Middle East
The economic costs of Mohamed Morsi's power grab in Egypt
January 11, 2013: 5:00 AM ETBy putting himself above the law, Egyptian President Mohamed Morsi is putting America's sympathy - and dollars - on the line.
By Nina Easton, senior editor
Mohamed Morsi in Cairo in June.
FORTUNE -- "It's the economy, stupid," Vali Nasr, dean of Johns Hopkins School of Advanced International Studies, tells a Washington dinner party. Nasr isn't applying that familiar bromide to U.S. politics. Egypt is the topic of this gathering, sponsored by Bridges of Understanding, a U.S.-Arab cultural exchange forum. Nasr is forcibly driving home a point largely lost in the conversation about renewed political turmoil: Only a stable private sector can bring lasting peace, stability, and a functioning democracy.
"Let's not think of Egypt as an Arab-Muslim nation," Nasr tells me later. "Let's look at it as a large, bloated, public-sector-dominated state. Democracy only succeeds with a thriving free market and private sector."
The problem is that turning around this bloated state -- one facing plummeting foreign investment alongside rising unemployment and poverty rates -- starts with the political. And the enormous economic costs of Egyptian President Mohamed Morsi's power grab in late November are only beginning to come to light. A $4.8 billion IMF loan that could have eased the country's balance-of-payments crisis and calmed foreign investors is on hold -- as is a $450 million emergency cash infusion, now waylaid in Congress.
MORE: Building a new Egypt - where we are today
But the damage goes much deeper. Just months ago Morsi was wooing foreign investors. Key U.S. lawmakers, including Senators John Kerry and John McCain, traveled to Egypt after the fall of Hosni Mubarak to promote global business investment. Last February a suppliers' conference in Cairo attracted an overflow of U.S. executives eager to partner with local firms.
In the spring the State Department launched a $60 million "enterprise fund" to seed small and medium-size businesses. And by the summer some influential voices were calling for a U.S.-Egypt free-trade agreement to cement the American influence in the region.
Even last fall, after mobs attacked the U.S. embassy in Cairo, Kerry and McCain stood by Morsi's struggling democracy, helping to quash an effort by Senate conservatives to block future military and economic aid (the cutoff would have also applied to Libya and Pakistan).
MORE: Globalism goes backward
By putting his decisions above judicial review, Morsi has effectively blunted that emerging American enthusiasm for commercial engagement with the Arab region's second-largest economy. McCain is among those in Congress warning that Morsi's authoritarian bent is jeopardizing not only its $1.5 billion in U.S. military assistance, but also its future economic aid.
None of this has changed the fact that the Muslim Brotherhood's survival as the ruling party depends on restoring some luster to the country's rusting economy. The prospect of more commercial engagement with the U.S. can still be an enticing carrot -- for both economic and political reform. William Brock, a former senator and U.S. Trade Representative, says that carrot should come in the form of a strings-attached free-trade agreement. "We need to tie his interests to ours, and trade is far and away the best assurance of that goal," he says.
MORE: The real revolution in the Middle East- women in business
Over the past 20 years, with the U.S. taking the lead in promoting economic and political freedom, countries such as Mexico and Poland have seen free markets and international trade sustain their fledgling democracies. In smaller economies, such as Ghana and Mongolia, the U.S., through the Millennium Challenge Corp., has tied huge development grants to progress made on promoting transparent, rule-based free markets. (Egypt scores poorly on corruption and a host of other MCC standards.)
The U.S. can truly influence the course of events in Cairo and the rest of the region by treating Egypt not as an economic-aid ward of Washington but as a strategically valuable trading partner -- one that needs to follow the rule of law. "Egypt's on a hair trigger not only because Morsi abused power," Nasr says. "It's also because there are too many hungry, angry people without a future." That sounds like an opportunity for leadership from a capitalist world power that has filled that void many times before.
This story is from the January 14, 2013 issue of Fortune.
-
The Arab Spring: Part II
One year after the uprisings in the Arab world, some nations in the region say they're open for business. Foreign investors will need to learn a whole new set of rules.
