What Happens When A Nation Like Egypt Simply Shuts Down?


Jul 19, 2013

Written by Mary Buffett

As I watch the current situation unfold within Egypt, now that the military has deposed the government of President Mohamed Morsi and the streets are filled with crowds from both sides, I wonder how the depth of the political instability impacts the long-term international investment. In many respects, the question answers itself but the short- and long-term ramifications are stark. For decades, Egypt was seen as a stabilizing force within the Middle East. However, below the waterline, the picture was far different.

While the Egypt in Cleopatra’s day served as the breadbasket of antiquity, modern Egypt has not had the same luck or leadership. Until Gamal Nasser assumed power in a coup in the 1950s, Egypt was ruled by a series of hapless kings, who spent more time playing baccarat in Monaco than creating jobs or building a national identity.

While Nasser tried to build a pan-Arab sensibility, he also led Egypt into the disastrous Six Day War in 1967, which cost them the Sinai Peninsula as well as the Gaza Stip. After Nasser died of a heart attack, Anwar Sadat emerged as a peacemaking force, only after he fared poorly in the Yom Kipper War of 1973. After Sadat was assassinated by Egyptian radicals in 1981, Hosni Mubarak inherited and built upon Sadat’s initiatives. However, in his case, Mubarak overstayed his welcome by roughly two decades during his thirty years autocratic rule.

What happens when leaders overstay their welcome? Watching Mubarak fall and observing Morsi carried off by the military reminds me of the challenges that many Eastern European countries discovered in the late 1980s. Getting rid of an autocratic ruler may be one thing, but transforming your country into an economic powerhouse with democratic institutions is exponentially different, especially when your national fabric is dangerously frayed. It’s hard to make the pitch for international investment when there is mayhem in the streets.

After the Iron Curtain fell in 1989, a whole series of hard-line communists — whose shelf life had long-passed — were ushered out of the door. Some, like Jaruzelski of Poland could see the writing on the wall and stepped aside. Others like Egon Krenz and Erich Honecker of East Germany saw the bankrupt socialist paradise officially integrated into West Germany after the Berlin Wall fell down. However, some others, like Romania’s Nicolae Ceausescu and his wife, found themselves on the business end of a noose as payback for decades of tyranny and abuse.

As the West began to look at the opportunities in these areas, many companies invested in these rusted Soviet-era heavy industries, often purchased at garage sale prices. As we look back at these countries a generation later, they are a mixed bag of economic successes and failures. It will take more than a generation to undo the mistakes of foolish ideology.

However, the investment community looks on differently as the Arab Spring collapsed on itself in a public fashion. As Egypt ground to halt, as the lucrative tourism industry stopped dead in its tracks, and international investment has ceased, the Egyptian politicians are going hat-in-hand to their neighbors like Libya, Dubai, and even Iran just to pay the bills. 

The problem with many of these emerging leaders is that they never moved beyond their individual constituencies and broadened themselves into national leaders. At the end of the day, Morsi was seen as little more than the President of the Moslem Brotherhood as opposed to the first democratically elected President of Egypt.

As he pushed the country to adopt the laws and beliefs of his parochial organization, he alienated the secular community and polarized the nation. In short, when he should have been reaching across the aisle to build up national institutions and create a Democratic Egypt, Morsi instituted the beliefs of the Moslem Brotherhood at the expense of the nation. That is the type of behavior that attracts the right type of international investments and creates jobs.

Here’s who got it right. After 27 years imprisoned in a number of South African prisons, including the notorious Robbens Island, when Nelson Mandela emerged from prison and was elected president, he constantly reached across the aisle and embraced many of the people who would have loved to see him rot in prison for the rest of his life. He understood that there could only be one South Africa, not a black or white country, but a unified and forward-thinking nation. Because the investment community understood that Nelson Mandela’s vision extended beyond his own power base of the ANC, they responded positively. Investment and intellectual capital flowed into the country. South Africa has its problems but one hopes that future leaders remember the lessons offered by the now ailing leader as he moves into the twilight of his life.

Holding elections are only the first steps in building a long-lasting participatory democracy. Writing a constitution that is inclusive of all and leading a country — especially after long and corrosive reign of somebody like Mubarak — that repairs its national institutions is a skill set that eluded Mohamed Morsi. Sadly, the nation as a whole is paying for it.

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