The Coming Battle for Egypt

The Egyptians, in what has become the first social networking-precipitated revolution, (as described by Google marketing executive Wael Ghonim) have succeeded in the first phase of revolution.  They have forced the resignation of the face of the Egyptian government for the past thirty years: Hosni Mubarak.  With the military now assuming power, the rest of the world and in particular the citizens of the United States will quickly and at their country's peril turn their attention to other matters.

However, history has shown, starting with the French Revolution in 1789 through the Iranian Revolution in 1978, that these uprisings succeed or fail based on either economic or social factors or a combination of both, particularly when there is no one standing in the wings ready to assume immediate power.  

The key to the future government of Egypt is economic.  While there is never an ideal time for an overthrow, there are factors at play that will make peaceful transition to a true democracy exceedingly difficult and open the door for the radical Islamists to either take over or play a dominant role in any future government.

The Egyptian economy is greatly dependent on tourism, foreign investments in manufacturing and agriculture.  Over 12% of the labor force is involved in tourism (equivalent to 16 million jobs in the United States).  In the aftermath of the Luxor tourist shootings by Muslim radicals in 1997, tourism dropped by 30% in the following year.  It is anticipated that the drop will be much greater and will not recover any time soon in light of the threat of the Islamists assuming dominant power in Egypt.

Foreign investments will also drop dramatically as a result of the revolution and will do so until true stability is established, if at all.  Egypt before the recent upheaval was running an official unemployment rate in excess of 10% (although estimates place it much higher).  Now with the tourist trade and industry being so dramatically affected, significantly more people will be unemployed, adding to the welfare burden of a government already running deficits in excess 8% of GDP and balloon the deficit to as much as 14% or more of GDP. 

To compound the problems, inflation is already in excess of 10% per year; food prices alone have increased 17% and are still rising.  Egypt, which imports 60% of its wheat requirement, has less than a 40 day supply on hand.  This rising cost of food staples, not only in Egypt but throughout the world, will continue during the rest of the year due to lower crop yields, American monetary policy and the distortion of the markets by one of man's greatest modern follies: the growth and use of biofuels.

Another major predicament for the Egyptian government is capital outflows.  In order to stem the current outflows from the country, estimated to be between $500 million to $1 billion per day, the Egyptian Central Bank has had to raise interest rates to 9.75%.  In order to stave off inflation as well, the central bank may have to further raise the rates.  These action, coupled with national instability, will force the value of the Egyptian Pound into a further decline against the dollar causing food prices to rise even more.  

Because of the unknowns of any potential future government, the ability of the current Cairo Government to borrow additional funds in the world financial markets to meet their domestic needs will also be severely curtailed, even with the acceptance of historically high interest rates.  The government has over the years subsidized up to 50% of the cost of food, and employs over 6 million people (approx 30% of the labor force).  Recently these government employees were given a 15% wage increase to buy their loyalty during the uprising.  The necessity of continuing these subsidies and maintaining or increasing public employment will put a severe strain on an already broken economy.

The interim government in Egypt will be faced with high unemployment, rising food prices and shortages as well as agitation from the radical Islamist elements.  This is a recipe for further massive upheaval and the ascendancy of the Muslim Brotherhood, who by standing on the sidelines throwing rocks at the government can proclaim to the populace that they can solve Egypt's problems.  Whether the Brotherhood has the ability to solve these issues is immaterial; they will attract the attention of those living below the poverty level that makes up, per the World Bank, 43% of the population.

The Egyptian people as a whole do not want the ascendancy of radicalism in their country.  Unfortunately by not having a strong democratic movement and parties in place (which the United States should have strongly encouraged) combined with the economic circumstances currently in play, this was the worst time possible to have a revolution.  

The agitators on the Left in concert with the Islamic radicals will attempt to foment food riots and call for the dissolution of parliament and the government.  The only hope Egypt has is to hold out as long as possible for new elections, allow democracy-based parties to develop and ignore and if necessary crack down of those who initiate civil unrest.  In an election the Islamists must be kept below 20% of the seats in parliament.

