On May 23 and 24, approximately 23 million Egyptian voters — accounting for about 46 percent of the electorate — flocked to polling stations across the country to choose their nation’s next president, or as it turned out, the two contenders in a June 16/17 runoff between Mohamed Morsi and Ahmed Shafiq. The monumental election, seen as the first free and fair process ever for most Egyptians to determine their country’s leader, was hoped to bring final closure on thirty years of authoritarian rule under Hosni Mubarak.
Mubarak, once touted as modern Egypt’s pharaoh and blamed for the country’s corruption-induced economic hardships, was deposed as president in February 2011 and sentenced to incarceration for the rest of his life on June 2. He was held responsible for the death of protesters in the Tahrir uprising that led to his resignation.
The biggest challenge that the country faces now is building a positive path to the future; to a large degree this is an economic challenge. Jobs, not speeches, are needed by the millions of Egyptian voters who came from poverty-stricken towns along dirt-lined alleyways to cast their ballots.
While the country lies in wait for freedom from corrupt politics and for equitable business, a new trust and buy-in by the people with the ability to move the Egyptian economy forward is an issue of great importance, along with the creation of accountable institutions and empowering policies. In canvassing views of business leaders and economists on the outlook for Egypt’s economy after the elections, the consensus was that the economic outlook after elections is bright and the economic players are willing and eager — as long as there is political stability.
“It’s been a wait-and-see game since the early days of the revolution,” said Cesare Rouchdy, regional director of marketing for the Four Seasons hotels in Egypt. “The main culprits are safety, stability and security. If these three elements exist, there will be a resurgence of economy and what goes with it. But as long as we don’t have these three S’s it will be difficult.”
Signs of this economic resurgence have so far kept well out of sight, at least in the important tourism sector, while the country was gearing up to its second round of elections. At the end of May, two Four Seasons hotels in Cairo were operating at 20 to 30 percent occupancy, while two other hotels in Alexandria and Sharm El Sheikh were running at 35 to 45 percent, substantially below normal rates for the spring season. “Right now, we should be running at close to 70 percent,” said Rouchdy, adding his voice to a chorus of cautious optimism about the nation’s economic future. “We’re optimistic but not singing from the rooftops yet. There are many ‘if’s’ that come into play.”
Tentative markets
The picture in investments and financial markets is quite the similar mixture of hope and concern over the unknowns of a politically turbulent period. “There is minimal participation in the market from local, retail and foreign investors,” said Amr Reda of Pharos Securities Brokerage, one of the top five brokerage firms on the Egyptian Stock Exchange (EGX) and a unit in Cairo-based investment bank Pharos Holding for Financial Investments.
Financial markets had borne the immediate impact of the political upheavals since January 26, 2011 as the EGX shuttered its doors for almost eight weeks and recorded intense volatility in the following months. The Egyptian bourse then hit a six-week low after official results of the first round of elections were announced at the end of May, reflecting ongoing concern about the possibility of further unrest as the polarized runoff will pit the Muslim Brotherhood’s Morsi against Mubarak’s last prime minister, Shafiq.
According to Reda and other analysts, the reticence of investors in the period between the election rounds is rooted in their concerns about the unpredictability of who will lead the country and what their policies will be. This uncertainty is stoked further by the fact that the powers of the president and parliament — now dominated by the Muslim Brotherhood’s Freedom and Justice Party and the conservative Salafi Al Nour Party — remain undefined because the constitution is still unwritten. Moreover, the future role of the military council that has governed since Mubarak’s ousting also remains unclear.
Reflecting the weak institutional maturity and intense emotionality of the current situation, there is even a perception in the market that regardless of who wins, a backlash is expected from the other candidate’s support base, said Hany Genena, head of research at Pharos Securities.
The hope for faster resurgence of business is certainly nurtured by financial intermediaries who had to contend with a year of investor fears — in the first five months of 2012, average daily turnover on EGX was $80.5 million, according to financial information provider Zawya, almost $5 million lower than average daily trading in full-year 2011 and less than half of the average traded value of $161 million in 2010. Genena said he had noticed pent-up demand from domestic investors for the past six months and has also seen such demand also from overseas investors based in the Gulf Cooperation Council countries, South Africa, Russia, the United States and Europe. “[The economy] will not just recover. It will fly,” Genena enthused, but added that this is dependent on no major changes in government or economic policy that could negatively affect business.
While the International Monetary Fund answered an interview request on their view of Egypt’s future with a “press line” statement on “constructive discussions”, slightly more reassuring sentiments could be obtained from other international organizations. “The market is expectant but is inclined to be positive on Egypt. However, the business environment has to be streamlined and the investment climate improved,” said George T. Abed, senior counselor and director for the Middle East and North Africa at the Institute of International Finance (IIF) in Washington.
When will recovery begin?
In the assessment of Egypt’s private sector players, the tides will turn to the better before the year is out but not in the first three months of the new presidency. “We don’t see investments coming in the third quarter. Quarter four is a maybe,” said Abu-Bakr Makhlouf, head of investor relations at the Egyptian Resorts Company, a developer of resort cities that is listed on the EGX.
His was one more voice demanding investment opportunities in the fundamentally sound Egyptian market has piled up, with the outcome of presidential elections the deciding factor that will determine the strength and speed of new investments flows.
The wait-for-the-election-results fever extends into the top tier of Egypt’s services companies. “I think everyone is looking at what will happen after the election, and if there is some political stability the economy has a chance to start improving again,” said Yves Gauthier, the chief executive of mobile phone operator Mobinil, adding that he sees the operator as improving this year after a boycott campaign in 2011 and “on a good path to deliver acceptable results.”
Taking diverse voices of international institutions, local private sector and financial players, and professional advisors into account, the common denominator for Egypt under its next president is a buildup of expectations held in check until Cairo’s current political sandstorms settle. Development of the private sector depends on the agenda and economic vision of the winner in the presidential race, said Magda Kandil, executive director of the Egyptian Center for Economic Studies.
While details of economic plans are unclear, candidate Mohammed Morsi backed by the Brotherhood espouses free-market policies and believes the private sector should generate jobs and growth. “[The Brotherhood's] umbrella of support is for job creation and employment opportunities and helping the poor by empowering them with education and jobs,” Kandil said. His rival Shafiq also supports growth of the private sector: “Shafiq’s approach is probably going to be about order and stability and [based on the philosophy that] if the macro economy works, well this will ultimately trickle down to the bottom,” she said.
Whoever wins, Egypt’s new president will face a slew of challenges. A big one will be delivery of vision, several experts emphasized. According to the IIF’s Abed: “The new leadership needs to articulate a clear vision for Egypt’s economic future and institute market reforms to encourage private sector-led investment, both domestic and foreign.”
