1. Egypt unrest – what next and the impact on the economy and business
©GSA Global Success Advisors GmbH, February 2011 1
Any experienced executive operating in emerging markets knows that autocratic regimes fall sooner
or later. And regardless how the process of the regime change happens, it always has an impact on
the economy and business in the short term, and sometimes longer.
The peculiar thing is that Egypt unrest happens at the time when Egypt was doing better
economically than at any point in time since the late 1990s. (It was rising food prices globally and
domestically that triggered the unrest). Egypt was doing well until 10 days ago. The country grew
strongly during the global crisis, it cut its massive public debt to under West European average over
the last five years, it cut its external debt to under 20% of GDP (one of the lowest in the world), it
accumulated reserves of over $35bn, it started unprecedented economic reforms some six years
ago, it attracted more FDI than ever in the last 20 years, its important foreign exchange earners
(tourism and Suez canal) were doing well. It was about to launch the second phase of economic
reforms aimed at improving investments, education, health and building public infrastructure. It was
about to take off economically to unprecedented highs. Its government ministers, who have just
been replaced by the president, were educated technocrats and ex senior executives of
multinational companies – a highly educated group, hand‐picked, among others, by Gamal Mubarak
(the son of the president) to move Egypt out of its economic disaster during 2000‐04 (it is strange
that unrest did not happen then!). I have met many prime ministers and cabinets in emerging
markets and western Europe over the last 20 years and can say that the ministers who have just
been replaced were among the ministers with highest economic and business knowledge I have ever
seen.
In my opinion, which I mentioned at many of our CEEMEA Business Group meetings, Egypt was on its
way to become one of the most exciting emerging markets for business in the next decade. All our
members have been reporting strong results from Egypt in the last 5‐6 years and were planning to
invest more in business development and physical assets.
Before I look at the implications of the current unrest, let’s step back for a minute. When Egypt was
sinking economically in 2002, 2003 and part of 2004, it had no foreign reserves left, the currency was
a joke with parallel exchange black market, businesses were pulling out and executives were pulling
their hair. After very long internal ruling party talks as well as endless talks between Hosni Mubarak
and his son Gamal, the president finally agreed to allow a younger group of educated technocrats to
take over the economy and to rescue Egypt from an economic collapse. The president did this only
reluctantly, his instincts still very much in socialist economic history of Egypt and with the old guard
military/intelligence apparatus that has run the country since the overthrow of the monarchy in the
early 1950s (all four presidents of Egypt were ex‐military men).
In our last quarterly update, we mentioned that the political risk on the horizon was the succession
issue. President was reluctant to appoint vice president and speculations were rife that somehow his
son would take over. Behind the scenes there was a bigger ideological battle going which unnerved
the Egyptian business elite (many of whom started pulling their money out of Egypt already back in
the summer). On one side, the old guard military officials with socialist economic instincts were
hoping they would prevail in the succession battle (this is precisely why some wealthy Egyptians
started to pull their resources out, fearing they could face nationalization of some assets). On the
other side, the technocratic, economically liberal elite tried to secure the power for themselves. The
president’s son belongs to that group. He was never the military man and the military do not have
respect for him.
So the first impact point of the turmoil is that a capable, pro‐business and pro‐economic reform
government is gone and it has been replaced by military man with little understanding of business or
economic policy. The Egyptian economy will be negatively impacted at least in 2011. The new

2. military (and probably temporary) government will now increase subsidies to calm the population
upset about high food prices (but this will again increase the inflation rate).
The military elite got, at least temporarily (and maybe longer, we shall see), what they were seeking
all along in the succession battle. Their man, Omar Suleiman, the head of intelligence services has
been appointed vice president and the government is full of military men. (The military enjoys
respect in large parts of the society, but if the new VP and the government are perceived as
Mubarak men by the protesters, the respect can quickly melt). Hosni Mubarak, a war hero, is a
tough military man who is not going to give up in the same way Ben Ali did in Tunisia. Too much is at
stake.
