There are solid investment opportunities in Egypt's instability

The dust has not yet settled from recent political events in Egypt. However, it is already clear that the reinvestment timeline is delayed for foreign companies due to increased political uncertainty, which will drive short-to-medium term economic deterioration.

There is an uncertain political outlook due to several recent developments, including the military’s decree that weakened presidential powers, the judiciary’s decision to disband parliament, and an uncertain future for the body tasked with writing the country’s new constitution. While direct confrontation is not inevitable, the potential for conflict with the Muslim Brotherhood will increase as the military delays or annuls important political decisions.

Economic deterioration

There are serious ramifications for Egypt’s economy. Egypt’s efforts to secure a US$3 billion IMF loan are undermined by the absence of a parliament and ambiguity regarding President Mohammed Morsi’s powers. This could jeopardize much-needed aid from other institutions, such as the European Union and World Bank.

Ongoing political turmoil increases the likelihood of a disorderly currency devaluation of up 15% to 30%. This would significantly raise food and fuel prices, increasing social tensions. Egypt has around US$15 billion in foreign currency reserves, which can only support the pound for roughly four months.

Given the new constitutional provisions that enshrined expansive military powers, the transfer of power will be purely symbolic. Decision making about the economy will be opaque, taking place behind closed doors, adding to the uncertainty surrounding reinvestment.