Economy in a week: S&P raises Egypt credit rating

S&P raised Egypt's credit rating to "B-/B" with a stable outlook. Meanwhile, unofficial reports have surfaced of Saudi Arabia offering Egypt US$4 billion. Moreover, the ongoing saga on minimum wage pursues.

On Friday, Standard and Poor's raised Egypt's long and short-term foreign and local currency sovereign credit rating from "CCC+/C" to "B-/B" with a stable outlook. Finance Minister Ahmed Galal, saw the matter as an initial indicator for recovery of confidence in Egypt from international markets.

The three main sovereign rating agencies — S&P, Moody's and Fitch — have cut Egypt's assessment six times since the January 25, 2011 revolution, due to the country's unstable political environment.

S&P said they expect support to continue over the medium term from "bilateral lenders", the rationale being increasing their credit rating, as Egyptian authorities attempt to address the country's political and economic challenges.

Dr. Samer Attalah, Assistant Professor in the Economics Department at American University in Cairo, believes this is not yet a positive indicator — the market being injected with foreign assistance — although it affects the short term in making Egypt less risky than it was before. However, despite Egypt being upped a grade, it still classifies as a highly speculative investment, commonly known as a junk investment.

Galal said the government is now focused on achieving financial and economic stability in the medium and long term through applying suitable fiscal and monetary policies while employing foreign assistance from Gulf countries to its best use.

Egypt has received a total of US$12 billion in aid from the Gulf states since President Mohamed Morsi was ousted on July 3 this year.

Saudi Arabia to inject further aid into Egypt

The Egyptian government is concluding talks with Saudi over another financing package worth $4 billion. The deal is set to include the purchase of petroleum products to cover the needs of Egyptians during winter, in addition to a Russian arms deal, however, the military portion of the loan has not been disclosed.  

Attalah declined to comment on the matter as the reports have yet to be officially announced.

Prime Minister Hazem al-Beblawi is set to visit Saudi Arabia by end of this month, accompanied by a delegation including the minister of foreign affairs, international cooperation, investment and petroleum to complete the accord.

Both countries are set to develop a roadmap for economic and trade relations according to Minister of Industry and Foreign Trade Mounir Fakhry Abdel Nour. The plan will be developed with the participation of the Egyptian-Saudi Business Council in collaboration with business organizations.

Saudi Arabia is the largest Arab investor in Egypt, with investments amounting to $2.5 billion and a volume of trade exceeding $3 billion.

Minimum wage, maximum wage: The ongoing saga

While fresh cash from the Gulf dipped into the Central Bank of Egypt’s vault, ongoing discussions have been taking place on the minimum and maximum wage for the private sector. The government had earlier decided to consult a neutral party to settle its differences with the private sector on the minimum wage, which was initially set at LE1,200 with plans to put into action in January 2014.

On agreement with representatives from the private sector, the government will postpone minimum wage implementation until a detailed, impartial study is carried out from the Arab Labor Organization, according to an unofficial account from the National Council of Wages.

In his view, Attalah says it would be politically difficult for the government to back off from their initial plans after announcing them. He adds that it's difficult to assess the effect of the minimum wage on unemployment, as much of it is due to structural problems.

"It does not have a simple answer, so even after increasing minimum wage, unemployment will remain," he tells Mada Masr.

 He expressed further concern regarding the effects of inflation, stating the importance that the additional money comes from real sources — as opposed to money printing by the government.

Ahmed el-Wakil, president of the Federation of the Chambers of Commerce, was reported saying that a large part of structural unemployment in Egypt is an indirect result of the lack of clarity in the minimum wage. He proposed a regulated labor market that lists vocational skill and proficiency in a nationwide database.

Unemployment still on the rise

Egypt's main statistic agency, CAPMAS, said that unemployment for the third quarter of 2013 witnessed a minor increase to 13.4 percent, compared to 13.3 percent in the second quarter of the same year. Prior to the revolution, unemployment was at 8.9 percent in the comparative quarter in 2010.

The rise is mainly attributed to an increase in the labor force during this period (4.2 percent since 2010), with insufficient economic activity to make up for the needed jobs. The current labor force stands at 27.2 million, while only 23.6 million have jobs. Most affected are the youth who fall in the age range of 15–29, with over 70 percent of this group unemployed.

Figures also reveal that while 19 million males are employed, with a drop in employment of 316,000 since the third quarter of 2010, 4.6 million females are employed with a rise of 99,000 for the same period. Nonetheless, female unemployment is as high as 29.6 percent in urban Egypt compared to only 12.6 percent for males.

Economy week in numbers:

·         Gold continues its uptrend registering a local price of LE2,000 for the gold coin.

·         The EGX30 lost LE10.4 billion over the course of last week, closing the index at 6,228 points on Thursday's session, down by 2.93 percent.

·         The Egyptian Authority for Supply commodities agreed to purchase 240,000 tons of wheat from Romania and France at a price range of $299.74–$305.6 per ton.