Opinion: Egypt, Iran Are the Next Great Emerging Markets
The Middle East, once the navel of global commerce, is readying to return from the economic wilderness.
Though still beset by violence in its Arab parts and by sanctions on its Iranian end, an unfamiliar business-friendly climate is beginning to spread through the region, as huge investment opportunities are looming between the Caspian and the Nile.
Iran’s economy, shrunken by a quarter since 2011, is like a volcano waiting to erupt. As talks in Oman over Tehran’s nuclear program approach their Nov. 24 deadline, investors are eagerly awaiting new opportunities to mine the Islamic Republic’s riches, build factories, roads, bridges, and railways and put to work its heavily unemployed workforce.
Meanwhile, at the other end of the Fertile Crescent, 50 companies’ bulldozers are digging in the Sinai Desert a waterway aimed at doubling the Suez Canal, while to their west cranes tower above housing projects along the Nile worth $40 billion, and in upper Cairo’s Emaar Square military camps are being removed to make way for urban development.
Mercantile mullahs and generals
There are deep differences between Iran and Egypt as investment destinations. Iran is more literate, has oil, gas, copper and iron as well as low birthrates, a broader middle class, and a deeper industrial base, including an auto industry that generated a tenth of Iranian gross domestic product until debilitated by international sanctions.
Then again, Iran is sanctioned, and will remain such even if a deal hatches this month. Unless Iran declares surrender and folds its nuclear program, the Republican Congress can be counted on to preserve and even tighten U.S. sanctions, with or without Barack Obama, even while Europe and the U.N. ease their own sanctions.
Moreover, sanctions and the oil glut have slashed annualized oil revenues from $9 billion in 2011 to less than $4 billion today. With oil prices still in the doldrums, investors rushing to Iran might learn, along with the Iranians themselves, that a post-sanctions Iran will have less cash than initially assumed.
Egypt has no such concerns, not because of its wealth but because of its different foreign relations.
Ever since the army’s removal of the Islamist government last year, cash has been flowing to Cairo from the Gulf, most notably a $40 billion housing deal financed by Dubai-based Arabtec. Similarly, the government says it managed to finance the first phase of the Suez Canal’s expansion with $8.4 billion raised September from the public through 5-year, 12% bonds.
The canal scheme is emblematic of a transition from Islamism to pragmatism.
Projected to double daily traffic from 49 to 97 vessels and increase by 260% annual revenues that are currently $5.3 billion, this project will not only bring in new passage fares but also industry and commerce because adjacent to it will be industrial parks, free trade zone, and logistical service centers.
Not only do Egypt’s surprisingly mercantile generals face no external predicaments as they try to reinvent the economy, internally, too, they face no political opposition of the sort that Iran’s newly mercantile mullahs face in the Majlis. True, Egypt is suppressing a democratic opposition, but its grievances are about political freedom, not about economic policy.
In Egypt there are no Revolutionary Guards, who breathe down the government’s neck as it tries to liberalize the economy. Then again, Egypt faces an Islamist terror challenge that Iran for now lacks, and the Egyptian army, much like the Revolutionary Guards, is playing an unnatural role in the economy, for instance in executing the Suez Canal’s expansion.
This is besides the region’s notorious unpredictability, the need to consider the prospect of leaders like Moamar Qaddafi, Mohamed Morsi or the shah of Iran falling from power on the spur of the moment.
Excitement and risk
In short, like all exciting investments, Iran and Egypt are fraught with risk.
Even so, economic reason is finally taking root in Tehran, where the ayatollahs once thought easy oil income could allow economic neglect, and also in Egypt, where the ousted Islamist government ignored the economy even without earning petrodollars.
The best proof of this changed attitude in both capitals is that both Cairo’s uniformed generals and Tehran’s turbaned ayatollahs set out to rationalize their price systems.
In Iran subsidies were first cut by former President Mahmud Ahmedinejad, and in Egypt President Abdel Fattah el-Sisi has launched a comprehensive subsidy-cut plan last summer.
The price reforms in both countries are gradual. In Egypt, bread subsidies were wisely cut by only 13%, while truck-gasoline subsidies were abolished, thus hiking their prices 175% and ordinary cars’ by some 50%.
Like the general state of reform in both of these economies, these too remain partial. Subsidies still account for more than a fifth of Iran’s GDP, and in Egypt next year’s fuel subsidies are still planned to swallow 13% of the budget.
And other economic predicaments abound. In Egypt, for instance, hardly a tenth of the population have a bank account and the budget deficit is more than 10% of GDP, while in Iran a fifth of bank borrowers default and big projects require partnering with, or buying off, the Revolutionary Guards.
Even so, Egypt and Iran now share a quest to open up economically and an understanding that, if they don’t, they will be doomed to stagnation and violence. Experience teaches that once such insights take root economies begin to mature, whether in China’s authoritarian way, in Russia’s chaotic way, or in the smoother ways of India, Poland, or Peru.
Considering their shortages, locations, and large populations, the Egyptian and Iranian economies will soon start growing rapidly, using their veteran stock markets, attracting industrial multinationals, and eventually succeeding yesteryear’s Asian tigers as the global economy’s next big thing.
Hopefully, their bleeding neighbors, from Libya and Yemen to Iraq and Syria — will watch, envy, and ultimately follow suit.
About the Writer:
Amotz Asa-El is Middle East commentator at Wall Street Journal-MarketWatch, Senior commentator, and former executive editor at Jerusalem Post, Fellow at Shalom Hartman Institute
Source: Market Watch
