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As the deadline looms for Egyptian President Morsi to respond to an ultimatum given to him by the Egyptian army to address discontent in the country, there are protests calling for him to resign, raising concerns about the stability of the MENA (Middle East and North Africa) region once again. At the time of writing, it looks unlikely that Morsi will stand down or take measures to appease the criticism, and there is an increasing possibility of violent clashes and social unrest. Despite being the first democratically elected president in 2012, the Egyptian economy has deteriorated under Morsi, with corruption, public debt and the general government net budget deficit rising since he came to power. If he is ousted, this could improve the economy in the long term, but in the short term, instability and violence in the country will harm business confidence, disrupt trade in the region and act as a deterrent to foreign direct investment. It could also reignite the Arab Spring in the wider region.

Corruption Perceptions Index Ranking in Egypt: 2007-2012 (Ranking)


Corruption perceptions index ranking in Egypt 2007-2012

 

Source: Euromonitor International from Transparency International

Note: Total numbers of countries in the index are as follows: 2007-2009 =180, 2010= 178, 2011= 183, 2012= 176

Morsi has not improved the Egyptian economy

The main triggers for the dissatisfaction with Morsi among some of the population are that the high hopes for improvement to the Egyptian economy have not materialised under Morsi. Since he was elected in 2012, perceived corruption levels in the country rose to their highest level in five years, with the country ranked 118th out of 176 economies globally in Transparency International’s Corruption Perceptions Index in 2012, up from 98th out of 178 countries in 2010. Likewise Egypt’s public debt rose from 76.9% of total GDP in 2011 to 80.2% in 2012 and is forecast to rise to 83.3% by the end of 2013. Inflation is also persistently high in Egypt at 7.2% in 2012. Although this is down from 10.1% the previous year, it is forecast to rise to 9.5% by the end of 2013. Youth unemployment is persistently very high, at 30.4% of the economically active population aged 15-24, up from 25.1% in 2010 which is another key trigger for the renewed unrest, given Egypt’s large youth population.

Real GDP Growth in Egypt: 2007-2012 (%)


Real GDP Growth in Egypt

Source: Euromonitor International from national statistics/Eurostat/OECD/UN/International Monetary Fund (IMF), World Economic Outlook (WEO

Implications of unrest in Egypt likely to be positive in the long term

It is likely that if Morsi is ousted this will cause further political instability in the short term with some concerns about a looming civil war. Business confidence and foreign direct investment
inflows into the country are likely to be hit, with the Egyptian pound already suffering. In the long term however, if Morsi is replaced by a more popular and effective leader, this could actually bring more stability to Egypt, reduce government debts and the potential to reduce youth unemployment and fully utilise its educated female population. This could improve labour productivity and economic growth in the country.

Is the Arab Spring set to reignite?

Although it only accounted for 7.4% of total GDP in the MENA region in 2012, the protests have strong implications for the region. Egypt is a member of the Common Market for Eastern and Southern Africa (COMESA), and the Greater Arab Free Trade Area (GAFTA). It also has numerous trade agreements in place with other countries in the region which look set to be disrupted by the tensions. Oil prices look set to rise in July 2013 as the flow of oil trade around the region is set to be impacted by the uprisings in Egypt. Rising oil prices will be felt by consumers and  businesses globally.

What is also clear is that the Arab Spring beginning in 2011 taught the Egyptian people that it was possible to bring about change in the government through the form of protests and direct action, which are being used again now that Morsi has fallen out of favour. It also raises the possibility that populations in other countries in the region where governments were overthrown by force during 2011 and 2012 such as Tunisia, where unemployment and youth unemployment remain extremely high (especially significant in a region with a high proportion of youth), may also begin to critically assess the competencies of new governments and take similar action if their governments fail to deliver. MENA countries where widespread anti-government protests took place but did not result in a coup may also seize the opportunity to attempt to overthrow their governments.

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