Egypt President Mubarak Is 'Making the Whole Country Pay the Price'

Feb. 1, 2011 — -- While hundreds of thousands of citizens protest on the streets of Egypt, businesses and public services have languished and economists say the crisis could have significant long-term effects on the Egyptian economy.

"In the short term, the economy has practically come to a standstill," said Ragui Assaad, professor at the University of Minnesota's Humphrey School of Public Affairs.

The protests have paralyzed ports and deliveries of goods, the government has shut down Internet access, people have been unable or unwilling to go to work, and there have food shortages at supermarkets and gasoline has become inaccessible, he said.

For Complete Coverage of the Crisis in Egypt, Featuring Exclusive Reporting From Christiane Amanpour, Click Here

Assaad, who specializes in the Egyptian labor market, said the longer President Hosni Mubarak refuses to resign and the protests continue, the more damage will take place.

"The longer he remains in power, the bigger the cost is going to be. So far, people have been willing to bear the cost, like changing their dietary habits, like eating accessible foods like falafel, because they think change is coming," Assaad said. "He is on his way out, but he's making the whole country pay the price."

ArabianBusiness.com reported that Egyptian telecommunication providers could lose millions of dollars because of the government's shutdown of the Internet and communication services.

With reports that the United States and other countries have evacuated their foreign citizens, Assaad said tourism, which is nearly half of Egypt's foreign revenues, is especially suffering.

"Tourism, which is a large part of the economy, is being decimated," Assaad said. "Foreign investors, once banks open, are going to take money out."

Russell Investments said the Egyptian companies in its Russell Global Index have lost 20 percentage points from Jan. 10 to Jan. 31, with most of the major losses beginning on Jan. 17.

"You're seeing a telegenic and extreme form of political risk," said Stephen Wood, chief market strategist with Russell Investments.

Wood said it is still unclear what the impact of the protests will be on Egypt's financial markets and the 42 Egyptian stocks listed in the Russell Global Index.

"Is this the Prague Spring or Tehran 79? Is this Colombia under [President Alvaro] Uribe or Venezuela under [President Hugo] Chavez? There's a big difference," Wood said. "These regime changes can have a significant effect. Markets hate uncertainty. And this is very big uncertainty."

Marjorie Ransom, a retired diplomat who was a public affairs officer in Cairo during the 1990s, said despite reports of a standstill economy, she said she is "very impressed" and "proud" of the cooperation among the protestors.

"I know the government has closed the banks and buses but street markets continue to function," Ransom said. "I am aware that people are getting food and there's extraordinary organization of citizens on the ground."

Ransom and Assaad said neighborhood committees are defending citizens and families against unrest. Assaad said the military asked citizens to form these committees to help secure the country. He said one neighborhood committee stopped what they believed was staged looting.

Asaad said he believes Mubarak will resign in days if not hours. He said the Egyptian military and United States may be playing a role to determine where he will go next if he leaves the country.

If the protests do stop within days, he said, the long-term consequences may not be as dire as expected.

"If he does depart within days, I think the economy is going to recover very quickly -- I think once the turmoil stops and people get back to work," Assaad said.

Ransom agreed that as long as a transition in authority happens soon, Egyptian citizens may continue to act without violence and extreme chaos.

"There could be long-term, broad ramifications if there are not peaceful transitions," Ransom said. "Certainly the citizenry is acting more responsibly than any other."