Egypt's Economy 2009, Downward Trend

I've always worried about the economic data presented by Arab governments, who usually inflate GDP growth and understate the unemployment figures in order to avoid accusations of bad performance. But when it comes to Egypt, even the information compiled by the government indicates the Egypt's GDP will shrink this year.


According to the government's breakdown, 15% of the GDP comes from petroleum and natural gas. Both commodities have seen a major decline in price this year, which will mean a significant impact on Egypt's GDP.

At 2.8% of the GDP, tourism seems to be understated by the government because it only counts hotels and restaurants. There is no mention of the money tourists spend in other areas. This is another sector that will see substantial shrinkage. One reason is the global economic downturn, which means that European tourists have less money to spend on holidays. The other, and possibly more important factor, is terrorism. Two terrorist attacks on tourists within the past few months do not bode well for tourism in Egypt.

Finally, the financial crisis and global recession will affect other sectors of the economy. This includes decline in the revenue from the Suez Canal, exports, and remittance from Egyptians working in the Gulf area.

All in all, the outlook for Egypt's economy this year does not look good. However, some clever Arab intellectuals are betting that the governments reports will show a nice "growth" in GDP.

Arabtec: Bad PR in a Global Economy

Arabtec's response the recent controversy generated by the BBC show Panorama around Arabtec's worker accommodations showcases the Arab companies' shortfall when it comes to public relations in a Global economy. Specifically, many Arab companies still practice the old PR methods of autocratic Arab regimes, and are completely oblivious to the message they send out.


Arabtec's response was to deny any wrongdoing and to invite journalists to tour the camps on a specific day. Such tours do not work because they are reminiscent of the prison tours put on by totalitarian regimes for the benefit of the international human rights organizations. The public will not believe that the camps were not cleaned spotless for the sake of the tour and that after the tour is over, they will go back to being miserable places to live.


To exacerbate the situation, some Arab companies do not understand the powerful impact of certain terms, especially when addressing a Western audience. Using the term "Labor Camps," a term that recalls the Nazi labor camps during WWII, is an example of such ignorance. Arab companies need to choose their words carefully when dealing with the Western media.

What could Arabtec have done that is different? A lot:

1. Cooperate with BBC, promise investigation into any allegation, and provide the public with updated.
2. Explain that any shortcomings are caused by negligence, not by a systematic desire by the company to save money.
3. Instead of "arranging" a tour for the media, make the camps open for media inspection at anytime.
4. I cannot stress this enough: Choose word carefully.
   

Expats and Dubai's Economic Recovery

Roula Khalaf hit the nail on the head when she listed the obstacles to economic recovery in Dubai. One of the major obstacles that should be addressed by the UAE on a national level is the departure of expatriates who lose their jobs. Not only can such departure delay the prospects of economic recovery in the country, it can also make the downturn more severe as the economy shrinks further to account for the decrease in population.

In any economy, the decrease in the labor force means an substantial decline in the GDP, especially if the decrease is not offset by an increase in productivity. The forecast is that the population of Dubai will decrease by 13 - 17% as a result of the current economic downturn, a decrease that will certainly hinder the economic recovery as GDP shrinks further to adjust for the reduction in population. One very obvious sector that will be hurt further by the flight of expatriates is the real estate market. Imagine what will happen to the real estate prices, already in free fall, if the demand decreases as a result of population shrinkage.

Dubai will also experience a "brain drain" as skilled expats depart and find jobs elsewhere. Sure, Dubai can always recruit new people with the needed expertise once the economy has recovered, but the process of finding, moving, and socializing these people with the way things are done in Dubai will take time. It is much easier to hire skilled employees who are already in Dubai than to try to recruit people from the outside.

To deal with this problem, the UAE government needs to seriously review their residency permit laws. Losing the residency permit as a result of job loss is the main reason for the flight of expatriates. A permanent residency system similar to those in the United States and Europe might help stem that problem.

Qatar's LNG Strategy

A recent article in the Financial Times indicates that despite the fall in energy prices, Qatar still presses on with a $15 billion Liquefied Natural Gas (LNG) facility. This comes at a time when energy projects around the world are put on hold because of the global economic downturn. However, Qatar's plan to move forward with the project can prove strategically advantageous.

While the demand for LNG has declined as a result of the global economic downturn, it will certainly return at some point in the future, and as many successful business leaders know, failing to anticipate, and plan for, the increase in demand can put a company (or a country) at a competitive disadvantage. Qatar can utilize the downturn to grab the best expertise in the market at bargain prices to prepare for the return of demand.

Furthermore, because of international politics, the demand for LNG may actually return sooner than the overall demand for energy. For the past two decades Europe has been at the Russia's mercy when it comes to natural gas imports, and Russia wasted no time flexing that muscle. While LNG cannot replace the piped-in natural gas, any political turmoil can push the prices upwards, putting Qatar in a position to reap handsome profits.

Finally, the concern about carbon emissions will be a factor in increasing the demand for cleaner-burning natural gas. All of the above factors indicate that unlike investment in skyscraper that remain vacant, Qatar's investment in LNG production can lead to organic growth in the Qatari economy