Political risks to watch in Egypt
Cairo - Uncertainty about who will lead Egypt after President Hosni Mubarak, 81, who has been in power for almost three decades, is the overriding risk to watch in the next year as the 2011 presidential election approaches.
Added to that are some lingering worries about governance, social unrest and Islamic militancy.
Below are the main political risks for Egypt.
Transfer of power:
Mubarak has no designated successor and has not said if he will seek another term in 2011. If he does not, the most common view is that he will hand power to his politician son Gamal, 46.
That might please business, as Gamal's cabinet allies are behind liberalisation measures that have secured rapid growth over the last five years. But the president's son has no military background, a possible hurdle in a country ruled since 1952 by former senior military officers.
Egypt held its first multi-candidate presidential election in 2005. But rules make it almost impossible for anyone to mount a realistic bid without the ruling party's backing. So, any new president is still likely to be chosen behind closed doors and not at the ballot box.
Presidential transitions passed off before without a power vacuum. But in 1970 when Gamal Abdel Nasser died and in 1981 when Anwar Sadat was assassinated, both had vice presidents. Mubarak has not picked a deputy, creating uncertainty about how a transfer will proceed. Most analysts see little chance of social upheaval but questions remain.
For one, tens of thousands of supporters have signed up to websites backing a possible presidential bid by ex-UN nuclear watchdog head Mohamed ElBaradei, reflecting pent up frustration and the possible germ of a protest movement.
The Muslim Brotherhood, a banned opposition group but the only one able to muster thousands of disciplined supporters, has eschewed open confrontation with the government. But it could be a potent force if it changed tack.
If street protests gathered momentum or the Brotherhood brought supporters out, a smooth transition would be in doubt. ElBaradei's emergence rattled the establishment, reflected in speed state-run newspapers initially attacked him. If protests turned from hundreds, as in past campaigns, to tens of thousands or more, that might challenge even Egypt's huge internal security forces. A more chaotic transfer could then ensue.
Leading ratings agencies place Egypt just below investment grade. Succession risk is not exerting strong pressure but the uncertainty is a constraint on its rating, say analysts.
What to watch:
- Capital flows. Any sign of reserves dipping, after rising to more than $34bn, would indicate the central bank was defending the Egyptian pound against sellers at home or abroad.
- Eurobonds. Egypt's small foreign debt is likely to guide an upcoming Eurobond price and existing bond yields held steady in March despite rumours about Mubarak's health. But mounting succession worries could still push up yields.
- Insurance and shares. The cost of insuring Egypt's debt against default may rise with worries about Mubarak's health but will likely lag Egypt's bourse. Egyptian shares were already on a rebound when credit default swaps started rising on speculation about Mubarak after his surgery in March.
- Street movements. Watch whether ElBaradei's web backers can mobilise on the ground or the Brotherhood changes tack. This would indicate whether a popular movement can gather pace and disrupt a transition to Gamal or another establishment figure.
- ElBaradei U-turn. It would be easier to get on the ballot if ElBaradei ran for an existing opposition party. He has refused, but has until about mid-2010 to change his mind. This would open up the race and add uncertainty to any transition.
Security of investment and corruption:
Capital inflows have surged during the economic liberalisation of the last five years, despite a hiccup during the credit crunch. This indicates foreign investors feel their cash is safe. But without more oversight and political accountability the hidden costs of doing business may rise.
Transparency International ranked Egypt 11th of 19 Middle East and North African states and 111th of 180 states worldwide in its 2009 corruption perception index, where No. 1 is judged the least corrupt. The watchdog said in March corruption in Egypt was rising and called for tighter rules governing business leaders holding public office.
Some investors have also warily eyed the legal wrangle between Orascom Telecom and France Telecom over ownership of mobile firm Mobinil. A court halted the French firm's bid for Mobinil in January.
What to watch:
- Another Orascom-type case. Other court rulings against foreign firms may start looking like a trend, souring sentiment.
Inflation and protests
Inflation in Egypt rocketed to 23.6% in August 2008, pumped up by surging world commodity prices. Angry worker protests turned violent, which the government first met with heavy handed security and then a promise of higher wages.
Inflation has tumbled though it remains stubbornly above 10 percent, as the authorities avoid interest rate or budgetary tightening for fear of hurting growth.
But price rises remain a delicate issue in a country where many of the 78 million people struggle to make ends meet and a fifth live of less than $1 a day. Strikes for better pay have become increasingly common, although activists' efforts to encourage solidarity action have not succeeded.
What to watch:
- World food prices. Surging international commodity prices will quickly feed through to shops, raising public ire.
- Co-ordinated labour action. Solidarity strikes would indicate activists are mobilising more effectively. The government has handled isolated strikes swiftly, largely with concessions. Broader action would be costlier to quell.
Security forces crushed an insurgency in the 1990s by Islamic militants, who targeted banks, ministers and top officials. In 1997, Islamists gunned down 58 tourists at a Luxor site. Leading figures of al-Gama'a al-Islamiya, which led the revolt, were jailed during the insurgency, but many were freed earlier this decade after renouncing violent ideologies.
Analysts see little sign of such organised Islamic militancy re-emerging but say sporadic bomb attacks such as those that rocked Sinai resorts from 2004 to 2006 are likely. The latest fatal attack killed a single tourist in Cairo in 2009.
Tourism, accounting for 11 percent of GDP, dived after the 1997 killings, but the impact in later attacks has been limited, partly because even New York, London and Madrid have been hit.
However, frequent security sweeps against any Islamist activity reflect official concerns that, without vigilance, militants might regroup in Egypt, the home turf of many leading Islamist thinkers and also of al Qaeda's No. 2, Ayman Zawahri.
What to watch:
- A bombing campaign. A string of attacks rather than an isolated bombing could show militants are regrouping.