This is being written at the time of highest uncertainty (morning of February 1, when massive
protests are scheduled to take place in Egypt), but there are few scenarios emerging, none of which
are good for business in the short term. The damage to the economy in 2011 (at least) has been
done regardless of the outcome. FDI will drop and so will tourism. The perception of the currency
will drop and forex reserves might melt quickly. Consumer and business confidence is shattered and
will take time to go back to normality. All companies operating in Egypt should reforecast their sales
budgets downwards, but also start working on contingency plans not only for Egypt but for all other
markets in MENA. Risk has increased in many of them (see our upcoming Regional MENA overview
for details).
The underlying thing that the Egyptian and foreign governments want to avoid at all cost is to let a
conservative Muslim Brotherhood (a popular but untested opposition force) one day take charge of
country which has the 10th strongest military power in the world. Everything will be done in the next
days and months to avoid that scenario. Although there is a likelihood that the Muslim Brotherhood
could be as benign as AKP led by Erdogan in Turkey, no one seems to be willing to take that risk at
this stage.
The most likely scenario is that the military (which is now playing a role of a good cop), in this case
headed by the Vice President, will assemble opposition leaders in protracted talks to see in which
direction the political reform could go. At the same time, the government is likely to immediately
raise subsidies on key food staples and other essentials to try to placate the hungry population. A
few arrests of some corrupt businessman could ensue to complete the show. (It is interesting that
the trigger for the unrest was largely linked to rising food prices which these days are driven by
massive speculation backed by too much money being printed in the developed world – in fact the
MENA crisis is a direct result of the aftershocks of the global economic crisis). President Mubarak will
probably soon announce that he will not stand in September elections and the new elections might
be moved closer, possibly to the spring or summer. He might announce that he is taking an “early”
retirement – which would be quite a statement for an 82 year old. His “retirement” would defuse
tension further, following the military announcement that they will not use force against Egyptian
people at today’s protests.
Egypt unrest – what next and the impact on the economy and business
©GSA Global Success Advisors GmbH, February 2011 3
If that happens, the talks with various opposition leaders will proceed and new elections will be
called. Although there is a strong likelihood that the Muslim Brotherhood would do well, they are
unlikely to win outright majority. The military could work with a secular, pro‐western president such
as Elbaradei (who seems to have a blessing of the USA and western allies). There is also a strong
possibility that one of the military representatives could win elections which would bring continuity
in terms of who is running the country, but would mean no pro‐business reforms and could simply
postpone further unrest to a few months or years.

3. Bottom line (base case): the economy and business will suffer especially in the first half of 2011 and
most likely the whole year even if everything calms down in the next weeks and months. Currency
stabilises as central bank intervenes with reserves. Banks are provided with enough liquidity to avoid
a bank run disaster. Managed revolution will continue in the next days and weeks as preparations
take place for political reform and elections. Elections take place and they are partly managed by the
intelligence apparatus, making sure Muslim Brotherhood stays in opposition. The secular and
military establishment run a new democracy in a somewhat uneasy alliance considering different
economic and political ideas. Economic reforms slow down from the pace they had until a week ago,
but business and the economy improve in 2012 as tourists and investors come back.
There is a worst‐case scenario as well and this would be linked to more violent protests today and in
the next few days where military is forced to respond to protect key government buildings with live
ammunition. In that scenario, the protesters say that the military government and VP have to stand
down too. I am not sure the military would just simply surrender the 10th largest military power in
the world to an uncertain future. I hope we do not end up in this scenario.
Note: Please see our upcoming Regional MENA Outlook and upcoming Egypt quarterly
economic
update for more details.
Source: GSA Global Success Advisors GmbH research
Copyright GSA Global Success Advisors GmbH 2011
Disclaimer: This material is provided for information purposes only and it has been researched to the
best of author‘s and company‘s ability. It is not a recommendation or advice for an investment or
commercial activity whatsoever. GSA Global Success Advisors GmbH accepts no liability for any
commercial losses incurred by any party acting on information in these materials.
Basic data sources come from central banks, own intelligence network, governments and public sources.
Interpretation, views, forecasts and business outlooks by GSA Global Success Advisors GmbH.