Commodity Trading

Cairo, Egypt David Rosenberg – The five countries hit hardest by turmoil of the Arab Spring will show a combined drop in economic output of about 2.3 percent this year as they struggle with unrest and its after effects, according to figures based on a forecast by the Institute for International Finance (IIF).

Egypt’s $218 billion economy will be responsible for most of the decline, with output dropping 2.5 percent this year after inflation. The smaller economies of Syria and Yemen will experience sharper contractions, with Syrian gross domestic product slumping by 3 percent and Yemen’s by 4 percent. Tunisian GDP will decline 1.5 percent. Only Bahrain will show any positive growth this year, with GDP expanding 2.9 percent, the IIF forecast. But that will be the slowest pace of growth for the island state since the 1990s, the IIF report released late Tuesday noted.

Moreover, with the Middle East still suffering political instability, the chances are good that economic pain will be more severe than now predicted, said George Abed, director of the Washington-based IIF’s Middle East department.

“The oil-importers face considerable downside risks to growth,” Abed said in a statement. “Not only is the political reform process unlikely to be smooth and could drag on beyond 2011, further delaying investment decisions and slowing any economic recovery, but investigations into political corruption are adding to business uncertainties.”

The five countries are facing different challenges. In Tunisia and Egypt, long-time leaders have been replaced by transitional governments committed to bringing democracy and stabilizing their economies. Syria and Yemen are gripped by violence as their leaders have sought to quell opposition protests. In Bahrain, the government, helped by Saudi troops, has restored quiet but at the cost of deterring business.

All five, however, face a similar dilemma of assuaging popular demands for improved living standards at a time when their resources are constrained by slowing economies, accelerating inflation and double-digit unemployment. Governments have risked exacerbating the problem by offering short-term solutions, such as increased subsidies for food and other necessities, raising salaries and creating make-work programs.

The IIF estimated that consumer prices across the Arab world will climb 5.7 percent this year, but among the economies hardest hit by unrest, prices will rise much more sharply. In Egypt, inflation may reach 11.5 percent, in Yemen 15 percent and Syria 8 percent.

“In this very difficult environment, and amid major pressures to institute far-reaching political reforms, it is absolutely critical that the transition authorities in Egypt and Tunisia place a high priority on structural economic reform,” Abed said.

The outlook for the five countries improves in 2012, with growth reaching 3.8 percent, according to figures based on IIF estimates. Tunisia’s $44 billion economy will lead the recovery, posting a 5.2 percent increase in GDP. Egypt and Bahrain will both expand by 4.2 percent. Syria and Yemen will show more modest turnarounds, growing 2 percent and 3 percent, respectively.

Nevertheless, the IIF warned that the kind of structural reforms that will bring sustainable growth will require “fundamental political and economic reforms and will take time.” It expressed concern that transitional governments, focusing on political and constitutional issues, will ignore economic reforms.

Global financial institutions may serve as a lever for reform as countries like Egypt and Tunisia seek support to tide them over the difficult period, the IIF said.

The International Monetary Fund (IMF) head said earlier this month the fund would likely make available $35 billion in loans to Middle East countries where popular uprisings have occurred. Although no country has formally approached it, Egypt has indicated it needs up to $12 billion to meet a funding gap, Masood Ahmed, the IMF’s director for Middle East and Central Asia, told Reuters April 27.

The IIF said Egypt’s sagging economy was at risk for a “second wave of social upheaval” because the public has high expectations about the future after President Husni Mubarak was forced to step down in February in the face of massive protests. Political reform could run into 2011 while arrest and investigations of Mubarak-era businesspeople may discourage investors, it said.

In contrast to the economies of turmoil-ridden countries, most of the Middle East’s oil-exporting countries are likely to see significant growth this year, including Iraq, which grew by just 0.9 percent in 2010 but is now likely to grow by 11 percent in 2011 and by 11.5 percent next year.

With regard to Dubai, the IIF said Dubai World has successfully restructured its debt, but worries persist about the country’s debt overhang. Other Government Related Entities (GREs) are also undergoing debt restructuring, including Dubai Holding. Dubai has regained market access, but the cost of borrowing remains high, reflecting the rollover needs of the total of $31 billion falling due in 2011 and 2012, and the continuing challenges related to the depressed property sector.

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Rhab Hendrik is an author who shares his best forex trading articles with others. He can always be counted on to bring you the latest forex trading tips and detailed forex trading strategies.

Rafah Border Crossing, Israel (TML) – Hamas doesn’t object to the reinstatement of European Union observers at the Rafah border crossing between Egypt and the Gaza Strip, a Hamas official told The Media Line.

“We don’t mind if the Europeans are involved as long as the Egyptian side agrees to this,” Ahmad Yousef, a political adviser to Hamas Prime Minister Ismail Haniyeh, told The Media Line on Sunday. “The only objection we have is to Israeli involvement. This is an agreement between Palestinians and the Egyptians,” he added.

