Egypt – Security Risks Cloud Investment Climate

The delay of parliamentary elections that had been scheduled for March will extend the period during which President Abdel Fattah El-Sisi will govern without the restraining influence of an elected legislature. The former army chief won a five-year term in mid-2014 with more than 95% of the vote, and the marginalization of both the Muslim Brotherhood and the secular left-leaning opposition make it unlikely that the eventual seating of an elected legislature will significantly weaken Sisi’s political authority.
However, the government’s aggressive repression of the Muslim Brotherhood carries the risk of radicalizing some of that organization’s followers, to the benefit of Province of Sinai, a jihadist organization that called itself Ansar Beit al-Maqdis until November 2014, when most members declared their allegiance to the Islamic State of Iraq and the Levant, and the group took its current name.
A series of suicide bombings carried out last October forced the government to declare a three-month state of emergency in the Sinai Peninsula, and the group has stepped up its campaign of violence in recent weeks. Recent attacks near the pyramids at Giza and the Karnak temple in Luxor have obvious negative implications for the country’s tourism industry, which has struggled to recover amid chronic domestic upheaval in the aftermath of the Arab Spring uprising in early 2011.
At an economic summit held in the resort town of Sharm El-Sheikh in March, Tourism Minister Khaled Ramy outlined his vision for the sector, including the construction of two new resorts that are the centerpiece of a five-year, $1 billion investment program. The top-down approach in tourism is emblematic of the government’s broader strategy for stimulating the economy through large-scale projects.
Just before the Sharm El-Sheikh meetings, the Cabinet released a new law on foreign investment. Proposed reforms include measures designed to streamline the approval process for permits, a reduction in the top corporate tax rate from 25% to 22%, and protections for foreign managers from prosecution for offenses committed by company employees. The government is also taking steps to address other weaknesses of the business climate, such as persistent energy shortages and the overvalued Egyptian pound. However, hopes of attracting significantly higher levels of FDI are likely to be disappointed unless the security situation improves.