Foreign companies have reason for cautious optimism in Egypt after President Morsi’s stunning consolidation of power last month. Monitor economic and political signposts to anticipate the investment climate’s trajectory. If Egypt can achieve the first two signposts below by late 2012 and the other signposts by early 2013, then companies can accelerate plans to expand investment.
1. Egypt secures US$4.8 billion IMF loan: This would signal the government’s ability to prioritize economic challenges. The World Bank (US$200 million) Qatari (US$2 billion) loans have built confidence already
2. A new constitution by year-end: Non-Islamists may feel pressure to compromise on the constitution, because Morsi can appoint a new body if there is no consensus. However, a national referendum is meant to ensure the constitution is a balanced document
3. Orderly currency devaluation: An IMF loan would provide positive momentum for more funds from multilaterals, Qatar, Saudi Arabia, and the US. This would position the central bank to manage an orderly currency devaluation, potentially phased over two to three quarters
4. Morsi transfers legislative power: Elections are expected 3 months after a new constitution is adopted and a power transfer to a newly-elected legislature is critical to demonstrate that decision-making will be transparent
5. President Morsi builds consensus: Morsi must convince skeptics that his agenda does not only benefit the Muslim Brotherhood. He is appointing independent figures to several posts as a result