Editor’s Note: John Defterios is CNN’s Emerging Markets Editor and anchor of Global Exchange. Watch the Sunday to Thursday 1900 UAE and follow him on Twitter.
Story highlights
Egypt is often described as the heart of the Middle East and North Africa, but it is weak
There is a cash crisis, low growth and rising food prices
Investors have greeted the military coup with mild euphoria
But the world is watching to see if this revolution can deliver what the country wants
Egypt is often described as the heart of the Middle East and North Africa. At nearly 85 million people, it is the most populous country in the region.
If the heart is not healthy, the rest of the body does not function well. That is where we are in the region today, after a rapid-fire 72 hours in Cairo.
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There is a cash crisis in the country. The central bank estimates foreign exchange reserves were running at about $16 billion by the end of May, less than half the levels reached before the first revolution that ousted Hosni Mubarak after three decades in power.
Of that total, $12 billion came from a handful of oil rich Middle East countries, notably Saudi Arabia, Qatar and Libya.
Without those hand-outs, the situation would be even worse than it is right now.
Egyptians rightly complain about fuel shortages, intermittent power outages and the rising cost of food. The economy is just sputtering along, hitting 2% growth in 2012, and sitting at a similar rate this year. This is less than half the growth experienced before the Arab Spring.
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The January uprising was driven in part by those who felt locked out of opportunity by the Mubarak government. A quarter of the population still lives on less than $50 a month and about a quarter of the youth are without a job, according to the International Labor Organization.
The initial response by investors to the military’s rapid coup has been mild euphoria. After the military announced its intentions Tuesday, the Cairo EGX spiked nearly 5%.
Investors paused Wednesday to see if the plan would unravel and if violence would continue, then it was off to the races Thursday. The market shot up another 7% on record trading volume for a morning session.
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Business leaders, both bankers and trading groups in Egypt, I have spoken with suggest the military had to act. A quarter of the population signed petitions to request change. Millions from both sides took the streets in cities across the vast country, turning up the heat on Morsy and the young experiment with democracy.
From the outside, it would appear there is a steep economic hill to climb to get Egypt over the hump. The CEOs I spoke with beg to differ.
This is a market of 85 million consumers, with an abundance of low cost labor and preferential trade agreements to the European Union and south into Africa.
A near $5 billion deal with the International Monetary Fund, despite two years of protracted talks, can be done quickly with leadership that is more inclusive, they suggest.
The initial transition presented by General Commander Abdel Fattah al-Sisi provided the right “optics.” He was flanked by the head of the Al Azlar institute, the head of the Egyptian Coptic Church and Nobel Laureate Mohamed ElBaradei.
The road map outlined by the military and the interim leader Supreme Court Justice Adly Mansour seems to be a clear one. They are suggesting a six and nine month transition to re-work the constitution, hold parliamentary elections and then select a new leader.
The first time around, it took much longer and the military seemed tempted by the power and, some believe, overstayed its welcome.
The second time around, the world – including international donors and investors – is watching and waiting to see if the heart of the region can pump at full capacity and offer the opportunity the youth who took to the streets are demanding.