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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 population.

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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Reader Comments (20)

Re” “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.”

I think that’s wrong, at least insofar as it’s attributing Egypt’s economic woes to the significant privatization of the banking system, reflecting as it does a simplistic understanding of the nature of the State-owned system that existed prior to the reforms intitated by the World Bank (through the IBRD) (on the economically and politically regressive and stultifying features of which, see the general discussion in Clement Henry and Robert Springborg’s Globalization and the Politics of Development in the Middle East, 2001).

As Samir Radwan writes in a study for the International Labor Organisation* (ILO),

“The global financial crisis has negatively been transmitted to the Egyptian economy particularly since mid-2008. The impact has been more pronounced on the real economy than the banking sector. This was due to a number of factors most prominent of which is the limited integration of the Egyptian banking sector in the global financial market. Moreover, the Central Bank of Egypt had succeeded in reforming the sector since 2004 by consolidating the banks into larger conglomerates; restructuring banking management; and getting rid of toxic debts. The Central Bank also introduced stringent rules of governance to guarantee the disciplined functioning of the system. Finally, the banking system has not been short of liquidity with the lending-to-deposit ratio not exceeding 53%, which is well within safe boundaries compared to the rest of the world.”

The impact of the global financial and economic global crisis on Egypt was immediate and considerable, reversing several years of significant—and necessary—economic growth (which led to a decline of poverty incidence from 23.4% in 2005 to 18.9% in 2008). This impact was exacerbated by pre-existing political and economic conditions, in light of which the banking reforms were a positive development and an irrelevant causal variable.

*See Radwan’s paper (which I learned of from Juan Cole at Informed Comment) here:

On Samir Radwan’s expertise:

Samir Radwan is one of the Arab World’s most well-known development economists and employment specialists. He is currently a Member and Advisor on the Board of Trustees of the Investment and Free Zones Authority of Egypt (GAFI). From 2003 – 2006, he was Managing Director of the Economic Research Forum for the Arab Countries Iran and Turkey, a regional think-tank based in Cairo. Prior to that he had spent close to 30 years in the International Labour Organization where he held key positions including Adviser to the ILO’s Director-General on Development Policies and Counselor on Arab Countries. He is the author of a number of seminal books and publications on labor markets, industrialization, development and agrarian systems and poverty.

Dr. Radwan holds a PhD in Economics from the School of Oriental and African Studies, University of London, a Masters in Economics of Underdeveloped Countries from the University of London and a BA in Economics from Cairo University.

January 30, 2011 | Unregistered CommenterPatrick S. O'Donnell


Thank you for this informative post! Dr. Radwan certainly has a deeply impressive and experienced background. And of course, there were many complicated, inter-connected factors leading up to Egypt's current condition. I still believe that one of the problems that Egypt faced, specifically because of its opening its financial doors to external privatization is the same bubble effect that occurs whenever capital hones in one a geographical location or financial product - that what serves to create the appearance of enhancement, can often times exacerbate its opposite. If capital hadn't flown in as quickly and easily as it did before 2008, it wouldn't have had the negative general economic impact afterwards, set in motion beforehand.


January 30, 2011 | Registered CommenterNomi Prins

Yup, Patrick comes to the "rescue" to uphold the STATUS QUO, business as usual, nothing to see here, please move along.....

"I think that’s wrong, at least insofar as it’s attributing Egypt’s economic woes to the significant privatization of the banking system, ...

Gee Whiz, I mean look at the banksters in the US, beginning with David Rockefeller's Council for the Americas outfit, that financed the passage of NAFTA, and the first thing this banks did was buy up the now-allowed for under NAFTA, privatized Mexican banks (originally 90% of the banks became owned by global banks, now I believe the percentage has dropped to 80% to 85%, due to resulting mediocre performance in part thanks to said privatization).

Negative, the privatization of Egyptian banking, along with the move to turn it into another speculative tax haven (I believe most of us realize the score with Ireland), says it all.

January 30, 2011 | Unregistered Commentersgt_doom

Deregulation is like a nightmare that keeps getting worse...

January 30, 2011 | Unregistered CommenterLee

Eleoquently put and well corroborated by others (notably messers Tarpley and Engdahl). Good stuff!

Equally robust appearance on the Keiser Report.

Nomi, i'm new to your material, have you posted or do you plan to post
a programme of practical steps to be taken to reverse this hell spawn plauge
of viral kleptonomics? (wether in America or World wide doesn't/wouldn't matter)

February 1, 2011 | Unregistered CommenterMichael

This article is excellent. I look at West Africa especially Ghana where there has been an influx of a lot of banks and some hot money and I see how a similar situation of revolt can arise.

I watched you on RT's Kaiser report earlier and was impressed.

