Political Risk Analysis - President Sisi To Secure Second Term In 2018 - FEB 2018

BMI View: President Sisi is highly likely to secure a second term in Egypt ' s upcoming elections , scheduled for March-April 2018 . This will broadly be positive for political and economic stability in the country over the coming years, although security risks are set to persist.

We expect President Abdel Fattah el-Sisi to secure a second term in Egypt's upcoming elections. After the president rejected proposals to extend his current term limit in early November, these elections now appear highly likely to take place in March-April 2018. Sisi's re-election will be positive for political and economic stability in Egypt over the short- to-medium term, ensuring further progress on IMF-stipulated reforms. However, continued suppression of the political opposition and restrictions of personal freedoms will fuel radicalisation, and result in persisting risks of widespread social unrest.

Sisi Re-Election Positive For Policy Continuity, But Security Risks Will Persist
Egypt & MENA Average - Short Term Political Risk Index Scores (Out Of 100)
Note: Higher score indicates lower risk. Source: BMI

President Sisi Highly Likely To Secure Second Term In 2018...

President Sisi's announcement in a televised interview on November 6 that he will not seek to alter the Egyptian constitution's two four-year presidential term limit points to strong confidence in his own ability to win the upcoming election, scheduled for March-April 2018.

Regime loyalists had previously been calling for an extension of Sisi's current term, to allow for economic and security conditions to improve. Over the past year, Sisi has implemented a series of painful IMF-stipulated reforms - most notably a devaluation of the pound, which has sent inflation soaring (coming in at 30.8% y-o-y in October), eroding Egyptian households' purchasing power. Security risks have also remained elevated, with terrorist attacks occurring at a high frequency - most recently in the Western Desert, where 55 troops were killed by Islamist militants on October 21.

The president has nevertheless expressed his conviction - in line with our view ( see ' EGP: Capital Flight Fears Overblown, ' October 31 and ' Rate-Cutting To Begin In H118, ' October 20) - that the pound will appreciate, and inflation will reduce sharply over the next few months. He has also been largely successful in positioning himself as the only viable guarantor of stability in Egypt (despite the still-high frequency of attacks), boosting his popularity among the electorate - a majority of which prioritises security amid high levels of regional turmoil. His refusal to extend the presidential term limit will resonate with the Egyptian public, as well as the international community (particularly Western actors).

The political opposition, meanwhile, remains weak and heavily fragmented, and is thus unlikely to pose a serious challenge to Sisi's re-election. Crackdowns on media (over 50 news and media outlets were shut down in May 2017 for allegedly supporting terrorism) and the civil society (subjected to a new legislation placing substantial restrictions on NGOs' operations) have curbed oppositional elements' ability to engage with each other and the public. In addition, electoral law amendments introduced in 2015 have significantly reduced smaller parties' representation in the pro-Sisi Tahya Misr coalition-dominated parliament. The Muslim Brotherhood has been banned completely, and remaining Islamist-leaning parties (such as Nour), have limited support among the population.

Combined, these factors point to a high likelihood of Sisi (who has yet to announce his candidacy, but is widely expected to do so over the next two-to-four months) securing a second term in 2018.

Inflation To Fall, Easing Pressure On Households
Egypt - Inflation, % y-o-y
Source: Central Bank of Egypt

...Boding Well For Policy Continuity, Though Instability Risks Will Persist

Sisi's re-election would be positive for political and economic stability in Egypt over the short- to medium-term. We would expect broad policy continuity, with Sisi benefitting from the continued support of the country's powerful military, a large majority of the parliament, and major players in the region, such as the US, Russia, Saudi Arabia and the UAE - with the latter two continuing to provide high levels of financial assistance. Further reforms (related to the IMF-arrangement) would likely be implemented, helping to improve macroeconomic stability and strengthen investor and consumer confidence in the country - particularly as inflation and unemployment begins to decline ( see ' Reforms Will Boost Growth In 2018, ' October 20).

That said, continued suppression of dissent and narrowing of political space under Sisi's eventual second term, would also mean that elements of the population will remain prone to radicalisation. As such, we would expect levels of violence and terrorism attacks to remain relatively elevated. We also note that the restrictions placed on basic freedoms, and lack of legitimate channels available to express grievances, will mean that the risk of widespread social unrest will persist in Egypt for the foreseeable future.