Guest Post: The CIA On Egypt's Economy, Financial Deregulation And Protest

Tyler Durden's picture

Submitted by Nomi Prins

The CIA on Egypt's Economy, Financial Deregulation and Protest

The ongoing demonstrations in
Egypt are as much, if not more, about the mass deterioration of economic
conditions and the harsh result of years of financial deregulation,
than the political ideology that some of the media seems more focused
on. Plus, as Mark Engler cross-posted on
Alternet and Dissent yesterday, the notion that the protests in Cairo
are 'spontaneous uprisings' misses the mark. As he eloquently wrote,
"there are extraordinary moments when public demonstrations take on a
mass character and people who would otherwise not have dreamed of taking
part in an uprising rush onto the streets. But these protests are
typically built upon years of organizing and preparation on the part of
social movements."

That got me thinking about what else has
been building up in Egypt under Mubarak's 29-year as President, but
more specifically over the past decade, and in particular the years
leading up to the world economic crisis catalyzed by the US banking
system - and that would be, extreme financial deregulation and the
increased influx of foreign banks, capital, and "investment" which tends
to be a euphemism for "speculation" when it belies international funds
looking for hot prospects, no matter what the costs to the local

According to the CIA's World Fact-book depiction of Egypt's economy,
"Cairo from 2004 to 2008 aggressively pursued economic reforms to
attract foreign investment and facilitate GDP growth." And, while that
was happening, "Despite the relatively high levels of economic growth
over the past few years, living conditions for the average Egyptian
remain poor."

Unemployment in Egypt is hovering just
below the 10% mark, like in the US, though similarly, this figure
grossly underestimates underemployment, quality of employment, prospects
for employment, and the growing youth population with a dismal job
future. Nearly 20% of the country live below the poverty line (compared
to 14% and growing in the US) and 10% of the population controls 28% of
household income (compared to 30% in the US). But, these figures, as in
the US, have been accelerating in ways that undermine financial security
of the majority of the population, and have been doing so for more than
have a decade.

Around 2005, Egypt decided to transform
its financial system in order to increase its appeal as a magnet for
foreign investment, notably banks and real estate speculators. Egypt
reduced cumbersome bureaucracy and regulations around foreign property
investment through decree (number 583.) International luxury property
firms depicted the country as a mecca (of the tax-haven variety) for property speculation, a country offering no capital gains taxes on real estate transactions, no stamp duty, and no inheritance tax.  

But, Egypt's more devastating economic
transformation centered around its decision to aggressively sell off its
national banks as a matter of foreign and financial policy between 2005
and early 2008 (around the time that US banks were stoking a global
sub-prime and other forms-of-debt and leverage oriented crisis). Having
opened its real estate to foreign investment and private equity
speculation, the next step in the deregulation of the country's banks
was spurring international bank takeovers complete with new bank
openings, where international banks could begin plowing Egyptians for
fees. Citigroup, for example, launched the first Cards reward program in 2005, followed by other banks.

According to an article in Executive Magazine in early 2007,
which touted the competitive bidding, acquistion and rebranding of
Egyptian banks by foreign banks and growth of foreign M&A action,
the biggest bank deal of 2006 was the sale of one of the four largest
state-run banks, Bank of Alexandria, to Italian bank, Gruppo Sanpaolo
IMI. This, a much larger deal than the 70% acquisition by Greek's
Piraeus Bank of the Egyptian Commercial Bank in 2005, one of the first
deals to be blessed by the Central Bank of Egypt and the Ministry of
Investment that unleashed the sale of Egypt's banking system to the
highest international bidders.

The greater the pace of foreign bank
influx and take-overs to 'modernize' Egypt's banking system, inevitably
the more short-term, "hot" money poured into Egypt. Pieces of Egypt, or
its companies, continued to be purchased by foreign conglomerates,
trickling off when the global financial crisis brewed full force in
2008, though not before Goldman Sachs Strategic Investments Limited in
the UK bought a $70 million chunk of Palm Hills Development SAE, a high-end real estate developer, in March, 2008.

When a country, among other
shortcomings, relinquishes its financial system and its population's
well-being to the pursuit of 'good deals', there is going to be
substantial fallout. The citizens protesting in the streets of Greece,
England, Tunisia, Egypt and anywhere else, may be revolting on a
national basis against individual leaderships that have shafted them,
but they have a common bond; they are revolting against a world besotted
with benefiting the powerful and the deal-makers at the expense of
ordinary people.

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Missing_Link's picture

Egypt's population has grown while its economy has not.  It's that simple.

Yes, that's caused in large part by the failures of Mubarak's regime  ...  but nearly all of the Middle East is in exactly the same sinking ship.

You simply can't have prosperity if your GDP-per-capita ratio gets too low.  As the numerator declines and the denominator grows, the number gets smaller, and just a tiny bit of inflation is enough to push people across the looting-and-rioting threshold.

This is not a new phenomenon by any stretch of the imagination, nor is it caused by external factors.

Look at the French Revolution, Bolsheviks vs Mensheviks in Russia, endless food riots in ancient Greece and Rome and Judea.  Population grows and outpaces GDP, and people go crazy until enough of them die to bring the GDP-per-capita ratio back in line.