February 1, 2011 | Unregistered CommenterMilko

We didn't start the fire but maybe fueled it. Paulson had alot of power and brought down Lehman!
It is a plot to take down my country... I have some ideas... Warehouse the foreclosed Real Estate and let the healthy properties bring back the real estate market. The inflation on food can be helped by good and increased wages in America. God Bless America!

February 3, 2011 | Unregistered CommenterBucWheat

It seems like Egypt has fallen prey to what happens when the middle class, working poor continue to get neglected in lieu of fairly regulated financial policies. I was reading Elizabeth Warren and listening to Mark Thompson on Sirius talk about the deregulation with credit card companies and the convenience of credit cards for those who NEED to use something to pay for their basic necessities. The gross amount of profit and embedded traps American consumers find themselves in with credit card fees is criminal, yet nothing ever seems to happen reform-wise with the powerful lobbyists and neglect of the middle and working poor. Nomi was awesome in the previous posted link I watched yesterday and Nomi you look great in red girl!!

Why didn't we intervene with Egypt earlier? Did we not want to rock the boat?

February 3, 2011 | Unregistered CommenterLee

Excellent Post! Sheds light on what the MSM chooses to dismiss as a real cause behind the revolts. Will Americans wake up before it's too late?

February 4, 2011 | Unregistered CommenterTruthSeeker

Why didn't we intervene with Egypt earlier?

Maybe obvious, but some of the Egyptian elite were suppresing a portion of their population as mercenaries of the US to enhance the security of Israel.

February 4, 2011 | Unregistered Commenterlast hun

This posts fails to note that this 'revolution' has been a long time in building and has little to do with 'banksters' as much as it does fractious social issues, a lack of a democratically elected government and a cartelized business industry that is well connected to/entrenched by the government.

Corruption of the police force is undeniable as it is massive. Collusion and enforcement of cronyist-type business practices by the police is a large factor with the dissatisfaction. (as is chronic unemployment). Not only are government contracts regularly handed out to friends of Mubarak, but in some cases many businesses are prevented from existing without explicit bribery given to the officials and the police. (I distinctly remember a relatively minor police captain who lived in my building had the means to procure two BMW 750s) It is difficult, if not impossible, to run a business in Egypt without paying off some party. This especially includes large conglomerates.

As Patrick notes, there has been no serious financial crisis in Egypt and there is no large aggregate measure that points to a disproportionate or 'dangerous' amount of debt held by its citizenry. (the most pernicious form of debt I witnessed in my 6 months living/working there was the willingness to finance expensive cell phone purchases) This financial analysis can be confirmed by the fact that its currency has largely been stable over the past several years. Furthermore, the influence of foreign banks has been largely limited, and if anything, has been highly beneficial as it has strongly reduced friction in its tourism industry - which is of paramount importance in the Egyptian economy.

Just because your analysis may reflect the American experience does not mean it can be shoehorned to fit every major crisis in the world.

February 4, 2011 | Unregistered CommenterRPB

Mr RPB and Patrick S. O'Donnell might what to read the article first before shilling for the financial
elites that are destroying Egypt and this country as fast as you can. The 25% unemployment rate
may not bother you but for us on "main street" its another matter.

"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."

February 5, 2011 | Unregistered CommenterSM

A life-long Marxist and socialist (among other things), at least with regard to economics, it's the first time I've ever been accused of "shilling for financial elites" of any sort. I suppose Marx's appreciation of the wealth-generating capacities of capitalism (see the Marxist economist Meghnad Desai's discussion of this in his 2002 book, Marx's Revenge)* would bring him up on the same charges. It seems careful reading is not a prerequisite to commenting in this thread but I suggest several of the folks above should acquaint themselves with the relevant "political economy" literature on Egypt, which would suggest that "crony capitalism" and state control of banks by "bully praetorian" regimes existed prior to the World Bank's financial reforms adopted by the Egyptian government, some of which had salutary effects on the Egyptian economy, as the Radwan paper makes clear. In any case, the country's economic woes (knowledge of the history of Egypt and MENA states generally would be helpful) were set in motion long before the Washington Consensus of neo-liberalism became associated with the necessary imperatives for integration into a global economy. States should of course do their best to negotiate the conditions of their integration into that economy but refusal to participate consigns a nation and its people to underdevelopment and comparative economic misery. If you read my posts over several years at the Ratio Juris blog (and now at as well), you'll notice ample evidence of my concern with global (i.e., cosmopolitan) distributive justice.

As the Henry and Springborg volume on the political economy of MENA states notes,

"The greater the structural power of capital, the greater the possibilities that the business community can engage in effective collective action, articulating various sectoral interests, and the greater, too, the resulting developmental capacities of the state. Local capital both reinforces and constrains these capacities. It strengthens them by offering a tax base, information, and economic opportunities, but constrains state choices by presenting a variety of interests to be satisfied."

