Egyptian emergency law is setting off alarm bells

Tourism was hit hard by the October 2015 aircraft explosion. Yet, while a church bombing in December that killed 25 people did not scare tourists away, the state’s reaction to the latest attacks might just succeed at that.

Recent bombings have occurred just before the peak spring holiday season for Egypt. Mohamed Abd El Ghany / Reuters

Egypt’s economy was already going through a tough patch after last year’s austerity measures. Will the Palm Sunday church bombings in Tanta and Alexandria and the subsequent three-month state of emergency, approved unanimously by parliament on Tuesday, slow the recovery? Probably not by much, but they do not help matters either.

Sunday’s bombings killed at least 45 people at two churches, one in Alexandria on the Mediterranean coast and the other in Tanta in the middle of the Nile Delta. The bombings were the top-of-the-news story in media outlets around the world.

The state of emergency is said to give the executive branch draconian powers. According to media reports, it allows the government to close companies, shutter media outlets, halt demonstrations and monitor personal communications without judicial approval. Human rights activists question whether such powers will be of any help in battling terrorism.

What the emergency law does achieve, however, is to create a climate of alarm that could act as a deterrent to investment, whether by foreigners or Egyptians.

“I don’t think the problem is with the bombing. The problem is with … the state of emergency,” says Noaman Khalid, an economist at Cairo-based CI Capital Asset Management.

“It was a very strange decision that was taken due to pure politics without paying any attention to economics. It’s like you’re giving a clear message to the world that Egypt is not safe and will not be safe for the upcoming three months.”

Foreign investment has been weak since the 2011 uprising, when the government began pegging the currency far above its market price. Investors were reluctant to place funds in Egypt when a sharp devaluation was all but inevitable and because the currency regime made it difficult to get money out of the country once you got it in.

Investment has been slow in coming, even after the government floated the currency in November, with investors assessing the exchange rate, the tax rate and whether there will be other incentives. They also want to test their ability to repatriate their profits.

“Investments as in FDIs were already not on the table now. We were estimating 2018 or 2017 end at the earliest, which I think the bombings should not affect,” says Radwa El Swaify, the head of research at the investment company Pharos Security Brokerage. “If we are talking hot money, Treasury and stock market, they were not affected [by the bombings]. Foreigners were net buyers the second day of the attacks and the value of their purchases did not come down.”

The country’s most vulnerable sector is tourism, which before the 2011 uprising accounted for about 10 per cent of GDP.

Tourism was smashed by an October 2015 bomb explosion on a Russian airplane. The plane had just taken off from Sharm El Sheikh airport and was full of Russian holidaymakers, all of whom died. Many countries subsequently banned their airlines from flying to Sharm El Sheikh.

The tragedy led to the number of tourists to Egypt falling by more than half.

Before the latest bombings, however, the industry seemed on its way to a gradual recovery. Tourist arrivals in February surged to 539,100, the most recent figure available, from 346,500 in February 2016, according to Cairo-based Pharos.

The recent tourists were apparently unfazed by a similar church bombing in December that killed 25 people at Cairo’s largest Coptic cathedral. This may indicate that people are becoming increasingly inured to terrorist attacks, which have hit major cities around the world in the past few years, and are not as easily deterred as before.

Sunday’s bombing occurred just before the peak spring holiday season, when travellers had already made their bookings. The high season that begins in autumn is far enough away that the attacks by that time may have receded in people’s memories.

In the meantime, there is probably little that can be done to prevent new attacks in the short term apart from incremental improvements, says Ayman Ashour, an Egyptian security expert. This should include more specialisation and better training of security personnel, and an end to the current system of rotations where security officers spend only a short time in the job before being rotated to other types of work. Security personnel are deployed for very long shifts, sometimes as much as 12 hours, which tends to reduce their effectiveness and focus, Mr Ashour says.

The fight against terrorism also needs a long-term investment in education to eradicate extremism.

Egypt has been through similar periods of terrorism. Militant groups were active throughout most of the 1990s blowing up banks and attacking tourists. This culminated in the 1997 massacre of more than 60 tourists and security officers at Hatshepsut Temple in Luxor.

Since then, both police and militants have become more sophisticated in their techniques. At the same time the civil war in Libya has provided the militants with weapons and explosives.

Patrick Werr has worked as a financial writer in Egypt for 27 years.

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