Caviar Emptor's picture

Yup. But unlike some countries, Egyptians don't have the facility to print endless IOUs and use them to cover a giant negative trade balance. 

yabyum's picture

Happy meal and Idol, it's all good.

snowball777's picture

US: 11.1 suicides per 100k people

Egypt: 6.5 per 100k

topcallingtroll's picture

There are other parameters to compare and contrast quality of life in egypt versus the usa.

snowball777's picture

Ratio of Charlie Sheens to Suez Canals?

Quackking's picture

The best metric I have seen this year. +1!

Hephasteus's picture

Which costs more to dredge?

Sudden Debt's picture

Anybody who survives a sex orgy with 3 pornstars for 36 hours is a hero and should run for president!!



unky's picture

i bet he didnt even have any sex as he took so much kokain

Missing_Link's picture

I wasn't defending the US, nor any US policies.  I just felt that among all the finger-pointing about inflationary policies and so on and all the various silly rants by certain individuals that the Egyptian revolution is the USA's fault for supporting Mubarak  ...

...  it would be a good idea to keep it in the perspective of countries that grow beyond their means of supporting their population.  That's the core of the problem across the Middle East (along with religious fundamentalism which, among other things, encourages unsustainable population growth).

MacHoolahan's picture

Depressingly true but *please* tell me that we get to shoot the ex-leaders (however irrelevant to the outcome that it might be) in some sqaulid basement somewhere along the way.


Here in the UK we've just had to watch Blair doing his "God told him" routine about Iraq again.

vxpatel's picture

Blair blows Jesus to? I thought that was an American politician thing...W!


For a dumber fatter more Jesus Amerika!

Blankman's picture

"For a dumber fatter more Jesus Amerika!"

I like the slogan.

Moonrajah's picture

Actually, with the current education it should read as:

'yes wee kan +1 omg'

sushi's picture

A potatoe in every pot and free caribou hunting licenses for everyone!

Dave's picture

That's a ticket that would assure Obama's re-election. I like the slogan too.

Missing_Link's picture

Yes, all of that data actually supports my point.

Compare Egypt's population growth rate with the US, the UK, or Israel.  Egypt's population has been growing at DOUBLE the rate, which is unsustainable.

Then compare its seemingly "growing" GDP with what's actually required to support such a population, or the GDP oof the US, the UK, or Israel. 

Nice try, though.

Doomer_Marx's picture

I think what's missing in the charts is the inflation rate: and per capita GDP: It looks like per capita GDP (or rather PPP) is going slightly down while inflation is going way up - 18.3% for 2009. I think PPP is suppose to include some inflation since it is compared against other currencies but if there's world wide inflation, would it capture that? Numbers for 2010 would be interesting.

Inequality compounds the problem but the underlying problem is popluation growth without enough resource growth and is world wide. But at this point, I'd say the inequality is causing more problems than popluation/resource pressure alone. Societies tend to allow some measure of inequality as long as there is enough to keep everyone in bread and a circus here and there, so the top can skim off the rest of the cream. When there's less cream and the top is skimming off more and more, problems appear.

YHC-FTSE's picture

Sorry, GDP per capita ratio for determining the point at which civil disobedience starts wrongly assumes that wealth is evenly spread across the population sectors, and not disproportionately in the hands of the deal makers and the powerful as this article suggests. Population is always a factor, but the determining driver for social unrest is inequity. 

(ps I do not junk)

Missing_Link's picture

Well, I didn't mean to imply that it was the only factor.

Certainly inequality matters.

But it matters much more in a country like Egypt, where the GDP-per-capita ratio puts the citizens that much closer to abject poverty in the first place, than a country like the US, where we haven't reached that point just yet.

Our "poor" are still able to get food stamps, and a lot of them live in homes they actually own, thanks to subprime lending.

Look at the French Revolution.  Yes, there was inequality.  But the peasants didn't revolt because of Versailles; they revolted because they had been made desperately poor and could no longer feed themselves.

Ultimately, it wasn't class resentment that made the French revolt.  If the French had been able to feed themselves and live comfortably, they'd have been able to happily point at Versailles and say, "Oh, who cares if King Louis has such a nice palace?  Really, we've all got food on the table, we shouldn't harbor resentment."

dearth vader's picture

A clip from today's Spiegel article, part 3:,1518,742458,00.html

The Egyptian economy has grown in recent years, and prices on Egypt's stock exchange, which fell by 17 percent last week, have almost tripled since 2005. Many business owners have benefited from this development, which attracted foreign capital to the country. Nevertheless, even as the rich were raking in profits, ordinary people became increasingly frustrated when economic growth failed to improve conditions in the labor market. Some 40 percent of the population live on less than $2 a day, and even members of the educated middle class, whose sons and daughters took to the streets last week, see no improvements in their situation, with real unemployment likely hovering around 20 percent.
Mubarak has built up his army, thanks in part to the $1.3 billion (€955 million) in annual military aid he receives from Washington. Meanwhile, he has forgotten his people. "I have no problem with Mubarak running our country," says a protester in Cairo. "But I need a job!"

puckles's picture

Quite frankly, there's not too much difference in terms of population growing, while the economy is not, here in the good old USA.  Denninger had a piece yesterday about this, and deconstructed the well-spun "good news" into really bad news, i.e., that we have actually had negative growth for quite some time.  

