Capital is always a coward. So goes the saying. It goes where there is political stability and it leaves when political risk increases, confidence has been eroded and the investment environment becomes unstable.
For Egypt, the toppling of Hosni Mubarak's regime two years ago brought tremendous euphoria to thousands of people who hoped the demise of the old system would usher in a new era of accountability, stability, transparency and some measure of equity when it comes to wealth distribution that would diminish the existing disparities in society.
Instead, Egypt has been on a thorny road, infused with violence and a chaotic state of disorder that bodes little for reconciliation or a democratic transition in a post-Mubarak era. The prevailing environment has failed to restore investor sentiment.
Egypt's new president Mohamed Mursi, who comes from the Muslim Brotherhood, has irked only regional governments who fear the destabilising influence of his Islamist allies on their countries. The new Egyptian president has, more importantly, failed to dispel people's fear that he's not very different from his predecessor. Attempts to expand his constitutional powers and deem them “unchallengeable" last year - until a new constitution was ratified and new parliament elected - ignited widespread protests from liberals, secularists, Coptic Christians and members of the judiciary. (...)
“Political unrest makes it more difficult to take economic decisions," says Richard Fox, head of Middle East and Africa sovereign ratings at Fitch Ratings. “The president revoked sales tax adjustments that were a key prior action for the IMF programme, which is also crucial for economic progress as it would demonstrate that the government was finally getting to grips with the economy. It would also catalyse substantial multilateral and bilateral funding."