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Egypt: The Road to Bankruptcy and Civil War


The arms wrestling match between an entrenched Mubarak and the Egyptian people has not eased. If nothing substantial changes at the top to bring moderate voices on the podium, Egypt will be soon headed into an extreme repression phase, followed with the potential for a civil war as the likely outcome. Such outcome would not benefit anyone, within Egypt, near or far.

On Monday, January 31, 2011, Mubarak endorsed a new government that looks more like a military senior command than a true and representative government. By doing so, he is signaling that he does not care about the public's call or that of many world leaders who invited him to enact meaningful changes. Instead, he is entrenching himself further into power. Meanwhile, Cairo on Monday was the scene of further protest with thousands of people continuing to demand his ousting. Demanding new faces, the Egyptian people are planning a massive demonstration on Tuesday that promises to test again one of the Arab world's most dictatorial regimes.

To illustrate how this new cabinet continues to represent the dangerous status quo and not the interest of the Egyptians, consider the fact that three Generals have been named Vice President, Prime Ministers and Interior Minister. This is while Defense and Foreign Affairs Ministries remained in the hands of the same old guard. If this is Mubarak's solution than he does not get it. The new cabinet is composed of ex-ministers tied to the regime and Mubarak. The only most noticeable change is the replacement of Interior Minister, Habib El-Adly by yet another strong military man General Mahmud Wagdi, a former head of Cairo's criminal investigation unit. In this militarized government, the only interesting information to report is the sidelining of the business elite, a domain usually under the influence of Hosni Mubarak's son, Gamal.

Is this enough to appease the population? Clearly no. Mubarak has wounded the spirit of the Egyptian people over the decades that the demonstrators are not backing down, calling for his ousting pure and simple. "Reshuffling the deck", as Hillary Clinton calls it, will only be interpreted by the people as a preparation for severe repression. In such environment, we do not think Egypt's broad society will remain insensitive and armed confrontation could drive the country into a civil war.

As the military takes control of the executive branch and the people pursue their pressure on Mubarak and his men, chaos is coming and the country is headed toward economic bankruptcy. The country is sealed off with the Internet down, Al Jazeera out, and airlines grounded. International corporations who have been promised an economic growth of 6% this year, the next emerging market, are closing their operations and repatriating their foreign staff. Among the major corporations that removed their foreign staffs include cement giant Lafarge, Danone, France Telecom, which services 26 million phone subscribers in Egypt, Alstom, and Accor Hotel Group, to name just a few. Although all corporate leaders we spoke to agree that their companies are not targeted, the scenes of deaths, pillaging and chaos are frightening them. Egypt is not an emerging market now, but a liability.

For many companies, the options are limited. Nissan of Japan and Lafarge of France felt necessary to stop production and close their business for the foreseeable future. Another international company that halted work is Vinci, which has been working on the Cairo subway system. Almost all major foreign subcontracting firms had no other choice but to stop work.

The travel and tourism sector in Egypt is the first one to take a hit with many nations urging their citizens to avoid the North African nation. Lufthansa and Delta Airlines were among the first to suspend flights to Egypt. Hotel companies such as Marriot International are witnessing greater customer cancellation calls, according to the Wall Street Journal.

Needless to say that in this volatile and highly dangerous environment, Moody's Investor services decision to cut Egypt's credit rating is not s surprise. It will only it more difficult for Egypt to raise money on the international market, something that will take a long time to correct.

International markets are also reacting to what they fear could be a dangerous spiraling of events with negative consequences for an already fragile global economy. Of a major concern is Egypt's control of the Canal Suez, a key element in oil logistics and supply chain. Every day, some 3 million barrels of oil transit through the Suez either by ship or pipeline. And its disruption could bring the world economic close to the abyss of another crisis. After unprecedented increases in food prices, consumers worldwide should now brace for much higher oil process. The Egyptian crisis is now responsible for driving the price of oil to $100 a barrel today (Monday, January 31, 2011). The Brent crude was priced at $100.95 on the Futures exchange in London, a figure not seen since the pre-financial meltdown of 3Q2008. The most affected by this increase are Asia and Europe for now.

What could save Egypt is nothing short than the immediate ousting of Hosni Mubarak. He had 30 years to fix the house, he destroyed it instead. Such ousting should also come with the involvement of the new voice of opposition, Mohamed El Baradai, alongside the military to call for public calm, restore order and plot the way forward with everyone's views heard. Short of having an independent voice to call for calm on the top of the government's podium, the crisis will continue. Yes El Baradai is not a politician and represents instead some liberals in the upper class elite, but he has now the support of the working class of Egypt through a Muslim Brotherhood endorsement of him. Merging these two into a single voice through him is the historical opportunity that Egypt needs to bring order in its house. If such opportunity is missed, chaos is likely to follow with no solution near.

Video footage of January 28, 2011 confrontations

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