Oh, and by the way, we have also not only built up our army, but also increased defense numbers of all varieties spectacularly, ever since the Patriot Acts, as renewed incessantly, got rid of Posse Comitatus. Once the troops come home from Iraq and Afghanistan, it is unlikely that they will end up unemployed.

Triggernometry's picture

Speaking of Bolsheviks, let's hope we don't see another Dzerzhinsky.

tickhound's picture

C'mon europe... your turn again. America needs a louder wake up call. Now back to Ice Road Truckers...

Caviar Emptor's picture

Distressing tweets coming out of Suez: gov troops shutting off electricity and water, hospitals without current, injured people in the streets, troops have besieged the city

Walcott14's picture

In relation to the protests in Egypt, a wonderful documentary has just been released a couple of days ago that speaks exactly about the true problems of the current socioeconomic monetary paradigm which governs the entire world society. 

Check out for more info.

You can watch a short teaser here

I highly reccomend it to all ZeroHedge followers and I would also like to point out that this documentary has absolutely NOTHING to do with religion, NWO, Marxism or other propaganda that might get attached to it 

Walcott14's picture

After a rather lengthy intro about human nature, Max Keiser and dr. John McMurtyr are exposing the global ponzi derivative scheme, discussing how cyclical consumption is currently driving the markets, Goldman Sachs, HFT, inflation, unemployment crysis caused by work outsourcing and many other thought-provoking topics unknown to the general public.

The main aim of the Film is to raise awareness and present a possible solution by introducing a radically new concept of "Resource Based Economy".

The authors also predict that we will be seeing many more world-wide protests, similar to what is currently going on in Egypt. 

Dave's picture

I hope it is received better than the movie about Wal Mart. But I seriously doubt it will be.

Walcott14's picture

I have no doubt about that... "Zeitgeist: Moving Forward (2011)" is skyrocketing on YouTube's Top Rated and Most Popular charts...

dick cheneys ghost's picture

i give you my dream ticket for 2012 to fix the country

chris whalen/nomi prins. 

sushi's picture

Was Regan embalmed? Is that process reversible?

slewie the pi-rat's picture


i have been a fan since i saw nomi on "democracy now", that day of infamy when hank & nancy pushed thru the bailout bill, after it failed the first time and the lobbyists had had a chance to call THEIR congresswhores and get this straightened out!

amy g:  what would have happened if this bill had not been passed?

nomi p: the gamblers would all be broke.


this is a nice piece of the puzzle.  ty!

i'm such a dumbass that when those guys fron nigeria e-mailed me about getting in on the ground floor of taking over the egyptian national banks, i thought it was a scam!

Downtoolong's picture

The ongoing demonstrations in Egypt are as much, if not more, about the mass deterioration of economic conditions and the harsh result of years of financial deregulation, than the political ideology that some of the media seems more focused on.


No doubt, and disparity in wealth too.


What would piss you off more, that you can’t speak at your city council meeting, or that your rent has tripled and your real income has fallen while your president’s wife (the hairdresser who used to work down the street) bought herself 30 Ferraris?

AUD's picture

they have a common bond; they are revolting against a world besotted with benefiting the powerful and the deal-makers at the expense of ordinary people.

Or in simpler terms, they are revolting against the bad credit of the government, which is being forced on them by the government.

topcallingtroll's picture

The comments about egyptian population growth are on the mark. Nothing can change unless they address it. They will be 50 percent soylent green in their diet in 50 years unless the west allows massive immigration or the cornucopians are correct. Personally if i were an egyptian i would do anything to get out. Your posterity is totally fucked if you stay in egypt. It doesnt matter who the new boss is, they are in desperate trouble because their population is set to just about double before it supposedly plateaus once they have an educated female population and higher standard of living. Those last two assumptions for stable population leveling off versus blow off parabolic top and massive die off are highly suspect to me.

CrashisOptimistic's picture

Y'all are overthinking it all again and worshipping at the altar of normalcy.

Things are not normal and never will be again.

Egypt's oil production is down from 900+K barrels per day to its present 703K barrels per day in about 20 yrs.  That's 200K X $90 X 365 = $6.57 BILLION dollars per year they are not getting because their oil production fell 22% in 20 years.

What is that?  3X the US foreign aid sent to them?

If they had not depleted, if they had bigger fields, there would be no riots there.  This isn't about politics.  It's about money.

bunkermeatheadprogeny's picture

Or was production ordered downward by corrupt Egyptian politicians because the U.S. told them to?

CrashisOptimistic's picture

Ya, they obeyed orders that prevented them from getting a piece of $6 BILLION a year.  

How about a different explanation -- a radical one -- like . . . they drained their reservoirs and they don't have enough left to maintain previous production levels.  

Wow, imagine that.

bunkermeatheadprogeny's picture

Your math is off. You are not subtracting production costs.