"Unlike the developmental states of Asia, Egyptian policy directs the most capitalized private entreprises to serve local, rather than global, markets, seeking to stay as far away from their governments as possible. The vast bulk of the private economy consists of micro-enterprises, large portions of which are in the informal sector. They lack capital, technology, productive capacity and, in the case of the informal operations, the legal status, even to consider exporting."

Integration in to the global economy in cases like Egpty and Tunisia thus provide opportunities for re-negotiating the state/civil society relationship.

Readers might also note the following from the development economist Pranab Bardhan:

"As in the debates that flared up several decades ago around 'dependency' theories, there is often a tendency to attribute many of the problems of underdevelopment to the inexorable forces of the international economic and political order, ignoring the sway of the domestic vested interests. In many countries, poverty alleviation in the form of expansion of credit and marketing facilities, land reform, public works programs for the unemployed, or provision of education and health need not be blocked by the forces of globalization. This, of course, requires a restructuring of existing budget priorities and a better and more accountable political and administrative framework, but the obstacles to these are often largely domestic (particularly in countries where there are some coherent governance structures in place). In other words, for these countries, globalization is often not the main cause of their problems, contrary to the critics of globalization--just as globalization is often not the main solution to these problems, contrary to the claims of some gung-ho free traders." See his essay, "Globalization and the Limits to Poverty Alleviation," in Pranab Bardhan, Samuel Bowles and Michael Wallerstein, eds. Globalization and Egalitarian Redistribution (2006): 13-32.

* As Desai has written:

“Capitalism is not a kind or a benevolent system. It is the most effective mode of production discovered so far in wealth creation [despite its endemic ‘cycles, with their manias, crashes, and panics’]. It has no overarching objective, since it works through the profit-seeking efforts of millions of capitalists. It generates economic growth, prosperity, and employment as side-effects. It also causes much misery and destruction in its tendency towards incessant change. But over the last two hundred years, it has achieved the largest gain in well-being in all previous millennia. For one thing, many more people are alive now than in 1800 (around six times as many), and they live longer on average—between ten to twenty years longer—than they did then. [….] If length of life can be taken as a crude measure of potential well-being, a billion people living, say, forty years on average in 1800 compared to six billion people living sixty year today speaks volumes for the success of capitalism. In 1800, perhaps two thirds of that billion were poor; today, at most a quarter of the six billion are poor. Yet the reduction of poverty is neither automatic, nor to be taken for granted.

Adam Smith was not wrong, however, in saying that the new system of natural liberty imposed the cost of inequality while delivering a universal betterment of living standards. More people have been brought out of poverty in the last two hundred years, especially since 1945, than ever before in history. The very idea that poverty could be eliminated could not have occurred in any precapitalist stage. Capitalism provides the means for eliminating poverty, but these means were not directed immediately, or evenly, in the course of its development.”

China provides compelling contemporary evidence that capitalism can make enormous strides in addressing the question of poverty, but it has been purchased at the price of inequality (regional, income, and otherwise). The creation and persistence of new forms of “relative” poverty and inequality, the system’s “manias, crashes, and panics,” and the ecological and environmental problems we face today, are among the more prominent reasons we have to endeavor, with Marx, to look beyond (in an Hegelian dialectical sense) this system (although Marx had very little to say about socialism and communism, his analytical prowess being devoted to capitalism). With Meghnad Desai we might ask:

“Is it possible to have a society that is not merely self-organizing, but consciously so? A society fully self-conscious of its own workings, and able to direct them, where individuals are not alienated from their work, or from themselves, but fully participate in their self-emancipation, and realize the full potential of the species-being that they are—in other words, Socialism beyond Capitalism?”

As Desai makes powerfully pellucid, any transcendence of capitalism will have to take a full and honest accounting of its historical accomplishments and economic virtues, or transcendence by way of negation and sublation. In other words, sloganeering along the lines of “capitalism sucks” is counterproductive, not unlike (assuming the slogan is sincere and grounded in a coherent belief) the beliefs held by socialists of Marx’s time and place whom he excoriated for “their delusions about the prospects of achieving socialism."

See Meghnad Desai, Marx’s Revenge: The Resurgence of Capitalism and the Death of Statist Socialism (London: Verso, 2002): 313-314.

Be that as it may, I hope the Egyptian revolutionaries are successful in achieving their immediate and long-term democratic and social justice ends.

February 7, 2011 | Unregistered CommenterPatrick S. O'Donnell


I share your hope that the Egyptian revolutionaries are successful in achieving their immediate and long-term democratic and social justice ends. And, the inequities from a democratic, social and economic standpoint have certainly been brewing for years, and for a multitude of reasons.

But, this specific timing of revolt, happens to coincide with the results of Egypt's more recent desire to make its financial system a speculative haven for global capital.

I wrote more about this in a piece for Alternet that came out on Friday, which also quotes from the Egyptian Ministry of Investment's March 2010 report, discussing its strategy for attracting foreign investment, something that really has had a destabilizing effect.

