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Egypt’s democracy hasn’t eased investment risk

Cairo Egypt

In the global market, international investors are always looking for the next economic hotspot. Egypt has a rich history of being one of the trading centers of the world but they have lost much of their former glory. As an investment location, Egypt remains to be an extremely risky place both economically and politically. Business Insider reveals the risks and opportunities that currently lie in Egypt:

The dust has not yet settled from recent political events in Egypt.  However, it is already clear that the reinvestment timeline is delayed for foreign companies due to increased political uncertainty, which will drive short-to-medium term economic deterioration.

Ongoing political turmoil increases the likelihood of a disorderly currency devaluation of up 15% to 30%. This would significantly raise food and fuel prices, increasing social tensions. Egypt has around US$15 billion in foreign currency reserves, which can only support the pound for roughly four months.

Unclear government commitments: Without a parliament, the military may issue high-level decrees on the economy or large government projects, but these decrees may be reversed or difficult to implement.

Reputational degradation: Supporting policy decrees by the military could undermine brand equity, particularly among MENA customers. If President Morsi is able to extract meaningful concessions from the military, then this risk could be neutralized.

Currency depreciation: Egypt’s currency is extremely vulnerable to capital flight, reduced hard currency flows from tourism, and a drop in remittances due to fears of ongoing political uncertainty.

Higher cost of doing business: Numerous fault lines threaten Egypt’s stability, which could disrupt regular business operations, especially in big cities like Alexandria and Cairo.

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