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Cablegate: Egyptian Tycoons' Criminal Cases Add to Distrust of Private Sector

VZCZCXRO2978
PP RUEHROV
DE RUEHEG #2027/01 2591307
ZNY CCCCC ZZH CCY
P 151307Z SEP 08
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC PRIORITY 0475
INFO RUEHXK/ARAB ISRAELI COLLECTIVE PRIORITY
RUEHRO/AMEMBASSY ROME PRIORITY 1617
RUEAWJA/DEPT OF JUSTICE WASHINTON DC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY

C O N F I D E N T I A L SECTION 01 OF 03 CAIRO 002027

C O R R E C T E D COPY - DMS addressee corrected

SIPDIS

STATE FOR NEA/ELA, NEA/RA, INL
TREASURY FOR MORAVEC AND PARODI
COMMERCE FOR 4520/ITA/ANESA

E.O. 12958: DECL: 09/14/2118
TAGS: ECON KCRM PGOV EINV EG
SUBJECT: EGYPTIAN TYCOONS' CRIMINAL CASES ADD TO DISTRUST OF PRIVATE SECTOR

REF: A. CAIRO 1973 B. CAIRO 621 C. CAIRO 1932
CAIRO 00002027 001.2 OF 003

Classified by Minister-Counselor for Economic and Political Affairs William R. Stewart for reason 1.4 (d).

1. (C) Summary: Some of Egypt's leading captains of industry are under investigation in a range of criminal cases from relatively routine suspicions of bribery to the violent killing of a former girlfriend. The Egyptian stock market was buffeted by murder-for-hire accusations against regime insider Talaat Mustafa and price-fixing convictions against 20 cement executives XXXXXXXXXXXX. The media attention reflects street-level cynicism about Egyptian tycoons, as well as government attempts to deflect blame for inflation, income disparity and corruption, favorite points of criticism by the opposition Muslim Brotherhood. End Summary.

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Talaat Mustafa

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2. (C) Egyptians who typically spend Ramadan nights swooning over television serials are now spending their iftars, sohours, and intervening cafe hours parsing the true-life drama of Hisham Talaat Mustafa. Mustafa, a member of the Shura Council and close associate of Gamal Mubarak, is charged with paying XXXXXXXXXXXX to murder his former girlfriend, Lebanese singer Suzanne Tamim, who was stabbed to death in July in Dubai. XXXXXXXXXXXX

3. (SBU) Early press coverage of Mustafa's September 2 arrest focused on his ties to the Mubarak regime and the 16-percent dip in the Cairo stock price of Talaat Mustafa Group, which has vast holdings in construction and real estate. Stock prices later rebounded, indicating either a positive market response to company pronouncements that operations will be unaffected, or perhaps investor confidence that Mustafa's government friends will ultimately get him out of jail. Mustafa himself went on Egyptian TV to proclaim his innocence.

4. (SBU) However, it was a bad week for a government insider to try to burnish his image. Following the September 6 El-Muqattam landslide onto a shantytown that killed dozens of Egyptians (ref A), commentators conflated the incompetent rescue attempts with Mustafa's case as examples of what's wrong with Egypt. Analysts in a television series titled "Where is Egypt Heading?" concluded that it's heading nowhere good, consistent with a gloomy mood that increasingly permeates Egyptian streets (ref B). Some commentators speculated in the press that President Mubarak himself acquiesced in the charges against Mustafa to assuage public rage at Egypt's robber barons. Others predicted that the regime may sacrifice him to avoid damage to Egyptian-UAE and Egyptian-Lebanese bilateral relations, or even to boost the business prospects of competitors XXXXXXXXXXXX.

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Bribery and price-fixing

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5. (U) While other recent criminal cases and investigations against influential businessmen are far less dramatic than Mustafa's case, they have contributed to public perceptions of a corrupt private sector. Trade Minister Rachid Rachid claimed that multi-million-pound fines levied August 25 against cement executives for price-fixing would encourage more transparency in the market, but business leaders claimed it was another worrying indication of the government making the private sector a scapegoat for its political woes (ref C). XXXXXXXXXXXX

6. XXXXXXXXXXXX. XXXXXXXXXXXX

7. XXXXXXXXXXXX

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Economic reform stalled

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8. (C) The various allegations come at a time when momentum is waning on economic reform. Even as the World Bank once again named Egypt one of the world's leading reformers for 2009, XXXXXXXXXXXX told the Ambassador that reform is now stalled as a result of infighting among the economic reform team led by Prime Minister Ahmed Nazif. XXXXXXXXXXXX

9. (C) Also, XXXXXXXXXXXX said, the inclusion of business people on the cabinet has resulted in conflicts of interest, noting that Housing Minister Ahmed el-Maghraby and Transportation Minister Mohamed Mansour have significant financial interests in their sectors, as does Tourism Minister Zoheir Garranah. XXXXXXXXXXXX . The Mustafa case is often mentioned in the same breath as the July acquittal of a Mubarak appointee to parliament who was charged with negligence in the 2006 deaths of more than 1,000 Egyptians who drowned in the sinking of a Red Sea ferry.

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Comment

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10. (C) Although it is unreasonable to conflate murder-for-hire charges, price-fixing convictions, the acquittal in the ferry case and relatively benign bribery suspicions, those Egyptians predisposed to distrust the private sector will do just that. XXXXXXXXXXXX. Coupled with the dozens of deaths in the El-Muqattam landslide and the government's inadequate rescue attempts, the grim news contributes to a sense that the country is headed in the wrong direction. These cases also underline the importance of solid regulation and rules in a nascent capitalist economy to protect consumers and prevent unfair practices, such as senior officials holding a financial interest in industries over which they have policy purview.

11.(C) XXXXXXXXXXXX. And the fact is that Mustafa was arrested and will be tried for murder. While these developments might not convince average Egyptians that their government will protect them from avaricious businessmen, the GOE does seem aware that it needs to do something to untarnish its image. The annual National Democratic Party conference in November will provide the ruling party -- and heir-apparent Gamal Mubarak -- an opportunity to demonstrate leadership in addressing these concerns, likely at the expense of the private sector and economic reform. If the NDP fails to improve on its reputation as a party of the corrupt elite, public disillusionment with the regime and sympathy with the Muslim Brotherhood will only increase.

SCOBEY

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