Jake Reynolds asks, will the overthrow of Egypt’s President Mohammed Morsy lead to an economic upturn for the country?
Buried under the tide of popular anger and political upheaval that has gripped Egypt over the last week, one piece of news stood out among the rest, its presence almost absurd. On Monday, the Egyptian stock exchange, the Bourse, leaped by 5% following the Armed Forces’ announcement that the government had 48 hours ‘to meet the people’s demands’ or be faced with a military-imposed political road map which, on Wednesday night, was implemented along with the removal of Mohammad Morsy as president. One would normally expect such moves to send even the most steadfast investor running. However, in the current situation, anything seems possible, at least in this sense the rise of the Bourse bears similarity to the surrounding events.
In the short term, the markets appear to be showing support for a military-led plan to stabilize the country. No doubt many will be pleased to hear that President Morsy has been removed from power. Investors have accused him and his regime of being inattentive to the needs of the stock market. This certainly carries some weight when one considers that during his tumultuous reign travel bans were slapped on prominent businessmen, the assets of others frozen, and attempts were made to tax investor trades, hardly the ‘open for business’ sign that many were hoping for. Beyond the Bourse, many labelled Morsy’s economic programme disastrous, or simply non-existent. A lack of any clear economic vision coupled with a year of political protests has lead to high inflation, fuel and food shortages, a weakening currency and dangerously low foreign currency reserves, to name but a few.
Thus the question that remains is whether investors are showing long-term support for Egypt’s new political road map, or is the whole thing simply a one off exaggerated market reaction. The military’s transitional road map certainly carries hope of stability, which Egyptians and investors alike so desperately crave, potentially offering the prospect of economic reform. The political opposition itself has pledged to get the economy back on its feet and lay the groundwork for real progress aimed at alleviating the financial stresses that have fractured contemporary Egyptian society.
However, I think at the moment we are simply witnessing inflated market expectations, for as guilty as investors are of fleeing at the first sign of trouble they are also prone to acts of vast overconfidence, the roots of the current global economic crisis being the most obvious example. Despite Morsy’s many disastrous economic policies, and the list is certainly long, the state of the economy he inherited was nothing short of a mess to begin with. Subsidies have been a plague on the economy, with more than 25% of the budget being wasted on this crude PR campaign, a remnant of a pre-revolution dictatorship which tried, and ultimately failed, to substitute political freedoms and democratic rule for cheap bread and fuel.
The problems Egypt is facing are not limited to a single president, political party or ideology; they are deeply ingrained and intensive efforts will be required to relegate them to the history books. In time, the burden of subsidies on the state must be eroded, but replacing the immediate benefits of subsidized basic goods with the promise of high yields on long term investments in education, health care and infrastructure will be a hard one to sell. It will require sound economic vision as well as a government that can be trusted to deliver. Judging by their past experiences, I would forgive Egyptians for being skeptical on this last point. A political leadership acting in the interests of the country must be prepared to take the obligatory attacks that come with pursing a stringent monetary policy. Until the country brings its debts down to a manageable level, they will never generate the kind of confidence required for large scale private sector investment, both domestic and foreign. Stabilized debt levels and the phasing out of large scale subsidies will help prevent a free fall of the currency, allowing Egyptians to import foreign capital and generate their own wealth.
The steps mentioned above illustrate both the enormity of the problems that any future government will face, as well as the need for a wholehearted deviation from the haphazard model that has strangled the economy for decades. Indeed, Egypt is not alone in the economic challenges it faces. Across the world governments are pursuing unpopular economic reforms in order to streamline the public sector and allow private enterprise to drive growth. Although the size of these cuts and the time frame in which they should be carried out is certainly debatable, they are undoubtedly necessary. These painful policies have proved difficult for the most stable of nations to implement, for Egypt they appear almost impossible.
Whoever emerges from the current political contest as the leader of Egypt will inherit a divided country. As such their power will be weak and their scope for maneuver limited. How then will they be able to formulate a coherent vision based on prosperity and stability? The task is truly daunting and will require a monumental shift in the political makeup of the country. The future leadership must engage in all-encompassing dialogue. Political grudges must be put to one side in order to formulate a unified sense of direction for the country. Inevitable confrontations amongst opposing factions will require a strong yet pragmatic leader, compromise must be the motto by which the future government lives. Political reform will certainly be high on the agenda, however the priority must be the economy. In the last two years it has splintered and crushed the Egyptian people, it must now be used as a source of reconciliation. Lacking the charged nature of political debate it can be the basis upon which opposing political forces reconcile in the name of equitable prosperity. Building on these initial steps a future government should present a vision for the future of Egypt’s economy. Only with the prerequisite factors of stability and co-operation can lasting economic reform be implemented over the long term, thus un-burdening the state, but not to the disadvantage of the poorest.
Returning from the hypothetical, many would be inclined to disregard the last 12 months as a series of calamities. This would be a mistake, learning from past experiences will prevent future governments from repeating those very same errors. Morsy’s time in power was marred by economic decline, much can be attributed to his mismanagement, however the state of the economy which he inherited made his task anything but enviable. Egypt’s new ruling powers must not underestimate the importance of the economy and the size of the issue which confronts them. If we can take one thing from Morsy’s time in power it would be the danger of political polarization. Until the very end of his presidency it stalled the country and paralyzed the lives of Egyptian as the economy crawled along at nowhere near a quick enough rate to satisfy the needs of its growing population. The next year in Egypt’s long and eventful life will prove equally disastrous unless political forces can unite with the common goal of boosting the wealth and prosperity of the country’s battered inhabitants. This is the lesson to be taken from the last year in Egypt and can offer a genuine source of hope for the country’s future.
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