FICCI Survey on ‘The Impact of Political and Social Instability in Egypt on Indian Trade and Investment’


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FICCI Survey on ‘The Impact of Political and Social Instability in Egypt on Indian Trade and Investment’

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  2. 2. IntroductionThe Arab Spring which began in a Tunisian street in December 2010 snowballed and took theArab world by storm. Egypt, the most populous Arab country, could not remain isolated from theuprising that spread across Libya, Tunisia, Bahrain, Syria and Yemen, and witnessed a year-long turmoil that shook the socio-political and economic fabric of the nation. After months ofchaotic developments, Egypt has had free and fair elections. Mohammed Morsi took over asPresident of the first democratically elected Government and is committed to put the economyback on tracks.With the advent of democracy in Egypt, it is an opportune time for India to move towards a newera of relationship and cooperation with Egypt. The changes in Egypt have thrown up newopportunities for cooperation in infrastructure development, petrochemicals, tourism, etc.The India-Egypt bilateral trade has reflected positive signs even in the months of unrest. TheIndian corporate presence in Egypt, supported by an investment of approximately $ 2.5 billionby 50 companies across sectors, has remained unaffected by the long months of turmoil.Against the backdrop of a new political dispensation in Egypt and India’s longstanding economicand political relationship with the country, FICCI conducted a survey to adjudge the impact ofpolitical and social instability in Egypt on Indian trade and investment. The survey was carriedout in the months of August and September 2012 and drew responses from 33 companies,which have either investment in Egypt or dealing with export and import of goods to/from Egypt,or looking forward to invest and expand their operations in Egypt. The companies whichparticipated in the survey represented diverse sectors such as agricultural products, chemicals,FMCG, rubber products, electrical equipment and machinery, food processing and plasticproducts, etc. 2|Page
  3. 3. Key findings of the survey:According to the companies surveyed, forty four percent respondents were fully acquainted withthe current political situation in the Arab world and were closely monitoring the developments.There was a decline in Indian business by more than twenty percent due to political instabilityand civil unrest in Egypt. Sixty two percent of the respondents surveyed admitted to the saiddecline.Among the companies surveyed, sixty eight percent were engaged in exporting goods to Egyptand sixty nine percent of the respondents among them were interested in expanding their tradebasket in Egypt.On the issue of security of Indian investments in Egypt, sixty nine percent of the respondentsreposed confidence about the safety of their existing investments in Egypt. Nevertheless, someof them would observe the economic situation for sometime before taking a decision to move outto other potential destinations.More than sixty percent of the respondents were optimistic about the economic prospects ofEgypt and fifty five percent of the respondents were confident of a business friendly environmentfor the private sector investment in the new political dispensation.Another positive finding of the survey is that in spite of the civil unrest in Egypt; there had beenrelatively no decline of Indian personnel deployed in Indian business establishments in Egypt.There have been mixed opinions, however, on the time required for the normalization of situationin Egypt. Thirty one percent of the respondents were of the view that it would take more than ayear for the political situation to stabilize, while another thirty one percent of the respondentswere not sure how long the stability process would take. 3|Page
  4. 4. FICCI SURVEYThe uprising, inspired by the revolution in Tunisia, fuelled anger across the Arab world. Thegrievances were economic, social, and historic. Egyptians stood up against Hosni Mubarak’smonopoly on power, iron-fisted approach to security and corruption at high places that had beenallowed to fester. The sustained civil protest culminated into stepping down of MohammedHosni El Sayed Mubarak and leading to the parliamentary elections establishing the firstdemocratically elected president Mohamed Morsi to power.Awareness of Indian business about the political unrest in Arab World44 percent – Very highly aware of the political turmoil in the Arab worldThe survey found out that 44 percent of the respondents were highly informed about the politicaluprising and were closely watching the development in the Arab world. A smaller, but notinsignificant proportion (25 percent) was well aware of the situation, another 25 percent weremoderately aware. Only 6 percent of the respondents were less aware of the political instabilityin the Arab world. 4|Page
  5. 5. The Jasmine Revolution had sparked much economic and political chaos across the Arab world.It shattered the Egyptian national stock exchange and rattled investors’ confidence in theEgyptian market. Exporters and foreign investors in Egypt have been affected by the ongoingevents, leading to considerable decline in business.Impact on Indian business due to political instability in Egypt62 percent - The decline in business had been more than 20 percent.All respondents of the survey agreed to have had an impact at varying degrees on theirbusiness due to the political and civil unrest in Egypt. Sixty two percent of the respondentsagreed to have suffered a decline of more than 20 percent in their business. For 19 percent ofthe respondents, the decline in business was between 15-20 percent; and 6 percent saw adecline between 10-15 percent. The remaining 13 percent of the respondents said that theirbusiness had fallen by in the range of 5 - 10 percent. 5|Page
  6. 6. India and Egypt have been traditionally strong trading partners. The India-Egypt Bilateral TradeAgreement has been in operation since March 1978 and is based on the Most Favoured Nationclause. Even during the unrest in Egypt, the bilateral trade between Indian and Egypt increasedfrom US$ 3.33 billion in 2010-11 to US$ 5.43 billion in 2011-12. Egypt as an export destination for India 69 percent – Want to expand the trade basket to Egypt According to the survey, 69 percent of the respondents said that Egypt was their export destination and the items of export varied from bovine meat to stationery items, carbon black to caustic soda. A majority of the exporting Indian companies (69 percent) expressed their willingness to expand their trade basket to Egypt in the following year. Around 25 percent of the respondents were indecisive about their expansion plans in Egypt. Only 6 percent of the respondents had decided not to expand their trade basket to Egypt in the coming year. 6|Page
