EconomicsEgypt: Background: An on-the-ground survey of Egypt's situation today

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Wall Street Daily (May12,2k11) -- 
this ain't the Wall Street Journal - EconoMix
WSD is an investment email newsletter edited by Louis Basenese

My Report from the Heart 
of Egypt's Historic Revolution

by Karim Rahemtulla, 
Director of Options/Emerging Markets, The White Cap Research Group

When I told my friends six weeks ago that I was going to Cairo, many cautioned me against it.

After all, the country was fresh off the fierce political uprising that ousted former president, Hosni Mubarak. To this day, the region remains in flux and intensely volatile.

I must confess that when storms delayed my departure from Florida, causing me to miss three connections, I wondered if it was a sign of foreboding. My trepidation was even more palpable when I hit the streets of Cairo.

Here's what I discovered - and what the aftermath will mean for both Egypt and investors alike.


The Buzz on the Street


I landed seven hours late in Cairo at 9:00 PM. The airport was empty - an eerie feeling in a strange land experiencing a revolution.

Taking no chances, I'd already arranged transportation to my hotel. The cabbie - a young man - took us through construction sites and debris-strewn dirt roads, in order to avoid armored checkpoints.

I asked him what he thought about the uprising. Using broken English, he said, "Mubarak a bad man." He told me he valued his job, but if he made $100 per month, he'd feel fortunate.

When I reached the hotel - the beautiful Kempinski on the Nile - I was the only guest in the lobby. No wonder I scored such a good price - revolution rates!

The next day, a local guide took me to non-touristy places off the beaten path, so I could get a genuine feeling for the mood.

I wanted to meet the locals in Old Cairo... desert-dwelling Bedouins... and, through my contacts, the head of the Egyptian Stock Exchange.

The backstreets of Old Cairo are filthy. The smell from garbage, livestock and sewage was overwhelming. I'd experienced that same smell of poverty before in Asia, South America and Africa. (Poverty affects around 40% of the Egyptian population.)

I met some locals at a tea shop and was served hot tea and a hookah - a water pipe designed for smoking. One of the locals - a 60-something butcher - inhaled and proclaimed himself the local hookah-smoking champion, as he blew a long wisp of smoke.

He was just as happy as the cabbie about Mubarak's demise, saying, "It's bad for business now because people have been shut in for weeks, but we'll get our money back from that thief."

The others shared his view, except for one person, who conceded that Mubarak was "the devil we know," yet he was also sympathetic to the uncertain future for Mubarak's children. It doesn't matter where you are in the world, people are always concerned about their children's well-being.

My next stop was Tahrir Square - the focal point of the revolution.

Into the Heart of the Uprising

The 'square' isn't much more than a traffic intersection, really. Nothing like Red Square or Tiananmen Square. It just appeared more organized because the protestors used the surrounding buildings as boundaries.

There were a few civilians, a couple of armored personnel carriers and a lot of military. Make no mistake, in Egypt, the military is in charge.

My driver, who also drove for ex-president, Anwar Sadat, sadly pointed out the smoldering ruins of the Democratic Party Building, overlooking the square. It was Mubarak's party headquarters. "This would never have happened under Sadat. He was a good man, not afraid to be among the people. We never see Mubarak in public, he's a crook."

Then it was on to the Egyptian Stock Exchange, where I met the new Chairman, Mohammed Abdel Salam.

My Meeting With the Chairman of the Egyptian Stock Exchange

My first impression of the exchange? Maximum security.

Sub-machine gun-wielding soldiers guarded the entrance, and an armored personnel carrier was ominously parked across the street.

My first question to Chairman Salam regarded the seemingly premature re-opening of the exchange just a few days earlier. He admitted being under extreme pressure to open, due to a deadline imposed by Morgan Stanley's Index, which tracks emerging market shares.

You see, if the exchange hadn't opened that week, Egypt would have lost its spot in the Index, triggering severe capital outflows. Given that inflows from foreigners have exceeded outflows since the exchange's inception, nobody wanted such a favorable trend to end.

My takeaway from the trip? Egypt is in turmoil, but has huge potential...

The Move Egypt Must Make Now

For example, with major ports on the Red Sea and Mediterranean, plus the Nile and Suez Canal, Egypt possesses key trade routes. The country also boasts strong natural resources and agriculture.

However, to maximize its potential, Egypt must shake off the Mubarak hangover and start fresh. And that means forming a real government, not some temporary, power-sharing arrangement. It's important to remember, too, that while Egyptians are religious, the revolution was due to financial reasons, not religious ones. And until money starts flowing into the hands of Egypt's citizens - away from corrupt policymakers - for infrastructure projects, education and tourism, Egypt will underachieve.

It certainly won't attain first-world status - an honor it held over 5,000 years ago when it dominated much of the civilized world - until this new government takes root.

Teetering on the Brink of Global Chaos?

Egypt's potential is also set against the turmoil in the entire region. The 'Arab Spring' is in full bloom - from chaotic Libya in the West to Saudi Arabia in the East. Having crisscrossed the region for thousands of years, the desert-dwelling Bedouins I met are nervous about unrest spreading further.

Naturally, such volatility has huge implications for the oil market and global economy. In fact, any negative effects on oil production would make driving unaffordable for most of us, and non-Arab economies would come to a screeching halt. It could also trigger the start of a new global conflict (dare I say World War III?). Few could afford to be involved in such a conflict, yet - given its oil - the price of not being involved could be even greater.

Ahead of the tape,

Karim Rahemtulla