Egypt’s military and the Muslim Brotherhood are inching closer to a direct confrontation, which has serious ramifications for the country’s investment climate. Today Egypt’s Supreme Constitutional Court rejected President Mohammed Morsi’s decree to reinstate parliament, which the judiciary dissolved in June. The Muslim Brotherhood has called for a “million-man march” to support the return of parliamentarians tomorrow.
Frontier Strategy Group warned that the parliament’s dissolution was a potential flashpoint for confrontation between the Muslim Brotherhood and the military in a June 22 executive brief for clients. Our view remains that companies should delay reinvestment due to Egypt’s increased uncertainty, which will drive economic deterioration in the short-to-medium term.
While Egypt is focused on political volatility, the economy is on the verge of a deepening crisis. Ongoing political turmoil increases the likelihood of a disorderly currency devaluation of up to 30% or more. This would significantly raise food and fuel prices, increasing social tensions. Egypt has approximately US$15 billion in foreign currency reserves, which can only support the pound for a few more months.
Immediate investment ramifications
Demonstrations could disrupt day-to-day business, but it is unclear whether or not the Muslim Brotherhood can attract broad support that would be necessary for sustained protests. Companies should monitor the size of protests tomorrow and whether they continue through Friday at which time their size could grow significantly. A severe military or police crackdown on protesters could lead to demonstrations across the country and the MENA region.
Risk mitigation strategies
- Set up alternate/satellite locations for the workplace: Position your organization to overcome transportation disruptions if there is a return of demonstrations, clashes between the police and protesters, or industrial actions
- Focus on people for long-term sales growth: Companies can differentiate themselves as employers of choice and improve retention levels by prioritizing the safety and well-being of staff amid political and economic instability
- Highlight your brand’s commitment to the country through tough times: Demonstrate your support through a marketing campaign to build brand loyalty in turbulent times, which will be critical for future investment
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