The position comes amid growing tensions between Israel, the Palestinian and Egypt after Hamas and rival Palestinian faction Fatah reached a surprise agreement to end four years of feuding and form a national unity government. Cairo, which brought the two sides together, said the pact would enable it to re-open it border with Hamas-controlled Gaza, spurring concerns in Israel about security.

Egyptian Foreign Minister Nabil Al-Arabi said the crossing, which has remained mostly closed since Hamas seized control of the Gaza Strip in June 2007, would be permanently opened within a week to 10 days, “to ease the suffering of the Palestinian people.”

Foreign Ministry spokeswoman Menha Bakhoum told Al-Ahram daily on Sunday that Egyptians regarded the Israeli blockade of the Gaza Strip “disgraceful.”

Opening the border with Egypt would mark the biggest breach in a blockade imposed by Israel and backed by the West since 2007. While Israel has been forced to ease controls and tunnel dug under the border to Egypt allow other supplies to enter, Hamas has struggled to bring in weapons to use against Israel.

Israel has come out strongly against the planned Hamas-Fatah unity government. Fatah favors a negotiated peace with Israel while Hamas is committed to the destruction of the Jewish state. The agreement doesn’t address how the unity government will square these postions.

EU supervision, however, might ease Israel’s concerns about what passes through Rafah., which is the only border crossing not controlled by Israel. Following Israel’s withdrawal from Gaza in 2005, responsibility for the Rafah crossing was handed over to the Palestinian Authority.

An ad-hoc European force, the European Union Border Assistance Mission Rafah was appointed to oversee Egyptian and Palestinian management of the crossing, with Israel monitoring it from afar through a video surveillance system. But seven months later, in June 2006, Israel ordered the crossing closed for security reasons. The crossing was permanently sealed by the Egyptians the following June.

While the terms of Egypt’s promised re-opening are still unclear, Gazans said on Sunday they were looking forward, saying it would give residents big psyschological boost.

“Gazans always felt under siege. This will give them a sense of freedom,” Samir Zaqout, field work coordinator for the Al-Mezan Center for Human Rights in Gaza, told The Media Line. “Egypt has clearly changed its strategy towards the Gaza Strip, and I believe this new attitude is here to stay.”

Former Egyptian President Housni Mubarak shared Israel’s antipathy to the Hamas regime and kept the border crossing closed, while partially combating the smuggling of goods in underground tunnels between Egypt to Gaza. Egypt’s new military regime has been friendlier to Hamas, brokering a reconciliation agreement between Palestinian President Mahmoud Abbas’ Fatah movement and Hamas, that is expected to be signed this Thursday.

Mark Regev, a spokesman for Israeli Prime Minister Binyamin Netanyahu, declined to comment on the Egyptian decision, but Israeli daily Haaretz reported Sunday that Netanyahu is considering sending his special envoy Isaac Molho to discuss the matter with Egyptian officials. Amos Gilad, head of the Defense Ministry’s diplomatic-security bureau, told Israel Army Radio that “despite the announcement by the Egyptian administration, there will be no opening of the Rafah crossing.”

“Israel maintains the amount of products entering the Strip at a minimum,” Zaqout said. “Every time it decides to close the crossings, a humanitarian crisis follows two or three days later.”

But Mathilde Redmatn, deputy director of the International Committee for the Red Cross in the Gaza Strip, said in an interview published on the Israeli army’s website April 20, that “there was no humanitarian crisis in Gaza.”

“If you go to the supermarket, there are products. There are restaurants and a nice beach,” she added.

Ali Abu-Shahlah, secretary-general of Gaza’s Business Association, admitted that the main change in the life of Gazans would be in the ability of individuals to enter and leave freely. He predicted that the opening of the Rafah crossing would also ease trade and transfer of money but only on a small scale.

“We are human beings and we need vacations,” Abu-Shahlah told The Media Line. “I personally know people who haven’t left Gaza in 15 years. This will have a psychological effect; people’s mood will change.”

“There is what we call the ‘suitcase merchants’ who will be able to bring in some merchandise,” he said. “Gazans living in the Gulf will be able to visit their relatives in the Strip without fear of getting stuck in Egypt, or in Gaza. They will be able to carry in a few thousand dollars or other gifts in their pockets.”

But Hamdi Shaqura, deputy director for program affairs at the Palestinian Center for Human Rights (PCHR), a Gaza-based organization, was less optimistic about the new arrangement.

“It’s unclear whether the opening will include economic transactions or will only allow individuals to cross,” Shaqura told The Media Line. “This isn’t an alternative to our demand from Israel to lift the blockade imposed on Gaza.”

Shaqura said Gaza needed to be allowed to export goods, not only receive them, and maintain land passage to the West Bank.

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