Election no early relief for Egypt investors

Egypt’s elections reveal a polarised nation that poses long-term risks for foreign investors. The liberal candidates have been ousted in the first round, so voters will have to choose next month between the Muslim Brotherhood’s candidate Mohamed Mursi and Hosni Mubarak’s last prime minister, Ahmed Shafiq. The gulf between the candidates does not bode well for Egypt’s short-term political and economic stability. The final choice will be one between two very different Egypts. Shafiq promises a return to the past. The overhaul of state airline EgyptAir during his time as civil aviation minister gives some credibility to his pledges to reform subsidies and reduce the budget deficit to 6% of GDP. Shafiq has also pledged to honour the peace treaty with Israel. A vote for Shafiq would serve as a check to the Brotherhood, which controls the biggest bloc in parliament. The worry is that Shafiq will turn out to be nothing more than a military pawn. He has been tainted by corruption allegations, and has publicly regretted the anti-Mubarak revolution. His platform promises stability, but his victory could set Egypt on a path to months of street protests as it battles to win back tourism and boost depleted foreign reserves. The Brotherhood’s Mursi looks better equipped to engineer a quick turnaround of the economy. Enacting vital economic reform will require consensus between parliament and the president in a country still struggling to write the constitution that would define their powers. The Brotherhood’s platform for boosting growth and cutting unemployment balances free-market principles and populism. Under Mursi, Egypt might even become a centre for the booming Islamic finance industry, alongside conventional banking. The challenge for the Brotherhood in the three weeks until the final vote is to compromise enough to win support of liberals and Christians. Shafiq has already said he would be prepared to appoint an Islamist vice-president. Investors must come to terms with the fact that Egypt’s elections didn’t end the uncertainty of the post-revolutionary period of transition. The clash between the old regime and political Islam is a warning that, even after a new president is elected, Egypt could spent years torn between ideological extremes.

CONTEXT NEWS * Egypt’s election committee said on Sunday that it was considering complaints about the first round of polls that are expected to send the Muslim Brotherhood and Hosni Mubarak’s last prime minister into the final round to contest the country’s presidency. * Mohamed Mursi, the Brotherhood’s second choice candidate after the disqualification of an earlier nominee, won 25% of the vote according to preliminary aggregated results compiled by Egypt’s Ahram Online. Ahmed Shafiq took almost 24% of the vote. * Fitch Ratings said on Monday that the political differences between the two candidates could exacerbate social unrest and prolong political stalemate. However, it noted that even though tensions are likely to rise before the next election, in the longer term both candidates favour policies that could stabilise the sovereign’s credit profile. * Nasserite candidate Hamdeen Sabahy won almost 22% of the vote, followed by moderate independent Islamist Abdel Moneim Abul Fotouh with 18%, and liberal former Arab League chief Amr Moussa with 11%. * Candidates emerged in the same order in other independent efforts to tally results. The turnout was 44%, according to Ahram. * The electoral committee is investigating complaints about the voting filed by four candidates - Shafiq, Sabahy, Abul Fotouh and Moussa. * A final run-off vote is expected to be held on June 16/17. (The author is a Reuters Breakingviews columnist. The opinions expressed are her own)