An Egyptian woman carries a food bowl on her head with the Great Pyramid of Giza seen in the distance
The rage that helped topple Egyptian President Mohamed Mursi was nurtured by the Arab Spring's failure to deliver the green shoots of economic recovery.
Egypt's military removed Mursi from power yesterday, suspended the constitution and announced an early presidential election in a bid to resolve the nation's political crisis. A technocratic government will be formed and the head of the Supreme Constitutional Court will be in charge of running the country's affairs, Defense Minister Abdelfatah al-Seesi said in a televised broadcast.
With growth already the weakest in two decades, unemployment stands at a record 13.2 percent. The mounting risk is of a vicious circle in which the street clashes that left at least 18 dead within one day alone and a political vacuum drive the economy deeper into a slump during the transition period. That threatens foreign investment, tourism and the chances of an International Monetary Fund aid package.
"Who would put their money in Egypt now?" said Gabriel Sterne, a former IMF and Bank of England economist and fixed-income expert at Exotix Holdings Ltd., a London-based brokerage specializing in illiquid bonds and loans, before the coup. "The worry is that the procrastination on key economic decisions will be extended. Investors will be inclined to stay home."
Egypt's benchmark bonds tumbled, pushing the yield to a record, as stocks and forward contracts for the pound dropped before the coup and after Mursi rebuffed the military's deadline to end the political crisis. The benchmark EGX 30 stock index plunged 12 percent in June.
Investors "want to see what's going to happen before they come back to the market," said Samer Mardini, Dubai-based vice president of fixed income at SJS Markets Ltd. "When the knife is falling no one has the power to catch it."
A May report by the United Nations said poverty and food insecurity had jumped in Egypt over the past three years. It estimated 17 percent of the population struggle to secure enough food, up from 14 percent in 2009. The malnutrition rate has risen to 31 percent of children under five, up from 23 percent in 2005.
Unrest isn't limited to Egypt: The cities of emerging markets from Turkey to Brazil witnessed riots in recent weeks before dying down. Unemployment in Turkey was 10.1 percent in March, while Brazil's was 5.8 percent in May.
It is nevertheless in Egypt where the recent clashes have been the most violent, two years after Mursi came to power following a mass uprising that ousted Hosni Mubarak. The country's first democratically elected civilian leader took office promising to attract outside investment and reduce unemployment below 7 percent by 2016.
Now more than 1 million people have lost work since the start of 2010 and of those without work, 80 percent are under the age of 30 and two of every five Egyptians continue to live on less than $2 a day.
"There are several drivers of opposition to Mursi at present, but economic woes are the most important," said Edward Coughlan, Head of Middle East and North Africa Research at Business Monitor International in London. "Egypt cannot afford a prolonged crisis, which is why the army is eager to intervene. The army will hope that providing a road map for the country will stabilize the economy and provide security."
The outlook isn't bright: The IMF forecasts economic growth of 2 percent this year, about the slowest since 1992. The lender says the country could end up with the fastest inflation and slowest growth among all the Middle Eastern countries with traded foreign debt. The rating of that debt has been pushed further into junk status by the three main ratings companies since the Arab Spring.
The budget deficit is projected by the government to reach 11 percent to 11.5 percent of gross domestic product this fiscal year. International reserves have also been sapped by about 60 percent to $15.2 billion, the lowest since 2004. And tourism, the lifeblood of Egypt's economy, is plunging.
"As far as business in the hotels is concerned, it is at a standstill," said Raymond Khalife, adviser to the chairman of the Semiramis Hotel in Cairo, in a phone interview. "Occupancy is down to rock bottom. The situation is bad, because we're at a standstill, and we don't know which way it is going to go, whether a street battle or political settlement."
The pain may only get worse the longer the discord endures, said William Jackson, an emerging-markets economist at Capital Economics Ltd. in London. Tourism in resorts such as Sharm el Sheikh and Luxor account for about 10 percent of GDP, while the disquiet will jeopardize a $4.8 billion loan accord with the IMF, he said.
"In the short term things can only get worse, no matter what happens now," said Elie Podeh, professor of Islamic and Middle Eastern Studies at the Hebrew University of Jerusalem. "There is no one who can come to power who can solve Egypt's economic problems tomorrow."