Corruption is Revealed in High Places, But Good Times Roll in Egyptian Economy
Egypt's state security court has sentenced 31 people, including three members of parliament from the ruling National Democratic Party (NDP), to jail sentences of up to 15 years for the parts they played in a major corruption scandal that broke during the 1990s.
In its ruling the court found the accused, which included bankers, businessmen and parliamentarians, guilty of using five banks to extend or receive unsecured loans worth EP 1.6 billion ($500 million). The inclusion of active MPs in the trial was a rare occurrence, and drew the wrath of parliament before the trial. The 37-month court case focused the country's public attention on corruption in high places.
Although this does not the first time that representatives of the NDP have been accused of corruption, it does come at a politically sensitive period, with parliamentary elections scheduled for later this year.
On the other hand, the involvement of local bankers in this scandal does not appear to have damaged the sound image of Egyptian banking establishment among international investors. Several Egyptian financial institutions are considered among the most valuable stocks traded on the Cairo bourse, as the sector's P/E multiple is 6.4, which is considerably lower than those reported in other emerging markets. This evaluation, combined with a sector-wide projection that earnings will grow about 21 percent, makes Egyptian bank shares particularly attractive at present.
Among the leading institutions, Commercial International Bank is graded as the most prominent performer, with Misr International Bank, Egyptian American Bank and National Societe Generale Bank also considered as attractive investment options.
This is an active period for the Egyptian financial community. The country’s securities market is expected to experience an increase in active trading and liquidity following a law passed by parliament last month that exempts local firms from capital gains tax. The new legislation puts companies and banks on the same footing as retail investors, and foreign corporations and investors. Previously, Egyptian companies were liable to 42 percent capital gains tax on their investment in local securities—a levy from which all other investors were exempted.
Furthermore, at a macro level, Egypt's economy appears strong, with revenues from oil expected to reach $755 million during the 2000/2001 financial year. During the previous financial year, a $450 million deficit had been reported. The improved results come in the wake of a recovery in oil prices and other policies aimed at boosting oil exports.
However, the rosy economic picture is not shared by a majority of Egypt's population—a situation that plays into the hands of fundamentalist forces opposed to the government of president Hosni Mubarak. Although the official unemployment rate stands at 8.3 percent, experts say the actual figure is about 4 percent higher. Approximately half of the country's 65 million people live below the poverty line.
© 2000 Mena Report (www.menareport.com)
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