By Vivienne Walt, contributor
FORTUNE -- If you want to gauge the Arab Spring's economic health one year after revolutions exploded in Tunisia, Egypt, and Libya, meet Abu-Bakr Makhlouf. Last February, Makhlouf, founder of a construction supply company in Cairo, stood MORE
Mar 5, 2012 5:00 AM ET -
Investing after the Arab Spring: Unfinished business
The ongoing revolutions across the Middle East would seem to be good news for markets. But so far they've scared most foreign investors away.
By Peter Carbonara, contributor
FORTUNE -- A few investors look at the Arab Spring -- the wave of protest and revolution that began last December when a Tunisian street vendor set himself on fire to protest his harassment by police -- and don't see a particularly big deal. MORE
Dec 13, 2011 10:15 AM ET -
Ali Tarhouni: A Libyan leader speaks out
The former U.S. biz school economist wants to revive his country. Is it a gold rush for Western companies?
By Vivienne Walt, contributor
FORTUNE -- Hunkered down in the back of a car, Ali Tarhouni sucks on a cigarette and gazes out at Libya's eastern city of Benghazi. It's been just eight months since he ditched his job as a senior lecturer at the University of Washington's business school and flew to MORE
Nov 4, 2011 5:00 AM ET -
Luxury is back, but not everywhere
Ritz-Carlton still sees weakness in parts of the U.S., but it's finding surprising strength in certain corners of the world, particularly China. It's even coming back in Bahrain.
FORTUNE -- Is luxury back? It may not feel quite that way in the United States, but on Thursday, the Ritz-Carlton Hotel Company announced plans to add 36 hotels to its current roster of 75 by 2016, in locations stretching from Puerto Rico MORE
Duff McDonald, Contributing Editor - Jun 10, 2011 10:54 AM ET -
Qatar's Western grip
The tiny Arab nation is quietly making a name for itself in international finance and politics. But is the sparsely populated country a secure bet for Wall Street and Washington?
By Cyrus Sanati, contributor
FORTUNE -- Qatar may not have the gleaming exterior of Dubai or the great oil wealth of Saudi Arabia, but the tiny Arab nation is quietly making a name for itself in the realms of international finance and MORE
May 6, 2011 5:00 AM ET -
Oil fear trade: How Middle East unrest could lead to lower prices
Vast liberalization and democratization in the Middle East could be positive for oil production in the long run. Just look at what happened in Russia and Iraq.
By Daryl Jones, Hedgeye
The price of oil is already indicating to us that the current turmoil in the Middle East will not be resolved in the short term. Prices of most major grades of oil spiked last week after tensions heightened in Libya and, MORE
Mar 1, 2011 12:03 PM ET -
Is the Middle East the new land of opportunity?
Before the uprising in Tahrir Square, young entrepreneurs had been creating their own opportunities throughout the Middle East and North Africa. For investors brave enough to overcome the existing political strife, the pay-offs could be huge.
By Christopher M. Schroeder
The great science fiction writer Arthur C. Clarke famously said that revolutions are most often overestimated in the short run and underestimated in the long run. One need look no further than MORE
Feb 16, 2011 9:05 AM ETPosted in: Abraaj Capital, Ahmed Alfi, Arif Naqvi, Eygpt, MENA, Middle East, Usama Fayyad, Venture Capital -
Mum's the word on Egypt uprising
Private investment firms doing business in the Middle East have just two things to say about the uprisings in Egypt, Tunisia and elsewhere: No comment. Actually, some aren't even being that loquacious.
For years, private equity shops have been bulking up their activities in the Middle East. Most of the operations are centered in Dubai, but often have satellite offices elsewhere in the region. For example, The Carlyle Group operates a MORE
Dan Primack - Jan 28, 2011 12:28 PM ET
| The Winklevoss twins are Bitcoin bulls | ||
| Bernanke's advice for college grads | ||
| Signs of new housing bubble in several areas | ||
| Bloomberg's lazy Apple bias | ||
| Stocks finish higher for fourth straight week |
