The Finance Professionals' Post

Update on Egypt: The Price of Unrest

The recent protests in Egypt have taken a toll on the country's businesses and short-term economic growth:

• The government shuttered the stock exchange after unrest caused the benchmark index to plummet by 17%.
• Moody’s, Fitch Ratings, and Standard & Poor’s have all downgraded the country’s ratings and outlook. 
• Billions have been lost in tourism, which accounts for more than 10% of the Egyptian GDP.  
• Even the entertainment industry in Egypt—known as the “Hollywood of the Middle East”—is suffering, according to the Hollywood Reporter.

While many Egyptian business executives fear that they will be made scapegoats, Naguib Sawiris, head of the Mideast's largest telecom company, told BusinessWeek that the turmoil will ultimately foster a better business climate. It remains to be seen whether recent events will result in a democratic, business-friendly government, but the following video provides in-depth economic analysis of what is coming to be known as “the battle for Egypt.”  

Egypt Delivers Impressive Results, But with Risks

Egypt—land of pyramids, sphinxes, and pharaohs—is changing with the times. Political and economic liberalization in the 1990s and 2000s has made Egypt an exceptional frontier market that is still worth investigating as part of an asset allocation. Although equity performance has been extraordinary and the chronic currency devaluations of earlier years have largely passed, investors should be aware of the political risks stemming from Egypt’s authoritarian political structure, aging president, highly unequal wealth distribution, and fundamentalist social movements.

FROM SOCIALIST TO QUASI-LIBERAL ECONOMICS

A truly independent Egypt first emerged in 1952, when military officers overthrew the British-supported King Farouk and declared a republic. Gamal Abdel Nasser, who had been instrumental in organizing the coup, emerged as the revolution’s charismatic leader, serving first as prime minister and then as president from 1956 until his death in 1970. Nasser quickly aligned himself with the Soviet Union, primarily to counter residual British interests in Egypt and to support his nationalization plans, but also to counterbalance Israel and its close relationship with the US.