February 10, 2011 / 3:37 PM / in 7 years

ANALYSIS-Egypt uprising hits Mubarak's business elite

* Protesters target business symbols of ruling system

* Business cronies of ruling party sit in parliament

* Random scapegoating may hurt business confidence

By Samia Nakhoul

CAIRO, Feb 10 (Reuters) - Egypt’s uprising has alarmed business executives who fear they will be made scapegoats to appease protesters who want to bring down President Hosni Mubarak and the moneyed elite around him.

The upheaval that has gripped Egypt since Jan. 25 has targeted links between Mubarak’s government and a privileged class of loyalist business executives who have grown rich under privatisation and other economic reforms.

Seventy to 80 businessmen sit in parliament as members or allies of the ruling party. Their critics say they lobby for and pass legislation tailored to their interests.

“This is a situation that should not have happened. This is a conflict of interests,” said Ayoub Adli Ayoub, chairman of Egypt-based Remco for Touristic Villages Construction (RTVC.CA), hotels and housing complexes.

“Businessmen should stick to business. Their role is not to enter parliament, government or issue legislation that can help their business,” said Ayoub, who has no political party affiliation. “Their views are important but they cannot be part of policy and decision-making.”

Some executives fear popular anger at these insiders may discredit the whole idea of reform, which they see as vital to create the hundreds of thousands of jobs Egypt so badly needs.

Medhat Khalil, chief executive of Raya Holding for Technology and Communications, decried the crony links he said had blurred the line between business and politics. “That was a huge and direct conflict of interest,” he said. “Our leadership encouraged corruption.”

The business community also worries about the damage the political struggle is inflicting on Egypt’s economy, estimated by Credit Agricole bank analysts at $310 million a day.

Public wrath exploded on Jan. 25 against high inflation, poverty and unemployment, as well as government policies perceived as widening Egypt’s yawning wealth gap.

The government has long insisted that benefits from economic reform are trickling down to the masses -- who are unconvinced judging by the stubborn protests against Mubarak’s 30-year rule.

The authorities have responded by sacking the government and putting some deputies and ministers linked to graft allegations under investigation, imposing travel bans and freezing assets.

PROSECUTION CHARGES

One of those whose assets were frozen is Ahmed Ezz, chairman and major stakeholder of Ezz Steel, Egypt’s largest steel maker, who is a parliament member and was a senior member of the ruling party until he quit during the protests.

Prosecutors on Thursday filed formal charges against three former ministers and Ezz for abusing their position to enrich themselves and stealing public money, state TV said. The charges are against former tourism minister Zuhair Garana, former trade and industry minister Rachid Mohamed Rachid, former tourism minister Ahmed al-Maghrabi and Ahmed Ezz.

Rachid has denied wrongdoing. State television said Garana is accused to giving state land to a well-known tourist company as an incentive for it investing in his own firm, Garana Tourism, which was facing financial difficulties.

State news agency MENA said Ezz is accused of illegally taking control of state-owned al-Dekheila Steel which then supplied his Ezz Steel firm with steel at reduced prices, costing al-Dekheila heavy losses.

Ezz, a close confidant of the president’s businessman son Gamal, came under attack for alleged corruption and vote-rigging in the November parliamentary election, which produced a crushing victory for Mubarak’s National Democratic Party.

Ezz denies these accusations as well as allegations that he used his political links to monopolise the local steel market.

“Any allegation of monopoly is strongly denied. Ezzsteel is not a monopoly but a leading producer in Egypt where it operates in a free market and competes fairly with other Egyptian steel producers and foreign importers,” the company said.

Ezz’s critics say he was given the opportunity to buy a privatised state company at a discount. He ended up owning or controlling half of Egypt’s steel production.

Many Egyptian tycoons have prospered on mutually beneficial connections to the ruling party, analysts say.

“Reform in the eyes of the regime consisted essentially of widening their base by adding on selected businessmen who were given unique privileges,” said one London-based analyst who has followed Egypt for years. He asked not to be named.

“It is like building an alliance between the regime and a privileged group of loyalist businessmen so that everybody gets extremely rich and they called that reform,” he added. “It is not reform. It is cronyism and regime maintenance.”

Since 2004 the government has been pushing through politically unpopular economic measures to help it reach the 7 percent growth it says is needed to reduce unemployment.

Growth targets were met, at least for three years, but few Egyptians felt the reform drive had improved their lives.

“It was concentrated and biased in favour of some people in power who took advantage and exploited the system,” Ayoub said.

RICH GET RICHER

Many Egyptians are deeply suspicious of the reforms, viewing them as designed to favour the rich over the poor. Perhaps aware of this discontent, the government has repeatedly deferred many cost-cutting and austerity measures.

The government says it sells petrol and butane cooking gas not just below their international price, but below their production cost. As a result, subsidies, mainly for energy, eat up around 25 percent of the state budget.

The burden drains money from investment in infrastructure, education and other programmes needed to boost economic growth, and has helped inflate the budget deficit, which was a hefty 8.1 percent of gross domestic product in the year to end-June.

Businessmen said the government should not react to the protests by turning them into scapegoats at random. That would risk denting business confidence and triggering capital flight.

“The way they are going about it is producing a lot of uncertainty,” the London-based analyst said.

Ayoub said the corrupt should be brought to account without harming Egypt’s economic achievements. “Not everybody under accusation was guilty. I‘m sure that something went wrong. It is true there was corruption and that things have to improve.”

Reform should have tangible benefits for ordinary people -- better schools, jobs, water, sewage and hospitals, he said.

“Business (prosperity) has to have a human face.”

Many businessmen agree that only economic reform can improve life for Egypt’s 80 million people, but some doubt Mubarak’s government can deliver.

“The system is still the same system, the president is still the same president. I have no hope to achieve anything under this government,” Khalil said. (Editing by Edmund Blair and Alistair Lyon)

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