While it may be anathema to many in the West, we must help the current Egyptian government maintain control through capital inflows, grants, food credits and direct aid in order to win this uphill battle.  If Egypt, the lynchpin of the Middle East, is lost to extremists, then the Middle East is lost and worldwide instability and war will not be a question of if but when.
The Egyptians, in what has become the first social networking-precipitated revolution, (as described by Google marketing executive Wael Ghonim) have succeeded in the first phase of revolution.  They have forced the resignation of the face of the Egyptian government for the past thirty years: Hosni Mubarak.  With the military now assuming power, the rest of the world and in particular the citizens of the United States will quickly and at their country's peril turn their attention to other matters.

However, history has shown, starting with the French Revolution in 1789 through the Iranian Revolution in 1978, that these uprisings succeed or fail based on either economic or social factors or a combination of both, particularly when there is no one standing in the wings ready to assume immediate power.  

The key to the future government of Egypt is economic.  While there is never an ideal time for an overthrow, there are factors at play that will make peaceful transition to a true democracy exceedingly difficult and open the door for the radical Islamists to either take over or play a dominant role in any future government.

The Egyptian economy is greatly dependent on tourism, foreign investments in manufacturing and agriculture.  Over 12% of the labor force is involved in tourism (equivalent to 16 million jobs in the United States).  In the aftermath of the Luxor tourist shootings by Muslim radicals in 1997, tourism dropped by 30% in the following year.  It is anticipated that the drop will be much greater and will not recover any time soon in light of the threat of the Islamists assuming dominant power in Egypt.

Foreign investments will also drop dramatically as a result of the revolution and will do so until true stability is established, if at all.  Egypt before the recent upheaval was running an official unemployment rate in excess of 10% (although estimates place it much higher).  Now with the tourist trade and industry being so dramatically affected, significantly more people will be unemployed, adding to the welfare burden of a government already running deficits in excess 8% of GDP and balloon the deficit to as much as 14% or more of GDP. 

To compound the problems, inflation is already in excess of 10% per year; food prices alone have increased 17% and are still rising.  Egypt, which imports 60% of its wheat requirement, has less than a 40 day supply on hand.  This rising cost of food staples, not only in Egypt but throughout the world, will continue during the rest of the year due to lower crop yields, American monetary policy and the distortion of the markets by one of man's greatest modern follies: the growth and use of biofuels.

Another major predicament for the Egyptian government is capital outflows.  In order to stem the current outflows from the country, estimated to be between $500 million to $1 billion per day, the Egyptian Central Bank has had to raise interest rates to 9.75%.  In order to stave off inflation as well, the central bank may have to further raise the rates.  These action, coupled with national instability, will force the value of the Egyptian Pound into a further decline against the dollar causing food prices to rise even more.  

Because of the unknowns of any potential future government, the ability of the current Cairo Government to borrow additional funds in the world financial markets to meet their domestic needs will also be severely curtailed, even with the acceptance of historically high interest rates.  The government has over the years subsidized up to 50% of the cost of food, and employs over 6 million people (approx 30% of the labor force).  Recently these government employees were given a 15% wage increase to buy their loyalty during the uprising.  The necessity of continuing these subsidies and maintaining or increasing public employment will put a severe strain on an already broken economy.

The interim government in Egypt will be faced with high unemployment, rising food prices and shortages as well as agitation from the radical Islamist elements.  This is a recipe for further massive upheaval and the ascendancy of the Muslim Brotherhood, who by standing on the sidelines throwing rocks at the government can proclaim to the populace that they can solve Egypt's problems.  Whether the Brotherhood has the ability to solve these issues is immaterial; they will attract the attention of those living below the poverty level that makes up, per the World Bank, 43% of the population.

The Egyptian people as a whole do not want the ascendancy of radicalism in their country.  Unfortunately by not having a strong democratic movement and parties in place (which the United States should have strongly encouraged) combined with the economic circumstances currently in play, this was the worst time possible to have a revolution.  

The agitators on the Left in concert with the Islamic radicals will attempt to foment food riots and call for the dissolution of parliament and the government.  The only hope Egypt has is to hold out as long as possible for new elections, allow democracy-based parties to develop and ignore and if necessary crack down of those who initiate civil unrest.  In an election the Islamists must be kept below 20% of the seats in parliament.

While it may be anathema to many in the West, we must help the current Egyptian government maintain control through capital inflows, grants, food credits and direct aid in order to win this uphill battle.  If Egypt, the lynchpin of the Middle East, is lost to extremists, then the Middle East is lost and worldwide instability and war will not be a question of if but when.

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