Huge congrats to Nomura’s Alistair Newtown who put Egypt as his #10 geopolitical risk for 2010.He didn’t exactly nail it, came about as close as anyone.
Positive market sentiment over Egypt has, in our view, remained resilient throughout the aftermath of the demise of Lehman Brothers in September 2008 and is likely to continue to do so through until at least mid-2011, despite non-negligible political uncertainty and risk over the next 12 months or so and, possibly, beyond. This is arguably consistent with the latest risk assessment of the Economist Intelligence Unit, which awards Egypt a very respectable overall rating of B39 on scales of A to E and 1 to 100 where E and 100 represent the highest degree of risk; but (though still moderately respectable) C50 for political stability risk and D61 for government effectiveness risk.
Elections for the lower house of Egypt’s legislature have now been set for 29 November, 2010. We expect the election to be dominated by President Hosni Mubarak’s ruling National Democratic Party (NDL), aided by the decision of some opposition parties to boycott the ballot. The (banned) Muslim Brotherhood is, in our view, unlikely to make any gains on the 86 or so seats (out of a total of 454) it effectively holds in the current legislature; indeed, it may well see some reduction in its seats.
The main risk in the immediate run-up to and during the legislative elections probably stems from the indigenous – and, possibly, exogenous al Qa’ida in the Arabian Peninsula (AQAP) – terrorism threat. But we expect security to be particularly tight around the ballot.
A further possible risk arises from the recent global rise in food prices (see the ‘Introduction’), especially wheat. As was underlined during the 2008 food price spike, bread prices are a domestically sensitive issue and hikes (and/or shortages) can trigger strikes and other manifestations of civil unrest. However, again we expect the authorities to monitor the situation carefully and to take action consistent with nipping possible disruptions in the bud.