How Egyptian unrest is going to affect emerging market

Introduction:

Egypt’s rising economy has spread a fear around the developing economies, of the shifting focus of the investors globally. This fear arises due to the current period when the world is going through a time when the food and oil prices are raising which could result in remarkable policy moves by the big fat investors.

After the ousting of the Tunisia’s President Ben Ali the demonstrators of Cairo have resorted to road in order to address the President Hosni Mubarak to resign off his position.

The political instability in an emerging economy puts the emerging marketsworldwide at a stake. This could create a bold effect on energy, government debt,commodities, currency and stock markets as well as on the price of insuring the foreign direct investments. This is making the other political leaders skeptical about their position and hence they resorting to subsidies in food, capital controls and measures such as crackdowns and censorship in order to curd the unrest. The government has been spending on the public in order to grant those benefits so that they would not resort to roads for demonstration but then this is blocking the investors’ money in the country .since they have closed down the Egypt's stock exchange.

The Egypt’s current situation teaches the emerging market investors to expect certain downfalls in the short run because it’s an emerging economy. The Middle East holds the engine to drive the west inflation by controlling the oil prices. The contemporary concern lies in the climbing food prices which seemed to have forced Algeria to increase its food purchases through imports and thus pinching its state’s treasure chests.

As the countries like Turkey and Kenya are cutting interest rates it’s anticipated with the focus shift of the policymakers for such economies. The investors who invest in the emerging economies no more focus on the political instability of the country but the policy dangers to be faced by the developed countries especially the troubled ‘euro zone.

Background:

Egypt is a heavyweight in Middle East diplomacy, in part because of its peace treaty with Israel, and as a key ally of the United States. The country also has one of the largest security forces in the Middle East. Mr. Mubarak has been in office since the assassination of Anwarel -Sadat on Oct. 16, 1981, whom he served as vice president. Until the recent unrest, he had firmly resisted calls to name a successor. He had also successfully negotiated complicated issues of regional security, solidified a relationship with Washington, maintained cool but correct ties with Israel and sharply suppressed Islamic fundamentalism and terrorism. The government has maintained what it calls an Emergency Law, passed first in 1981 to combat terrorism after the assassination of Mr. Sadat. The law allows police to arrest people without charge, detain prisoners indefinitely, limit freedom of expression and assembly, and maintain a special security court. While Mr. Mubarak's regime had become increasingly unpopular, the public long seemed mired in apathy. For years, the main opposition to his rule appeared to be the Muslim Brotherhood, which was officially banned but still commanded significant support.

Discussion:

Mr. Mubarak had said he would not seek re-election but refused to step down. His government appeared to be trying to wait the protesters out, offering reform plans that consisted of minor concessions. But the protesters, having beaten back an attempt by armed pro-government supporters to drive them from Cairo's Tahrir Square, managed to keep the movement's momentum going. More than 300 people are estimated to have died in Egypt since the turmoil began, according to human rights groups. The embattled, autocratic Mubarak wants to stay on until presidential elections in September, and oversee the transition toward a more open political system. He argues that if he quits now, more chaos will ensue. Egypt's embattled president Hosni Mubarak succumbed to the demands of hundreds of thousands of his compatriots and resigned from office, bringing to an end three decades of autocratic rule. The announcement was delivered by Vice President Omar Suleiman in a brief statement on state television. Mubarak delegated control of the country's affairs to Egypt's army. The pro-democracy movement in Egypt consists of a loose alliance of diverse forces, included the Muslim Brotherhood and young educated Egyptians who have used the Internet to organize. Their shared position is that they will only negotiate the terms of a transition once Mubarak leaves. U.S. officials are in talks with top Egyptian officials about the possibility of Mubarak immediately resigning and handing over power to a military-backed transitional government headed by Suleiman. U.S. officials speaking on condition anonymity say the U.S. isn't seeking to impose a solution on Egypt but has concluded Mubarak has to go soon if there is to be a peaceful resolution.

How Egypt’s Woes Could Affect the Oil Market

So what impact will the Egyptian situation have on the price of oil?

