Lessons from Egypt's political crisis

Once called the capital of the Arab world, Cairo had to increasingly share this role with many Middle Eastern capitals, mostly of them in the GCC. Dubai became the region's hub for trade and tourism, Doha the centre for the gas industry. Riyadh upgraded its role as the largest capital market on the Arab peninsula and Bahrain started to market itself as the "centre of the Gulf, not the centre of attention."

For John Sandwick, an independent Islamic Wealth Manager based in Geneva, the crisis in Egypt is a reminder of similar events in the past: "In 1998 civil unrest spread in Indonesia which led to the resignation of the Suharto regime. Looking back, these events only halted economic activity for a period of time, but it could not prevent the biggest Islamic country from becoming an attractive emerging market. The same applies to Egypt." Worries that Indonesia would collapse proved to be wrong. For 2010/2011 the IMF has put the country's growth rate at 6%.

Regarding Egypt, travel agencies may have delayed a number of flights or been flooded with postponement requests. Yes, a number of global firms have halted operations in Egypt, such as Dubai's maritime operator DP World, which stopped working at Sokhna port at the Red Sea, or France's cement giant Lafarge which likewise halted operations until further notice. "But government institutions remain existent and strong. The current crisis does not destroy the infrastructure in a scale like during the Iraq/Iran-War from 1980 till 1988", Sandwick explains.

Meanwhile most banks in Cairo have re-opened, people have returned to work and travel agencies started booking vacations at popular hot spots Hurghada and Sharm El-Sheikh. Swiss utility-firm ABB and food producer Nestlé have also resumed operations.

Market-based economic reform

"The outcome remains highly uncertain", says Dr. Farouk Soussa, Chief Economist Middle East at Citigroup in Dubai. In his latest analysis, Soussa points out that the economic reform policy under the former Nazif government did not reach the broad work force, which eventually, paired with rising food prices, triggered civil unrest.

"In real terms, income per capita grew at a faster rate under the Nazif government than at any time since the early 1980s. However, this masks the uneven benefits reforms have had. Jobs that were created in the "new economy" (for example in IT, finance, services, and real estate) were jobs that required a skilled and educated labour force", Soussa, explains, who is from Egypt himself and who worked before joining Citigroup as an analyst at Standard and Poor's in London and Dubai.

"Samir Radwan's appointment as finance minister reflected a shift in priority towards reducing unemployment at any cost", Soussa adds. He concludes that "The call for economic policy to focus on employment and greater wealth distribution is echoed by the opposition and protestors on the street. This makes it highly likely, in our view, that regardless of the political outcome, the era of market-based economic reform in Egypt has come to an end." Indeed, Mubarak has meanwhile raised salaries for state employees by 15% in order to re-gain people's support, a classical non-market measure.

As of now, some lessons can be drawn of the Nile crisis:

Lesson one: Political crashes can offer buying opportunities. After GCC markets headed lower between 2% and 6% end of January, bargain hunters quickly rushed in and lifted stock exchanges back to their old levels within one week. The old trader's bon mot "buy on the cannons" proved to be the right advice.

Lesson two: Do not pull out with your business from a hot spot too early. Your competitor might stay and grab your market share once things calm down.