For the past week the Egyptian riots have rocked the Middle Eastern nation that many investors have recognized as a nation with true economic potential but a lot of lingering doubts about security and stability.
As with any nation that undergoes a political upheaval, investment tends to rapidly leave a country in a process known as capital flight due to uncertainty in the future (i.e. A socialist dictator overtakes a capitalist society with a weak ineffective government). Egypt was no different. Internet access was cut off and the protest has only intensified in the past week to become the March of One Million, but for some reason the effect of capital flight wasn't so pronounced on international markets as it should have been.
From a Western perspective, the riots while best avoided haven't done serious damage. January 28th, a significant day in the protests, caused a greater economic grievance for the EGX (Egypt's local index) which declined 10% but in the US, DJIA, Nasdaq and S&P suffered declines less than 2 %. Today is February 1st and the markets do not at all seem to be acting riled, on the contrary all 3 indexes gained most of what they had lost on Friday. The worst effect that all markets are experiencing is a rise in oil prices which is to be expected but overall not a bad month for Indexes across the world.
The riots I think are arriving at a good time. Egypt has long dealt with corruption, brutality, and a surging unemployment rate along with austere living conditions for 40% of its labor force who live under 2 USD per day. After a week of intense protesting have received assurances that their long serving president Hosni Mubarak will not seek reelection and many are still calling for him to resign now. Mubarak's resignation will certainly be a kick to the jaw for the United States who have come to respect his position as a moderator for Israel-Middle East relations. But other than that slight hurdle, I think Egypt is tending towards a more moderate direction. Many commentators fear another situation similar to the Iranian Revolution of 1979, but this protest is led more so to drive out Domestic Inhibitors than Western Imperialists.
Considering Egypt is one of the new emerging market groups under the acronym CIVETS, an economic group of countries similar to BRIC who would be able to combine their strengths and create an influential trading bloc, these protests should have caused a major backlash. However, Egypt's lack of media usage has not been able to attract many investors to these regions because of its relatively unknown economic nature. Egypt is a diversified economy and is not so oil dependent as some of its Middle East and African neighbors, but not to the degree that BRIC nations have been able to garner. These protests will definitely help Egypt's cause in the next few years as long as the movement does not radicalize, because the situation has gained a lot of international attention whereas the most recent riots in April 2008 was barely noticed. The blocking of sites like Google, Facebook, and Twitter did not keep young Egyptians from sending updates about the situation and once the new leader steps in via election, Egypt will reactivate its economic engine to serve as a model for aspiring non-oil African nations.
Egypt is quite a perplexing subject due to the controversial state it is in. I think that you analyzed the riots expertly and with great insight. You brought up Karl Marx's idea that socialism will supersede capitalism and that idea fits into Egypt's status pretty well.
ReplyDeleteHowever, Egypt seems as though it is not on the path towards socialism, but rather on a path towards democratic reform. Some could even argue that Egypt already had a socialist government in the guise of a republic. One could even claim that Egypt was communist. Perhaps Egypt is overthrowing a communism and moving toward a capitalism. I think that only time will tell us.
I think that the riot's lack of damage is due to the state that Egypt was in. I'm not in any economy class or know anything about economy at all, but perhaps Egypt's tiny impact on the global economy was due to its destitute state. If a country is extremely poor it will make less of a global impact, right?
Hopefully Egypt will find freedom after these riots. I'm sure that in time they will fully break Mubarak's oppressive regime and gain leverage on their own individuality and (hopefully) democracy.
~Roger
Roger
ReplyDeleteThanks for the comment. Egypt adopted socialism for a brief time period but that ended in the mid 70s. Mubarak has been in power since 1981 and he's tried to accelerate Egypt's market economy but he isn't doing a whole lot to address issues which matter to the Egyptian people. He has managed to "win" elections, and for a while Egypt didn't try to do anything since the economy was doing well but in the past 2 years, they've seen that Mubarak's reforms haven't done enough.
You are absolutely right when you say that a poor country has less impact. But nations like China and India are still poor but their economies are growing faster than Egypt and are better developed in some areas.
We'll see what happens. I try to stay neutral, Mubarak leaving isn't entirely positive. He helped mediate between Israel and other Middle Eastern nations. He also has 40 billion dollars in Egyptian assets which Swiss banks are trying to invalidate.