Beyond the incredibly complex political effect it could have in the Middle East, the immediate concern for investors is the Suez Canal. Why? Because 20% of the world’s oil travels through the canal – and if that flow is compromised, we could see big price increases in crude.

Arjuna Mahendran, head of Asian investment strategy at HSBC, said this week that oil is on everyone’s mind. The good news is that there is little to no anti-Western sentiment in the protests and no threat to the flow of oil so far. However, everyone – especially the traders in the NYMEX oil pits – will be watching this situation very closely.

On a positive note, a Wall Street Journal article stated that gold is a better hedge against Egyptian unrest than oil. It doesn’t see much threat to the price of oil and there’s a better case for gold to run higher on the uncertainty. And let’s face it… the last thing we need right now is a major spike in energy prices.

Egypt Unrest Could Threaten Israel's Energy Supply

Even though the explosion was not connected to the riots in the capital and other parts of Egypt, and was most likely an accident, Israeli officials have been careful to reassure the public that Israel's energy market is secure. At the same time, they are calling for Israel to diversify energy sources.

According to an agreement between the two countries from 2005, Egypt agreed to supply Israel with 25 billion cubic millimeters of gas a year, for 15 years. The estimated value the entire deal is $2.5 billion.

In reaction to the explosion, Israel’s minister of infrastructure, Uzi Landau, said that Israel is prepared to deal with such events and that no disruption to Israel's energy market is expected.

According to the Israeli Central Bureau of Statistics, Israel's exports to Egypt in 2010 were $11 million and imports from Egypt were $38.9 million. By way of comparison, Israel's exports and imports with the United States are almost $180 billion and $70 billion respectively.

The gas supply agreement between the two countries has endured regional political crises, according to an S&P market analysis report on Israel's gas market a few years ago. None-the-less, the company assessed that political changes in Egypt will have a negative effect on gas supplies to Israel, and might also affect U.S. interest in Egypt.

Some recent developments in the Israeli gas industry might help secure the country's energy supplies. During 2009, a big deposit of natural gas was discovered off the northern shores of Israel and is expected to be in production by 2013. Last August, the United States Geological Survey (USGS) estimated that there are 122 trillion cubic feet of undiscovered, technically recoverable, natural gas off the eastern shores of the Mediterranean. This potential has an estimated worth of $450 billion, according to the USGS. Shifting energy use in Israel to domestic gas has already saved the state $5 billion, according to research by the Knesset Research Center.

Egypt's economy hurt as travelers avoid unrest; concern it will spread affects other countries

Tourism is a major industry in Egypt, a country that struggles with poverty. It accounts for 5 per cent to 6 per cent of the country's gross domestic product, according to several estimates. Egypt is also often a starting point for people exploring Jordan and parts of Northern Africa

The violence in Egypt is already hurting the country's tourism industry, and in turn, its economy. It's also raising fears that other Middle Eastern countries will suffer as well.

Many U.S. travelers have cancelled trips to Egypt. Some tour operators are avoiding the country, and Delta Air Lines and Egypt Air suspended flights from the U.S. to Cairo.

He timing of the violence and political uncertainty couldn't be worse — winter is the high season for visitors. Large tour operators such as Gate 1 Travel and cruise companies including Norwegian Cruise Line have cancelled Egyptian stops. Tours elsewhere in the Middle East haven't been cancelled, but travel agents are getting a steady stream of inquiries about the status of planned trips.

Conclusion:

From the above discussion and realistic factor we got that the Egypt was ruled by a Autocratic Ruler who never show his interest for the development of the Egypt. During his empire peoples of the Egypt faced the shortage of living things like food, sources of income ,etc. After facing all these problems peoples want to break his autocratic empire. In the end we see millons of people on road of all cities of Egypt against the Hosni Mubarak. As a common man I also want the resignation of Hosni Mubarak from his post so that democracy will arrive in the Egypt and play part In the development of Egypt . Finally its very please to see that Mr. Mubarak gave his resignation.

Submitted To :- Prof. Gurdeepak Singh.

Submitted By :- Sumit Rana