Investment Adventures in Emerging Markets

Egypt’s Arab Winter

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It’s been almost two years since the “Arab Spring” swept North Africa and the Middle East, and with it, grand hopes for change. Sometimes, change doesn’t happen as quickly as the people would like, and oftentimes it can be a messy process. That is certainly true in Egypt right now, a country that is still in the throes of shaping its future. The ousting of Hosni Mubarak in 2011 didn’t instantly transform the nation into a model of democracy, and the country is currently deliberating the best way forward via public debates, protests and the election process. But I’m still optimistic about the country’s potential, and continue to seek out investment opportunities there.

Mark Mobius in Tahrir Square

On my most recent trip to Egypt in early December, I arrived in Cairo a few days after President Mohamed Morsi announced that he was assuming dictatorial powers over the writing of the new Egyptian constitution. It was a weekend, and my team and I were introduced to a private art dealer who lived with her mother in a walk-up apartment on a busy city street. We went to see her private collection. The young woman and her mother were members of the sophisticated Western-oriented Egyptian class but not considered wealthy, except for the wonderful art hanging on the walls of their apartment. The young woman said that she was going to Tahrir Square, or “Liberty Square”, where the big “Day of Revolt” and subsequent demonstrations took place nearly two years ago. I asked why she was going. She answered that it was a way to show support for the people protesting the new government’s restrictions on liberty, and their undermining of hard-fought democratic reforms. She invited us to join her. We arranged to meet up an hour later.

When we arrived at Tahrir Square there was barbed wire at the street entrances to the square and civilian guards were asking for ID cards or passports as a security measure. Once we were inside, we found a rather festive atmosphere with hawkers selling fruits, tea and other items. This was a rather shocking situation to us, since we expected a lot of turmoil and chaos. But such conditions were not in sight—at least not during our visit.

Business and Life  

The next day we started our company visits and found that at least from our perspective, business as usual was taking place in Egypt. A pharmaceutical company we visited was operating at full capacity. An automobile assembly plant was humming along, and the newly appointed manager told us about their expansion plans. The traffic on the streets was as busy as our previous visits to Cairo. This does not mean that the situation in Egypt hasn’t been worse or that renewed conflict won’t take place— but from my perspective, things seemed fairly orderly.

I did notice far fewer tourists. Our visit to the famous Egyptian Museum, right off Tahrir Square, was quite different from our previous visits there. The attraction was very crowded before, but this time around, we were among a handful of tourists. This, of course, could be detrimental to Egypt’s economy since tourism is a major income source and has a strong multiplier effect, reaching down to the lower-income groups.  A dramatic drop-off could have unforeseen consequences.

I think there’s an important lesson here. What we see in the international press headlines of chaos and violence  may not truly reflect what is going on in a society in all its aspects.

The “Arab Spring” is not finished yet and earth-shaking changes are taking place all over the Middle East and North Africa in what might be deemed a new “Arab Winter.” If we study the history of revolutions, the most common element stems from economic hardship, particularly a combination of unemployment and inflation, which drives people to extreme behavior since they feel they have “nothing to lose.” Once pressure builds up, just one incident can spark a bonfire of unrest. In the case of the Arab Spring it was the self-immolation of a young fruit seller in Tunisia who was protesting the arbitrary injustice and lack of opportunity. With a common language throughout North Africa and the Middle East and the advent of the internet and cell phones, a young and ambitious population can more easily communicate their desires and frustrations. Today, it is easier to demonstrate and protest, and we are seeing that in Egypt and other countries right now.

The birth rate in the Arab world is high, and some 60% of the population is under the age of 30.1 That being the case, some economists estimate that Egypt needs to grow at 6% per year just to stand still economically. When populations are young and unemployment is high, political leaders are under more pressure to deliver both jobs and low inflation, quickly. But as I see it, one of the best ways to seek economic growth and prosperity is to develop and encourage local and foreign investment. A stable and business-friendly environment is the way forward, and I think there is a general realization among the leaders that this is the key. I believe policies oriented in that direction will be good for capital markets and the development of a market economy. I think we should see it in Egypt. And, what happens in Egypt, the most populous country in North Africa , will likely influence Tunisia, Libya, Morocco, Syria, Iraq and other countries in the region.

After our visit to Egypt we headed south to some other countries in Africa: Tanzania, Rwanda and Kenya. The events in Egypt did not largely appear to be impacting those countries, and they seem to be moving ahead with their own reform programs.  Of course, these countries are challenged with many of the same issues Egypt faces: high unemployment, very young populations, inflation pressures, underdeveloped infrastructure, the need for more investment and the elimination of corruption so that the investments can flow and facilitate the building of infrastructure. Nevertheless, those countries are growing at a fast pace, and I expect that should likely continue in the years to come.

As I’ve said before, it’s important to take a long-term view as an investor in emerging markets. Change doesn’t happen overnight—and some volatility inevitably can come with it. That said, I’m optimistic about the future for the continent, and plan to be back!

1. Source: © Pew Research Center, “The Future of the Global Muslim Population,” January 2011.


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