Egypt’s Worsening Security Threatens Economy As Clashes Persist

CAIRO -- Almost a week after the second anniversary of the Egyptian revolution, protests are ongoing here and in several cities across Egypt, further threatening to destabilize an already shaky economy.

In the capital, the security situation spiraled out of control this week as separate groups of protesters tried to attack government buildings, block the 6 October and Qasr al-Nil bridges, and surround embassies in downtown Cairo.

Over the past several months, the rift between the Islamist government, hard-line conservative Salafist groups and the secular opposition has become increasingly polarized, and a divided political landscape has degraded into street violence that has killed dozens.

Thousands of people in Port Said, Ismailia and Suez defied the overnight curfew imposed by President Mohamed Morsi on Sunday in response to violence over the weekend. Morsi also ordered the Army deployed in Port Said and Suez, at the northern and southern ends of the Suez Canal. The latter is also a strategically important city that hosts a petrochemical plant and oil pipelines.

So far, the Suez Canal revenue has been one of Egypt’s few reliable sources of foreign currency, unaffected by the political instability. In the past fiscal year, total receipts from ships using the canal rose to $5.2 billion compared to $4.5 billion in the year before the January 2011 revolution, according to Egypt’s central bank and Suez Canal Authority data.

Tourism, which accounts for about 11 percent of Egypt’s economy, declined sharply over the past two years with many small tour operators going bankrupt or entire Nile River cruise lines coming to a standstill.

After a mob ransacked the five-star Semiramis Intercontinental hotel on Tuesday, many hotels in downtown Cairo reported the lowest occupancy rates since the revolution. Egypt’s total income from tourism declined to $9.4 billion in the 2011/2012 fiscal year compared to the pre-revolution peak of $11.59 billion in 2009/2010, according to Finance Ministry data.

‘Collapse Of The State’

On Tuesday, Egypt’s army chief Abdel-Fattah el-Sissi, who also serves as defense minister, said the ongoing political standoff and ailing economy could present a “real threat” to Egypt’s security. “The continuing conflict between political forces and their differences concerning the management of the country could lead to a collapse of the state and threaten future generations," he said in a statement posted on the armed forces’ Facebook page.

“They are genuinely and legitimately concerned,” said Hania Sholkamy, associate professor at the Social Research Center at the American University in Cairo. “They trusted the Muslim Brotherhood and now we have a fallout of incompetence,” she said. The military played a crucial role in the toppling of the Hosni Mubarak regime and remained a shadow force since Morsi, who formally resigned from the Muslim Brotherhood but retains the organization’s support, took power in June 2012 after winning the presidential election.

On Wednesday, the Nobel Prize for Peace laureate and leader of the liberal opposition, Mohamed el Baradei, called for a broad national dialogue with the Islamists and the influential military. Earlier this week, the umbrella opposition group National Salvation Front turned down President Morsi’s invitation to open a dialogue, dismissing it as a “photo opportunity” in an official statement.

The clashes have “radicalized the Islamist camp, who think they need more power to rein in chaos, use more force, take more control over the state,” said Sholkamy. “And from the other [secular opposition] camp they see an [Islamist] power grab, no sharing of power, a very weak government.”

The ruling party’s inability to reach political stability has been taking a toll on the economy. The opposition, investors, businesses and regular Egyptians are yearning for normalcy and a government that is fully in control.

‘We Don’t Eat’

“The economy is suffering from the current political black hole, there is no growth in the country. There is a lack of confidence, consumers don't want to spend, and both local and international investors are reluctant to invest money,” said Sebastien Henin, vice president of asset management at The National Investor, an Abu Dhabi-based investment management firm.

During a visit to Germany on Wednesday, Morsi said that Egypt’s economy will grow by 5.5 percent in 2014 and between 7 percent and 8 percent the following year, according to Reuters. It is an optimistic outlook given the ongoing political turmoil and the World Bank’s forecast of 2.6 percent growth this year and 3.8 percent in 2014.

The country’s foreign currency reserves reached a critically low level of $15 billion, covering only three months of imports, at the end of last year, according to Egypt’s central bank. The value of the Egyptian pound versus to the dollar has been falling since the end of last year, and food prices continue to rise amid rampant unemployment.

According to the Egyptian Food Observatory's latest survey, 86 percent of Egyptian households said their income was insufficient for covering total monthly needs.

“Our daily needs have very slowly become more and more expensive,” said Abdullah Fawzy, a 48-year old small grocery-shop owner in Cairo’s working class neighborhood of El Marg. On some days, Fawzy only makes 100 pounds ($17) from selling mainly cigarettes and eggs, with a family to support. “Before the revolution we were living under corruption and injustice, but we ate,” he said. “Now we live under corruption and injustice, but we don’t eat.”

In the absence of political consensus and progress on economic reforms, many hope a multibillion-dollar international loan will revive faith in Egypt’s economy. After reaching a preliminary agreement with the IMF in November, the government is renegotiating the terms of the $4.8 billion loan, which is critical to unlocking more funding from the U.S. and European governments.

“The biggest risk for the economy in 2013 is not signing the agreement with the IMF and the political situation in general,” said Mohamed Abou Basha, an economist with Cairo-based investment bank EFG Hermes. “The IMF loan will be a stabilizing factor, but it will not resolve a political crisis on its own.”

Loan or not, Egypt faces a huge demographic hurdle, whatever the political conditions. “The constant is the massive demographic block of the 45 million of under 30-year-olds," said Tarek Osman, author of “Egypt on the Brink”. "This is a huge segment that has inherited many failures that it did not contribute to, but is living the consequences in their daily lives on so many fronts."

Nahla Samaha contributed to this article.