Skip to main content

Investors welcome el-Sisi as Egypt's new president takes office

By John Defterios, CNN
updated 12:34 PM EDT, Mon June 9, 2014
STORY HIGHLIGHTS
  • Stock markets rallied as Abdel Fattah el-Sisi assumed Egypt's presidency
  • Move to military rule seen as path to stability and predictability that investors in Egypt are craving for
  • El-Sisi has to deal with high unemployment, inflation and a budget deficit

Editor's note: Read a version of this story in Arabic.

(CNN) -- Former military leader Abdel Fattah el-Sisi took the oath of president Sunday and was greeted by a stock market rally of 4.7%.

This move to military rule is seen as a path to stability and predictability that investors are craving for -- the EGX-30 is up over 75% in the past 12 months and a whopping 137% since the low point at the end of 2011.

But make no doubt about it, the country's former military chief has a steep hill to climb to get Egypt's economy back on track. Unemployment, the budget deficit and inflation are currently running between 11-13%, making it difficult for el-Sisi to maneuver.

READ: New president vows to 'correct the mistakes of the past'

The president and his new cabinet will need to push forward with structural and tax reforms to attract foreign direct investment. He has hired external consultants to advise on jump-starting growth, which closed out the 4th quarter of 2013 with a meager expansion of just under 1.5%.

Ex-military chief now Egypt's president
Who can fix Egypt's economy?

Alia Moubayed, Director of MENA Research for Barclays said on a recent visit to the Middle East that "investors are worried about the ability of having a president and government that will be able to build consensus around reforms."

Companies want to be able to tap the region's most populous country of 85 million consumers, but according to Moubayed they worry those efforts may be "further interrupted by political volatility and instability."

Monetary insurance

There are a trio of countries that have stepped in to provide a monetary insurance policy for Egypt. They have been so active since the ouster of former President Mohamed Morsi that they are now referred to as the GCC-3 (Gulf Cooperation Council) or G-3. Saudi Arabia, Kuwait and the UAE share two common traits: A disdain for the Muslim Brotherhood (and its affiliates in the Gulf) and vast oil surplus funds to try and solve political challenges.

Together they have pumped in an initial $12 billion and there is a great deal of talk in the market that they are prepared to do so again if needed. As of the end of April, Egypt's foreign exchange reserves stood at $17.5 billion -- a three-month supply.

They are eager to manage this period of transition to try and provide both the infrastructure and governance for sustainable growth. This year, UAE-based developer Arabtec signed a $40 billion agreement to build low income housing in Egypt, and the government put in another $5 billion to construct wheat silos to reduce wastage of their grain crops.

These governments and their entities, sources say, don't plan to be the lenders of last resort forever and this time they may not have to. Last Thursday, IMF managing director Christine Lagarde talked on the phone with el-Sisi and expressed her organization's commitment to helping the country in its transition period.

The sticking point over the last three years of "on again, off again" talks has been a willingness to bite the bullet on economic reforms. After the Arab Spring chaos, this may be the former military leader's toughest test. He needs to illustrate to his Gulf partners and the IMF he has the mettle to deliver painful reforms and keep Egyptians on his side.

READ: Egypt's new President vows to 'correct the mistakes of the past'

ADVERTISEMENT
Part of complete coverage on
updated 8:36 AM EDT, Mon August 18, 2014
Europe's deteriorating relationship with Russia has hit the region's growth, even before new food sanctions begin to bite.
updated 12:34 PM EDT, Wed July 16, 2014
With cyberattacks on the rise and here to stay, it's a modern-day challenge for people and businesses to get smarter about preventing them.
updated 9:24 AM EDT, Thu August 14, 2014
Airstrikes, rebels seizing control of oil fields, plus a severe refugee crisis are a recipe for market panic. So why are Iraq oil prices stable?
updated 11:24 AM EDT, Sun July 20, 2014
Evidence points to pro-Russian separatists as perpetrators of the attack and Vladimir Putin is facing uncomfortable questions, David Clark writes.
updated 10:40 AM EDT, Tue August 5, 2014
The biggest Ebola outbreak in history is taking its toll in Western Africa, hitting some of West Africa's most vulnerable economies.
updated 5:02 AM EDT, Thu July 3, 2014
Macau has overtaken Switzerland in the wealth stakes, being named the world's fourth richest territory by the World Bank.
updated 10:47 AM EDT, Fri July 18, 2014
Saudi Arabian Bateel brand is best known for its delectable dates but it now has more than a dozen cafes and a new bakery in the works.
updated 7:00 AM EDT, Thu July 17, 2014
A British nanotech company has created what it says is the world's darkest material. It is so dark the human eye can't discern its shape and form.
updated 12:02 PM EDT, Wed July 16, 2014
Jibo robot is designed to be an organizer, educator and assist family members. CNN's Maggie Lake met him and says she was impressed with his skills.
updated 5:09 PM EDT, Fri July 18, 2014
American burger joints have sprung up all over London, but how to know which ones are best? CNN's Jim Boulden investigates.
updated 8:22 AM EDT, Wed June 18, 2014
Sandwiched in between Iraq and Syria, Jordan's destiny seems to be one of a constant struggle for survival. John Defterios explains.
updated 11:02 AM EDT, Wed June 18, 2014
At the last football World Cup, it was all about 3D. This time around, it's nothing less than 4K.
updated 6:58 AM EDT, Wed July 16, 2014
Bob Mazzer has photographed inside London's Tube network for 40 years. He's captured history.
updated 1:12 PM EDT, Fri July 18, 2014
Exotic animals are becoming a profitable business opportunity for Nicaraguan entrepreneurs. CNN's Rafael Romo reports.
updated 11:29 AM EDT, Fri June 13, 2014
Iraq produces 3.3 million barrels per day and has the world's fourth-largest oil reserves. But the current crisis is putting all this in danger.
updated 8:22 AM EDT, Wed June 18, 2014
Sandwiched in between Iraq and Syria, Jordan's destiny seems to be one of a constant struggle for survival. John Defterios explains.
updated 9:14 AM EDT, Mon June 16, 2014
The gas standoff between Russia and Ukraine could have a knock-on effect on Europe. Explore this map to find out why is the EU nervous.
updated 6:58 AM EDT, Wed July 16, 2014
Bob Mazzer has photographed inside London's Tube network for 40 years. He's captured history.
updated 8:06 AM EDT, Tue June 17, 2014
The UK capital promotes its tech stars and shows it can compete with Silicon Valley. Here are five companies that pitch to make it big.
ADVERTISEMENT