February 7, 2011 | Registered CommenterNomi Prins

Re: "this specific timing of revolt, happens to coincide with the results of Egypt's more recent desire to make its financial system a speculative haven for global capital."


That may be true (although I'm yet to be convinced that ALL 'global capital' coming into the region reflects the desire for a 'speculative haven'...if only because there surely are other more suitable, i.e., less risky or volatile havens for speculative capital), but the coincidence does not amount to demonstrating that it served as a significant causal mechanism leading to the protests. The desire to attract foreign investment in and of itself is not something lamentable: everything hinges on the reasons for and the purposes to which such investment is put. But let us for the sake of argument agree that Egypt was becoming a "speculative haven," in which case one needs to explain precisely how THAT FACT was a determinative or significant causal variable over and above all others, a proposition that will be fairly difficult to verify, especially because there are other, more plausible if not obvious explanations we might invoke for causal mechanisms (either as precipitating or deeper factors), although I'll remain open to evidentiary persuasion.

Best wishes,

February 7, 2011 | Unregistered CommenterPatrick S. O'Donnell

Dear Patrick,

Are you finished mastrubating? Could you please let the rest of know when you're done? It's a bit disturbing to watch.

Best wishes,
Quincey van Rijtmann

February 8, 2011 | Unregistered CommenterLt doom

Thanks your thoughtful comment, Qunicy. You exquisitely illustrate for us the dark side of blogging, wherein small minds have an opportunity denied them in other public fora to express inchoate thoughts and feelings while exhibiting symptomatic evidence of mental disturbance if not illness.

February 8, 2011 | Unregistered CommenterPatrick S. O'Donnell

The influx of international capital shot up from 2004 to the middle of 2009, and then plummetted back to pre-2004 levels very abruptly. (there's more on that in my Alternet piece.) During that period, the volume of trading on the Egyptian stock exchange increased 12-fold, artificially inflating values and creating a sense of security for the investing class, even in Egypt, not necessarily the general population, then it dropped as capital fled. The notion of Egypt as a speculative haven, comes from the strategic removal of all barriers, capital requirements in the country for investment projects, and no tax burden - fostering by design a perfect climate. Not all foreign capital is bad, but we have seen in our country how easy it is for the financial activities of a few home-grown banks to devastate our economy when the realities of over-leveraged development and price bubbles pop, and that happened in Egypt, but under the activities of foreign banks. There isn't a one-to-one relationship from international speculation to revolution, because of all the other factors, but the quick economic deterioration that followed the withdrawal of foreign speculative capital, slammed the economy. I think people want to eat more than they want to vote. Economic hardship will more likely bring people into the streets, even if all the other causes were simmering and real for years.

February 8, 2011 | Registered CommenterNomi Prins

Dearest Patrick,

Do you think you're better than me because you managed to fit the words "inchoate," "exquisitely," and "symptomatic" into a 70-word comment while also using the pretentious Latin plural form of "forum"?

Warmest regards,
Quincey van Rijtmann

February 8, 2011 | Unregistered CommenterLt doom

So, of course Newt and his fellow GOP cohorts attribute all the blame for Mubarak's decision...WAIT...IF YOU LOOK AT MUBARAK'S NAME IT ALMOST SPELLS OUT OUR PRESIDENT'S NAME...Well only IF YOU EXCLUDE THE "M" AND THE "U" I'm sure Glen Beck will illustrate this on his blackboard this evening as breaking news, but I digress. Newt and his boys blame Obama's administration and CIA intelligence for the failure in Murbarak's decision to remain in Egypt until the September elections, but my question is "Doesn't the burden of impacting change rest on the downtrodden Egyptians to step up their revolt?" I don't condone violence or bloodshed but I don't think the thug dictator is going to depart without some pressing reasons, and extreme civil unrest. An extremely volatile, more serious mob-like takeover of Egypt might solicit more involvement from the rest of the world. Civil rights, slavery, etc. all had serious civil confrontations that entailed violence and bloodshed. The cause was that important. People were willing to risk their lives for change. Yes, I know that lives have been lost here as well but in my opinion until the military changes their allegiance and supports a full on Coup then change will not come in Egypt. Plus what has happened to the foreign investors who bought up all the capital of Egyptian banks? I read Nomi's article on how easily they purchased their shares of Egyptian banks, but still don't know since Cairo is a circus of chaos what if anything has happened with those investments.

And lastly, what have the Republicans done with their tax breaks and majority rule of the House? Any direct positive results with kick starting the economy? Also, sorry....will someone please tell our president to stop trying to be so damn nice and center with the GOP and department of Commerce. They hate you Mr. President. Stop trying to win those Independent votes and be a bad ass!

February 11, 2011 | Unregistered CommenterLee
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