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Mohamed Morsi Deposed; Situation is ‘Highly Explosive’: Natixis

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The Commander-in-chief of the Egyptian Armed Forces Abdel Fattah Al-Sissi announced on July 3, 2013, that the president, Mohamed Morsi had been deposed. This announcement followed four days of unprecedented protests during which millions of people demonstrated across the country demanding the departure of the president. The opposition blamed Mohamed Morsi for neglecting the social demands that emerged from the Egyptian revolution of 2011, repeated political mistakes. See Mohamed Morsi Deposed in Coup: Egypt Reality Versus Media Portrayal

Mohamed Morsi Deposed; Situation is 'Highly Explosive': Natixis

Mohamed Morsi And A look back at recent political and social events

The commander-in-chief of the armed forces, and also defense minister, Abdel Fattah Al-Sissi announced on July 3 2013 on Egyptian television, that Mohamed Morsi had been deposed. This announcement followed four days of unprecedented protests during which millions of people demonstrated across the country (Tahrir square in Cairo and in other Egyptian cities) to demand the departure of Mohamed Morsi. The toppled president, who hails from the Freedom and Justice Party (political formation of the Muslim Brothers), and was the first democratically-elected Egyptian president (he was opposed to Ahmed Chafik, former Prime Minister of the ousted president Hosni Mubarak) had been facing strong protests for several months now.

The opposition, embodied by “Tamarod” (“Rebel” in Arabic) – a spontaneous non-partisan social movement launched by the Egyptian youth and which claims to have collected more than 22 million signatures for a petition demanding the departure of the Egyptian president –, blames Mohamed Morsi for neglecting the social demands that emerged from the 2011 Revolution and more importantly, a highly deteriorated economic situation.

In light of Mohamed Morsi’s refusal to resign, the army which historically plays an important role in the country’s political life, and which had already announced a few days earlier its intention of protecting the demands of the Egyptian people, intervened on July 3 to overthrow the president. Surrounded by religious leaders as well as representatives of the opposition movement, Al-Sissi also announced the suspension of the Constitution and the organization of presidential and parliamentary elections after a transition period.

The interim government will be headed by the current president of the Supreme Constitutional Court, Adly Mansour and should involve “all national forces”. His duties will include, in particular, putting the ailing economy back on its feet, which Mohamed Morsi failed to do.

Mohamed Morsi And An ailing economy

Since 2009, the growth of the Egyptian economy has clearly slowed down, but the worst period was after the fall of Hosni Mubarak and under the reign of Mohamed Morsi. Between 2000 and 2008, economic growth was 5% per annum but had fallen to 2.2% at the end of 2012 and is expected to slow down even further in 2013 to 2% according to IMF forecasts (chart 1). Driven by household consumption, it has been penalized by low investments and the negative contribution of net exports (chart 2).

IMF forecasts2Contribution to GDP growth

Manufacturing output plunged dramatically (-11.4%) in the first quarter of 2011, marked by the onset of the Revolution which had put Mohamed Morsi into power. Since that date, production has recovered but is still operating below full capacity. Merchant services, which represent around 40% of value added, have fallen sharply (chart 3).

Value added growth

The downturn of global demand and sluggish industrial production explain the decline in exports (chart 4). Meanwhile, imports continue to rise driven by the increase in raw material prices. As a result, the balance of trade for goods has deteriorated, adding to pressure on the successor to Mohamed Morsi.

Mohamed Morsi And The political and social unrest in Egypt since 2011

The political and social unrest in Egypt since 2011 has also had an adverse impact on tourism (chart 5). The deterioration of the balance of trade of goods and the fall in income from tourism explain the high current account deficit (chart 6). Mohamed Morsi and his radical policies has also scared away tourists.

Income from tourism

Current account balance

Mohamed Morsi: Egypt Are Still Below The Pre-crisis Level

Despite signs of a recovery in 2012 (chart 7), direct investments to Egypt are still below the pre-crisis level. The return of these investments will depend on the capacity of future leaders to guarantee a stable political and social environment.

Investments to Egypt

With the deterioration of the current account balance and the financial balance, the value of the Egyptian pound and the country’s foreign exchange reserves have decreased drastically (charts 8 and 9).


Foreign exchange reserves

Since 2010, the increase in raw material prices and the depreciation of the Egyptian pound against the dollar has been fueling imported inflation. Within three years, consumer prices have soared by more than 33.6% (chart 10). The food CPI in particular, has surged by 50%. The increase in the cost of living was one of the main grievances of the opposition during the June 30 demonstration. The government’s announcement of a 15% reduction in the prices of twenty-two staple food products was not enough to calm the angry masses.

Energy products are the most subsidized items by the State (around 70%). Although the energy CPI has been kept under control, Egypt has been plagued by frequent power failures and fuel shortages for the past year, which were also some of the reasons for the protests.

The Egyptian youth, which spearheaded the 2011 Revolution and also launched the “Tamarod” movement, is particularly affected by unemployment. In fact, the unemployment rate has gone up for the entire population (chart 11) since Mohamed Morsi came into power.

Unemployment rate

Due to strong concerns about the rash of mass demonstrations against Mohamed Morsi and after falling sharply since the end of June, the stock market recovered after the announcement of the removal of President Mohamed Morsi from office (chart 12).

Stock market

Outlook Post Mohamed Morsi

Any new government, regardless of its political formation, will have to deal with a highly deteriorated economy since 2011. The priorities for any future leader should include kick-starting production, restoring economic and social stability (to attract foreign investment and tourism) and finding a solution to the galloping inflation in Egypt. It will also have to tackle the problem of high unemployment, especially for young people. Lastly, the next government will also have to resume talks with the IMF about the rescue loan of 4.8 billion USD which could bring some relief to the deteriorated public finances and the strong need for foreign capital.

Via Natixis

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