By declaring a nationwide state of emergency on the 9th of April 2017, the Egyptian government awarded itself a basis on which to act with impunity over domestic affairs. The ramifications of this law are yet to be fully felt, but it nevertheless continues to be the subject of vigorous debate, not least for its potential to impact the investment environment in one of MENA’s biggest markets.

Keeping abreast of the potential downside risks associated with an overly empowered executive government is the norm for investors in Egypt, and has been a reality for some time prior to the recent emergency ruling. But given that Cairo’s political elite has hitherto required no such justification for its unilateralist modus operandi, enacting emergency law is somewhat of an intriguing move.

Thus, it is worth considering how the law may create renewed obstacles for entities in Egypt, especially given the country is earmarked to be a top destination for foreign direct investment (FDI) in 2017. The law leads to many questions, among which include what kind of advantage does it give the authorities? And in what capacity is this likely to be utilised against private business interests?

Legally Correct, But Why Now?
Article 154 of the constitution deals with emergency law, outlining its parameters and scope. This holds that the President must first gain support from the Cabinet to declare a state of emergency, which in turn must be approved in Parliament within seven days (Egyptian Constitution, 18.01.2014). Although this only requires 299 votes from the House of Representatives, the April declaration was “unanimously approved” by parliamentarians, according to reports from Africa News (13.04.2017). On a positive note, due process was carried out where it seldom prevails.

However, following legal procedures is easy for a President who knows he will not be challenged in a legislative capacity, especially given that Parliament’s acquiescence to Sisi is a well-established fact. The House of Representatives is indeed a rubber stamp for the executive’s top decision-maker, and this latest episode should be viewed as a case of going through the motions as opposed to jumping through hoops. It also merits mention that in this case, opposition was perhaps even less likely to arise due to the scale of the attacks and a vested interest from all parties in ensuring security in Egypt.

It is worth noting that whilst the Palm Sunday bombings are undoubtedly a logical reason for its triggering, previous high-profile attacks did not prompt a move towards emergency law from the government. President Sisi did declare a month-long emergency law in August 2014 at the time of the Rabia Massacre, but this is the first time since the adoption of Egypt’s current constitution that the procedure has been formally executed by the powers that be.

Thus, a period of emergency law technically qualifies as unchartered territory in the Sisi era but, as seasoned emerging market investors will know, it bears the hallmarks of an all too familiar sting from times gone by.

Heightened Political Risks to Business
While the informal pitfalls such as protectionism and political manipulation are a staple of Shadow Governance analysis concerning Egypt, a period of emergency law may bring with it a new set of hurdles.

Al Jazeera reports that the law extends state powers by enabling it to “impose a curfew for or order the closure of commercial establishments, sequestration of private properties, as well as designating areas for evacuation”. This should be interpreted as giving the state unquestioned authority in terms of interfering in private enterprise, and subjects all assets to potential confiscation. In acknowledgement of this reality, it then becomes a guessing game as to when and where such powers might be used.

These scenarios are often exploited by embattled governments looking to radically restructure its economy or gain the upper hand vis-à-vis actors it finds difficult to curtail. That said, a wave of mass nationalisation is highly unlikely to occur, as it did with President Gamal Abdel Nasser in the 1960s, given that direct interference in the economy is not part of the state’s prerogative. The government has, however, been at loggerheads with certain private actors, in an attempt to integrate them into the ‘state line’.

For example, authorities seized the prints of Al Bawaba newspaper for two consecutive days following the attacks (10th and 11th of April), in what was cited by Al Ahram as a reactionary move to the paper’s claims that a “security lapse” was to blame for the attacks (11.04.2017). Al Bawaba’s owner and columnist, Abdel Rahim Ali, is believed to have ties to the security apparatus and so this move appears overtly aggressive from the state towards a politically exposed person. It serves as a reminder that no misdemeanour, however small, will go unpunished by the authoritarian government.

More importantly, the Al Bawaba seizure took place before parliamentary ratification of the emergency law. This illustrates not only the executive’s de facto liberation from checks and balances, but questions its reasons for seeking emergency status in the first place. The media has long borne the brunt of state repression, with the government having illegally raided the Press Syndicate headquarters, curtailed the freedoms of journalists, and co-opted media Moghuls over the past three years. In short, it has found ways to stifle private enterprise, whether media outlets, NGOs or industry specific entities, without emergency law.

Furthermore, emergency law is not thought to have informed the actions of the state at any point in the month since its triggering, and its effects may well materialise over the long term.

Reading Between the Lines
Egypt has been under emergency law for 53 of the 61 years since the Free Officers established the modern Arab Republic, and it is a measure that has been used and abused by each of the country’s former Presidents. The idea that emergency law somehow strengthens the hand of the security apparatus is widely jettisoned in the modern era (Sisi’s administration), especially since the counter terrorism law passed in 2015 tends to be the go-to legal tool for state crackdowns.

Egypt’s political institutions have been degraded by Sisi during his term as President, with both the parliament and the judiciary struggling to resist the overtures of an empowered executive. Nathan Brown, Professor at George Washington University and recognised expert on Egypt’s judiciary, commented that the intent of enacting emergency law has been to send a message to those actors which continue to be a thorn in Sisi’s side rather than tackle militancy in Sinai or elsewhere (Washington Post, 13.04.2017). Similarly, scholars at Carnegie Endowment for International Peace have pointed out the “dubious benefit” of the emergency law in countering terrorism and violence (Carnegie, 05.05.2017), compounding the view that this law is intended for something other than ‘national security’.

Indeed, there are arguments that the investment environment will suffer and stagnate due to the law.

Declaring emergency law sends a red light to international investors full stop, let alone a jurisdiction with historical security issues such as Egypt. Given that tourism provides key revenues and investment to Cairo’s coffers, the declaration of emergency law only further dampens the views of prospective investors with one eye on locations such as Ain Sokha, Alexandria, Hurgada, and Sharm El Sheikh. In line with this perspective, the incentives for triggering emergency law, whilst unclear at present, must outweigh the damages and setbacks it will do to investor confidence.

Equally, there is a strong counter argument to this, which suggests it is a fallacy to assume FDI and successful enterprise are irreconcilable in the state of emergency. Egypt underwent its biggest period of economic growth during prolonged periods of emergency law, most notably under Hosni Mubarak in the 1990s and 2000s. The liberalisation of the national economy and large scale privatisation in these years ushered in foreign investment, all while Egypt remained in a state of emergency. The government quelled security concerns effectively throughout this period and investors were brought into the fold under a stable status quo.

Whatever the reasons, emergency law under Sisi will have its own ‘colour’ and investors will do well to monitor how this is applied by the President and his team.

As it stands, emergency law will expire on the 9th of July. The constitution does not place a limit on the number of times emergency law can be renewed, only that it is extendable if approved by a two-thirds majority. It is widely assumed that Sisi could secure the 393 votes necessary to extend the law, should he wish to do so following its expiration this summer.

Egypt’s political history shows that flirtations with emergency law often turn into long love affairs, and so it is reasonable to posit that the law could be extended for three months at the very least.

Should emergency law become a permanent fixture in Egypt, foreign investors must remain vigilant as to how this many encroach upon their interests going forward. Entities on the receiving end of hostility from the government are likely to be NGOs or outlets in the media sector, but all actors will face heightened political risk should the government find renewed motivations to exploit the leverage afforded to it by emergency law.