Investor confidence and the succession issue in Egypt
One of the interesting things that has come out of the recent rumors that Mubarak was on death’s door is that, for the first time publicly at least, a link is being made between presidential succession in Egypt and investor confidence. Quite aside from ordinary Egyptians on Facebook or newspaper editors, this is now an open subject of discuss for the financial press and analysts. This Reuters story from earlier this month quotes a Standard & Poors ratings director as saying this has kept Egypt’s rating down:
But Egypt has not made clear what would happen to the reform process if Mubarak, 79, who has ruled for a quarter century, leaves office, Farouk Soussa said in an interview.
“The main constraint at the moment is the question of succession,” Soussa said. “Trying to determine what will happen on key policy issues is like gazing into a crystal ball, and it shouldn’t be that way.”
Standard & Poor’s rates Egypt BB+ for foreign currency and BBB- for local currency with a stable outlook.
Likewise, a Forbes story today predicts investor worry about the post-Mubarak period, considering that Egypt’s own Central Bank (foolishly?) has said that the recent rumors cost a loss of $350 million:
“Foreign investment really has to do with the stability of the country,” said Arsene Aka, analyst with Global Insight. Although he found the central bank’s readiness to put a figure on the cost of freedom of speech “a bit disturbing,” he admitted that from an economic standpoint, it did make sense.
According to Aka, the $350 million figure was probably a rough calculation of what a few days’ rumors could cost Egypt’s already impressive achievement of $9 billion in foreign direct investment so far this year. “If Mubarak dies, investment will halve,” he warned.
My own experience in talking to Egyptian businessmen is that they are relatively confident a transition will take place without any serious disturbance to the country’s economic policy. But, arguably, the way Egypt is currently run (with an increasingly obvious delegation of economic decisions from the presidency to Gamal Mubarak and the Nazif cabinet) is not exactly optimal, especially since getting a presidential go-ahead is sometimes necessary for major investment projects. Investors have complained of inexplicable delays in decision-making, and I’ve even heard of cases where an investor with cash in hand simply left because he was tired on waiting for clearance from the presidency.
The question is, at what point does it become necessary for the country’s economic stability that a clear succession plan (if not a specific successor) be outlined? Or will financial analysts and investors will continue to make educated guesses (but in the end still quite uninformed guesses since there is little solid information) about Gamal Mubarak or Omar Suleiman scenarios? Sure, Egypt’s not badly at all in terms of attracting investment despite the current uncertainty, with some long-term projects (e.g. petrochemicals, LNG, etc.) seeing the light of the day, but I’ve often wondered why the succession issue was not a major concern of investors, or rather why most were pretty confident succession would mostly provide continuity with current economic reform policies. Perhaps that is now changing.