Egypt: Key Business and Environmental Risks

Feb 8th, 2011 | By | Category: Analysis, News and Notes, Environmental Management

Egypt continues to witness social, economic and political turmoil as thousands of protestors have vowed to increase the momentum of demonstrations across the country. The majority demand the resignation of President Hosni Mubarak, who has ruled Egypt for three decades. Having taken power in 1981 following the assassination of former President Anwar al-Sadat by Islamist militants, President Mubarak has presided over a regime characterized by political oppression and high levels of corruption.

High unemployment, which is estimated at 9.2% by the IMF but is likely to be significantly higher, has fuelled widespread resentment of the Mubarak regime. So too has the high cost of living. In October 2010, the IMF projected consumer price inflation at 11.7%, but this may yet increase. Parallels have been made with Tunisia’s ‘Jasmine Revolution’ which toppled former President Ben Ali earlier this month. President Mubarak has so far refused to relinquish power. This means that the coming days, weeks and possibly months, will be fraught with multiple risks.  

Business and Environment Risks

 

  • Continuing political instability could trigger a financial crisis. The Egyptian currency has already come under increasing pressure, and confidence in the government’s ability to support its banking sector is weakening. A devalued currency would perpetuate inflationary pressure, causing further social disgruntlement.
  • Fears are increasing that traffic through Egypt’s Suez Canal will be affected by the political turmoil. Any disruption to shipping through the Suez Canal would not only place the Egyptian budget under further strain but also adversely affect the price of commodities. The Canal accounts for 10% of world trade, and four million barrels of crude oil pass through the canal a day. Concerns persist that the canal may come under attack by militants or even demonstrators and be shut down.
  • Concerns are also growing that the 220-mile Sumed oil pipeline, which links the Red Sea with the Mediterranean (and pipes 1.1m barrels of oil per day), may be sabotaged by protestors or terrorists. The government has doubled the number of sentry posts along the pipeline to 30. A massive disruption of oil flowing through the pipeline may cause severe market jitters and force oil prices up.  
  • Multinational companies that operate in Egypt face serious reputational risks as the government attempts to exploit their assets for its own ends. This has already happened to the telecoms sector, which has been criticized for not taking a harder line against the government. On 3 February, Vodafone Group and France Telecom claimed that the government had invoked emergency powers in the Telecom Act in order to send pro-government text messages over their networks. The networks were shut down on 27 January, but were partially reopened for this special purpose. Vodafone admitted that a clause in its license from the Egyptian state allowed the government to shut down its services, but some have nonetheless chided the operator for bowing down too easily.

 

Maplecroft’s Country Report on Egypt

The information above was provided by risk analysis and mapping firm, Maplecroft, which has released an in-depth Country Report on Egypt. The report is specifically aimed at companies with interests in Egypt and can be adjusted to cover any specific sector or industry. It is regularly updated to include recent developments and the shifting spectrum of operational, strategic and associated reputational risks.

Read the entire Maplecroft briefing on Egypt.

Photograph: Silhouette by Claudia Meyer, Paris, France.

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