  7. 7. Investment sentiments are directly influenced by the political and economic situation of acountry and by the region’s stability, alike. The unrest in Egypt may have dampened investors’sentiment but the situation fortunately has not led to exodus of investments to saferdestinations. The situation in Egypt has still not become unconducive for many Indian investorsto look for options to take their current investments outside Egypt. Most of them do not perceivethe current economic situation in Egypt to be bleak enough to trigger concern for the safety oftheir investments.Prospect of investments in Egypt69 percent – Egypt still is a favourable investment destination and they will observe theeconomic situation in Egypt for some time and only then decide.At a time when the world is facing a crisis with a slackening demand in the US market, thesovereign and financial crisis in the Euro zone and the socio-political upheavals in the Arabworld, the companies surveyed were asked if they consider Egypt as a potential destination fortheir investments or they were exploring other alternative markets. 69 percent of therespondents were of the view that they would observe the economic situation in Egypt for sometime before taking any decision to move out. 25 percent of the respondents were satisfied withtheir investments prospects in Egypt. However, 6 percent asserted that they do not considertheir investment sustainable in Egypt and would like to move out to other suitable destinations. 7|Page
  8. 8. Eighteen months after the beginning of the revolution, Egypt’s economy is still suffering fromsevere downturn and the government faces numerous challenges. The jump in Egypt’s stockindexes after President Morsi’s victory was a clear signal that investors are looking for the returnof confidence and stable political environment. The government is putting together a programmefor reforms to salvage the economy and set a long-term path aimed at increasing investmentand jobs and easing the state’s burgeoning budget deficits. President Morsi’s campaignprogram was based on the "renaissance project", which focuses on rebuilding the politicalsystem, rapid and comprehensive transformation of the economy.Outlook of Economic prospects in new political dispensation63 percent – Have a positive feeling on the economic prospects of Egypt with the comingup of a newly elected democratic government.Over 63 percent of the respondents covered in the survey indicated that they were positive onthe economic prospects of Egypt under the newly elected democratic government. 37 Percentof the respondents, however, were not sure about the future economic outlook in newdemocratic setup. 8|Page
  9. 9. Following long sufferings of Egyptians over lack of economic opportunities and political freedom,the country has undergone dramatic political changes over the last two years. The silver liningto the upheaval is the advent of the democratically elected government in the country. Egyptsnew Prime Minister has committed on introducing an economic reform plan that wouldencourage foreign investors to invest in Egypt.Perception on new Government to encourage business friendly environment forprivate sector in Egypt56 percent – The newly elected Government would encourage business friendlyenvironment for the private sectorThe majority of the respondents (56 percent) were optimistic that the newly elected President MrMohamed Morsi and his government would promote a business friendly environment for privatesector investments in Egypt. There were no respondents who were convinced otherwise, but aconsiderable 44 percent of them were not very confident about it still. 9|Page
  10. 10. The instability in Egypt deepened in the absence of a firm government since Hosni Mubarak’souster early last year. The successful parliamentary elections and the establishment of ademocratically elected government have ushered in hope of normalcy returning to Egypt.Onset of political normalization in Egypt31percent – Consider it should take more than a year for political situation to be normalRespondents’ views varied on the question of normalization of situation in Egypt. 31 percent ofthe respondents felt that it would take more than a year. An equal numbers of respondents werenot sure when stability will come to the nation. 19 percent were of the view that the situationwould take more than six months but less than a year to get normalize. There has beenoptimism among 19 percent of the respondents who felt that the situation will be normalized inless than 6 months. 10 | P a g e
  11. 11. ConclusionThe outcome of the survey suggests that most of the Indian investors were closely monitoringthe political developments in Egypt. With the Egyptian government going all out to giveassurances of security of investments, the Indian business community, at large, was notconsidering shifting investments to other destinations.The survey brings out that a considerable number of respondents were optimistic thatgovernment would encourage business friendly environment. However, there were mixedreactions on the duration of time required for return of normalcy to Egypt.The survey clearly reflects that Indian businesses are positive about the newly elected EgyptianGovernment and were looking forward to an economic reform plan that would encourage growthand foreign capital flows into Egypt. The bilateral trade between India and Egypt has increasedby over 60 percent in 2011-12 from last year. This, combined with the strategic location of Egyptand the market access it offers to Europe and the Middle East, would ensure Egypt remains afocused area of investment and trade for India. As the Egyptian economy gears up for arevitalized role in the country’s development process it is time for India and Egypt to chart afresh map of cooperation and create a win-win scenario for each other. The two countriesshould continue with positive outlook to enrich their collaboration further in the new politicaldispensation in Egypt. ******* 11 | P a g e