Event

After weeks of political upheaval, Mohamed Morsi, the candidate of Egypt’s Muslim Brotherhood (MB), emerged as the winner of the first presidential election since the fall of former President Mubarak. In the run-off against former Prime Minister Ahmed Shafiq, he obtained nearly 52% of the votes. A few days later, he was sworn in, pledged his support to the army and to form a government coalition headed by a national figure, i.e. not an Islamist from his Party. In the past month, the political landscape has changed dramatically. A few days before the run-off took place, Egypt’s parliament, which was only elected in the beginning of this year, was dissolved upon a decision by the Supreme Constitutional Court. Moreover, the Supreme Council of the Armed Forces (SCAF), currently  in power, amended the interim constitution as polls were  closing. Hereby, it gave itself legislative powers and broad power over the state budget, defence and the drafting of a new constitution, effectively reducing the powers of the president, whose powers are still not defined in the absence of a new constitution. After the delay of the official announcement of the election results, numerous people who feared election result rigging, started to protest in Cairo’s symbolic Tahrir square. Since the announcement of Morsi’s presidency, protests have however calmed down.

Impact on country risk

It seems that Morsi’s election is bringing some political calm to the country in the short term, at least compared to a scenario under which Shafiq had been elected, which would have been perceived as a return to the situation before last year’s revolution, possibly reigniting heavy protests as Shafiq was by seen many Egyptians as a figurehead of the army and the Mubarak regime. However, the MB is still distrusted by many secular, liberal and Coptic Egyptians. Moreover, with the new president’s powers limited due to the recent decisions by the army, with the MB-dominated parliament dissolved and with the possibility of new parliamentary and even presidential elections early next year, political infighting between the army and the MB is likely in the coming months. This could further affect political stability. In any case, President Morsi will now have to form a broadly supported government to tackle the country’s economic challenges, one of the main policy areas in which the presidency has preserved its power after the latest constitutional amendments. This will be important as last month’s upheaval has probably further affected business and investor confidence in the country as well as Egypt’s international image as a tourist destination and given the pressing external liquidity position of the country. A government of national unity could also help in reaching a long-discussed IMF agreement, which could precede more international financial support and could help restore the country’s foreign exchange reserves.

Analyst: The Risk Management Team, r.cecchi@credendogroup.com