Egypt Defence and Security Report Q3 2009

In light of the ongoing global economic slowdown, as well as a deteriorating security situation in the Gulf of Aden threatening Suez Canal traffic, our 2009 and 2010 growth forecasts have been slashed. The Egyptian year 2009 refers to the 12 months to July 2009; thus the damage for this year will be mitigated: in the first quarter, real GDP expanded by 5.2% – a sharp slowdown from the overall 2008 rate of 7.2%, admittedly, but still a robust number. Going forward, this will slow to a full-year rate of 3.7%, and then fall further to 3.0% in 2010. Thereafter, we are expecting growth of 4-5% for the remainder of the forecast period. President Obama’s visit to the Muslim world in Cairo on June 4 and his plans for engagement with countries that the US has formerly shunned, such as Iran and Syria, will have eased security concerns generally in the region.

We have revised down our short-term political risk rating for Egypt from 66.0 to 63.5, on the back of the Israeli attacks on the Gaza Strip. President Hosni Mubarak is more unpopular than ever, with internet calls for his assassination, and protesters around the Islamic world blaming him, as well as Israel and the US, for the suffering in the Strip. The government is managing to keep a lid on protests at the moment, and our rating is still relatively high, indicating that our core view is for the maintenance of the status quo. However, we expect the opposition Muslim Brotherhood (MB) will capitalise on this issue (although Egypt continues to confront the MB – it arrested 33 members in mid- May), particularly amid the turbulent economic conditions. Some 200,000 jobs were axed in 2008, and more cuts could be on the way.

Any increase in the size and intensity of the protests would be dangerous for the regime This quarter, we have introduced a significant new aspect to BMI's Defence Reports, which is the City Terrorism Rating (CTR). This assesses the risk of a terrorist attack. The CTR takes into account the overall BMI Terrorism Rating for the country in question. It also incorporates the 'prevalence' of terrorism, which recognises the frequency of attacks and whether the city is a target for terrorists. The CTR also recognises the 'threat' of terrorism in terms of the likely numbers of victims and the ability of groups to launch sustained campaigns. In Egypt, we assess the CTRs for Cairo at 62.5. In the Middle East, Cairo rates higher than 13 of the 23 major cities of the region.