Egypt - Implications

Egypt – Implications


What has happened today in Egypt can happen anywhere in the world. Egypt is cradle of human civilizations. Whenever I think of Egypt the following things come to my mind, Pharaohs, Mummies, Great Pyramids, Arab university (Al Azhar) and most importantly, Suez Canal. Despite, having so much of history and being controller of strategically important Suez Canal Egypt lived under military regimes. Hosni Mubarak ruled Egypt for almost 30 years. He chose to stay close to US like Saudis or Pakistan to keep his control on the people domestically and attain legitimacy to their regimes internationally. This kind of arrangement works well when people are happy with their current standards of living. But world is a dynamic place, things always moves from one state to another state of disequilibrium. People start to realize the differences between them and people living in other more democratic or autocratic regimes. These aspects form part of normal discussions and thinking of people. Mubarak’s regime followed the recipe of a tyrannical regime similar to other previous regimes that have arisen and succumbed to the popular uprising. One question comes to mind is why now? Answer is simple, Egyptian regime was vulnerable since the day it started traveling along the path of autocracy, nepotism, crony capitalism and embrace of expedient fundamentalism. So all it needed is a trigger similar to a spark from burning match can trigger dry and parched forest on fire.

Popular uprising started in Tunisia a small North African country bordering Egypt. One of the reasons include rising food prices led a vegetable vendor to set fire and burnt himself and history followed. This had a domino effect and brought the uprising to Egypt. Millions of people marched to Tahrir Square calling for Mubarak to Step down. This happened swiftly. US did not want to loose its close ally and hence showed initial reluctance in joining the popular uprising. People did not budge in their resistance. This reminds me of non violent movements supported by Gandhiji in India during the fight for independence to India and Martin Luther King’s fight against racial discrimination. Consequently, US and EU region governments called Mubarak to step down. Now here things got a bit interesting. Mubarak couldn’t give up the power easily. To rephrase this, members of his regime wanted to test the power of popular uprising. They set loose criminals from the jails, sent thugs in camel backs and horses armed with iron clubs. Internet and other telecommunications were shutdown. After these acts, Mubarak’s regime started showing signs of acceptance and appointed Security adviser as Vice president and invited outlawed Muslim Brotherhood for discussions.

Still events are unfolding in the Egypt. Regimes elsewhere are thinking how to handle their situation. One lesson from this uprising will be clear that no regime can last forever. People revolt for basic rights of their life like a famous quote from French revolution goes saying Liberty and baked bread for everyone.

Nobody knows how events will unfold and what happens exactly to current regime and will Egypt embraces democracy or turn into another fundamentalist nation. But happenings in Egypt have reset the world investor focus from Euro and US domestic issues.

Investment outlook:

If crisis in Egypt festers for some more time and a regime that is unfriendly to US or Israel takes hold then it would be better to long credit in Israel. Good idea would be to buy Israel 5y CDS swaps.