Egypt's Political Crisis Is Creating Economic Trouble

The crisis in Egypt is hitting businesses. Shops usually open late into the night are closing early because of the curfew, and some foreign companies stopped operations for much of last week. Economists say Egypt will be able to avoid a total collapse due to a $12 billion aid package from Gulf countries. But the interim government is unlikely to tackle Egypt's bigger economic problems because it is focused on the security situation.

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The crisis in Egypt has been devastating for that country's economy, and especially for businesses in Cairo. Shops that usually stay open late into the night are closing early because of a curfew imposed by the military. Many foreign companies have stopped operations altogether. For the time being, economists say that Egypt can avoid collapse with the help of a multi-billion dollar aid package from Saudi Arabia and other Middle Eastern countries.

Still, the violence will prevent the interim government from really tackling Egypt's bigger economic problems.

Merrit Kennedy, in Cairo, has the story.

MAMDOUH NAEIM BOUSHY: (Foreign language spoken)

MERRIT KENNEDY, BYLINE: Mamdouh Naeim Boushy sells chips, soda and cigarettes out of a small kiosk in the crowded neighborhood of Imbaba. He says that he makes only makes half of what he did before the current round of violence, because of the government-imposed dusk-to-dawn curfew. Usually, Cairo comes alive at night, especially during the hot summer months. But now, the streets are eerily quiet now after dark.

The curfew was ordered following the massive security crackdown on two encampments set up by supporters of ousted President Mohammed Morsi.

(SOUNDBITE OF GUNFIRE)

KENNEDY: Since last Wednesday, more than 950 people have been killed, most by security forces. Economic concerns were at the forefront of the 2011 uprising against Hosni Mubarak's government and this summer's protests that sparked the military overthrow of Morsi's regime.

The violence hasn't completely driven away multinational firms that operate in Egypt. For example, General Motors shut down for four days after the crackdown, but it's open again now.

Injy Mostafa is the communications coordinator at General Motors.

INJY MOSTAFA: It's one of our top priorities, the safety, and security of our employees, and we made the decision that we want to come back to work on Sunday. And so far, it has been going smoothly.

KENNEDY: Now that the situation is comparatively calmer, the stock market and banks are also operating normally. Mohammed Abu Basha, an economist at investment bank EFG-Hermes, says that the average person's income and ability to find a job will be impacted by the events. But a $12 billion aid package from Saudi Arabia, Kuwait and the United Arab Emirates is enough to prevent the worst-case scenario.

MOHAMMED ABU BASHA: In terms of, like, the macro, the risks, in terms of the macro that can rock the whole boat, it's not there, because of this very big, huge aid package.

KENNEDY: And he's not worried that the help will stop. Over the last three years, foreign governments have given Egypt some $12 billion. He says it's because they realize that Egypt is too big to fail. But Abu Basha says investors are shying away from Egypt now. They don't want to wait for Egypt to try to muddle through yet another transitional period with little return on their money.

BASHA: The main target of the government, of course, is to restore back security. So, of course, the economy is now very much in the back seat.

KENNEDY: And even if the security situation does stabilize, he says the interim government is unlikely to push through major reforms, because it doesn't have the mandate. It was appointed by the military and is meant to remain in office only until new leaders are elected.

Since Hosni Mubarak's ouster, Egyptians have lived in a constant state of instability, first under military rule, then Morsi, and now a military-appointed government. None made structural reforms to address big problems like the bloated subsidy program or the inefficient tax system. Now, political polarization is only making it even tougher to implement change, says Abu Basha.

BASHA: And the main problem is that every time things are delayed, it means bigger problems and bigger deficits. And hence you need bigger moves and bigger reforms.

KENNEDY: And that means whoever leads Egypt next will have an even tougher time getting the economy on track.

For NPR News, I'm Merrit Kennedy, in Cairo.

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