Journal of Political Risk, Vol. 1, No. 6, October 2013.

Map of Egypt. Source: University of Texas.

Anders Corr, Ph.D.
Publisher of the Journal of Political Risk

Egypt is on the verge of being engulfed by a long-term insurgency. After a brief period of democratization following the Arab Spring, the world’s most populous Arab country has returned to a popular military dictatorship. General Sisi will likely lead the country, either as power behind the President, or as President himself. The primary difference between the Egypt of Sisi and the Egypt of the pre-Arab-Spring Mubarak will be a function of the overthrow of the democratic Islamism of President Morsi. A new outraged minority with pro-democracy and pro-Islamist beliefs fielded popular protests, and was repressed with lethal force. A significant minority of that minority will now divert their energy towards terrorism and organized insurgency.

The insurgency will use tactics such as those found in Iraq and Afghanistan, including car bombings, improvised explosive devices (IEDs), and insider attacks against military personnel. Egypt experienced clear insurgent tactics on 10/7/2013, including a suicide vehicle-borne improvised explosive device (SVBIED) that killed three policemen,  a drive-by shooting that killed six soldiers, and a rocket-propelled grenade that destroyed a satellite transmitter in a diplomatic neighborhood. These are relatively novel and recent tactics in Egypt, and presage a full turn towards terrorism and organized insurgency in the country. ¹

The insurgency, with roots in the Muslim Brotherhood, will obtain financial support from Iran, and logistics support from militant actors in Sudan and Libya. In turn, the military government will use increasingly repressive measures, ally with the United States and Saudi Arabia, and constrict press freedom. Repression will decrease street protests against the military autocracy, but strengthen pro-democracy and Islamist sectors that support terrorist and insurgent attacks. International human rights organizations will spotlight Egyptian government abuses, and the United States Congress will debate military support to the regime.

Sectors of the Egyptian economy that cannot be protected from terrorists and insurgents will suffer. Tourism, foreign investment, and international academic institutions will continue to decline, or continue avoiding Egypt to the extent they have already fled. Foreign exchange availability will decrease. Deficits and public debt are very high relative to GDP, and credit ratings are low. International lenders will avoid Egypt for the next several years. Increasing inflation rates will make the country difficult for even domestic lenders, and increase flight from the currency. Government subsidies of food and fuel will be unsustainable or unsatisfactory, increasing public dissatisfaction in the short term. Such subsidies are unlikely to be completely withdrawn over time, however, as that would decrease immediate social welfare and unrest of the poorest sectors of society. Surveys that predict 2.6% economic growth for the fiscal year ending in June 2014 are probably optimistic.²

Sectors of the economy that the government can protect from terrorists and insurgents may be bargains if sufficiently high expected revenues can be extracted in the next 1-5 years. The government will be desperate to increase foreign investment as a signal of a return to normalcy, to increase growth, and as a source of scarce foreign exchange. Egypt will offer very favorable terms to potential investors in terms of taxes and regulatory policy. China and other countries with relatively few constraints on dealing with military autocrats will seek to increase sourcing of petroleum products, natural gas, chemicals, metal products and cotton from Egypt.

Dr. Anders Corr is the Owner of Corr Analytics Inc., a New York political risk consultancy.

JPR Status: Commentary.