in the area.

Jeroen Regtien, the head of Shell’s Egyptian unit, said the $200m deep wells needed to develop the concession were too expensive considering the limited return and high risk.

“The economic conditions have to be such that this is an economic proposition. We couldn’t make it work,” he said.