Global Economics

Investors Flee Egypt as Violence Spreads


A youth shows off his bootleg pistol in a Cairo barbershop

Photograph by David Degner

A youth shows off his bootleg pistol in a Cairo barbershop

In a dimly lit Cairo workshop, Hussein spins a metal pipe on a lathe, sending sparks flying. Soon it will become the barrel of a gun. Sometime after that it will join the growing arsenal of illegal weapons on the streets of Egypt.

Artisans who make machine parts by day are turning into bootleg gunsmiths by night, says Hussein, 54, who asked not to be identified by his full name for fear of prosecution. He sells only to a middleman because, he says, “trust the wrong person and you’re going to jail.” Hussein says he can make as much as 3,000 Egyptian pounds ($435) per gun—about 20 percent of what a legally licensed one costs. “People buy the guns because they’re afraid,” he says. “People buy the guns because they want to scare others. We’re in a jungle now.”

More than two years after the fall of President Hosni Mubarak, the spread of weapons, vigilante killings, and sexual attacks is eclipsing the hope for greater stability and prosperity in Egypt. Triggered by political deadlock and economic stagnation, the security breakdown threatens to put solutions beyond the reach of President Mohamed Mursi. A growing number of Egyptians think that “you can actually achieve your goals using violence,” says Ezzedine Choukri Fishere, a political scientist at the American University in Cairo. Beneath that lie the “dashed expectations of the youth.”

Improvised weapons, like this gun, can sell for as much as $435Photograph by David DegnerImprovised weapons, like this gun, can sell for as much as $435

A few miles from Hussein’s workshop, the glassy stare in Abdel-Rahman’s eyes reveals some of that despair. At 24, he looks a decade older, his skin sallow from the tramadol painkillers he pops. His shirt reeks of the hashish he says relieves the boredom. A year ago Abdel-Rahman was working in a gift shop—until he was fired. He says he had a fiancée, “but she left me for someone with hope.” Now Abdel-Rahman says he snatches the occasional purse to fuel his habits.

The woes confronting the $257 billion economy add to the potential for violence. That, in turn, has a “massive and very serious chilling effect” on investors, says Michael Hanna, a senior fellow at the Century Foundation research group. Net foreign direct investment was negative for the first time in 2011, notes the World Bank. Investment will make up 15.5 percent of gross domestic product in 2013, the lowest since records began in 1980, according to the International Monetary Fund.

Foreign portfolio investors have also fled. The benchmark equity index, the EGX30, is down about 20 percent since the uprising, after climbing 85 percent in the preceding two years. The yield on benchmark dollar bonds due in 2020, which was below 5 percent in late 2010, stood at 7.17 percent on May 7. (A rise in yields indicates a drop in the bond price.) The pound has weakened 11 percent to a record low against the greenback since the central bank started limiting access to dollars in December to shield reserves, which have dropped some 60 percent since the uprising. Says Hanna: Egypt’s political, economic, and security crises are “all interlinked.”

Officials stress that public safety is a top priority, with Mursi vowing a hard line against lawbreakers. Yet Ministry of the Interior figures back up anecdotal accounts of rising crime. Murders rose to 1,885 in 2012, a 130 percent increase, while robberies jumped 350 percent and kidnappings 145 percent, according to a report by the ministry’s public security and anti-narcotics departments.

Vigilante incidents are on the rise, as civilians dole out death sentences to suspected thieves, rapists, and kidnappers. In one case in March, residents of the village of Ezbat el-Gendaya, in Mursi’s home province of Sharqiya in the Nile Delta, strung a man from his feet on suspicion he was a car thief. The suspect was then cut down and beaten. He escaped into a canal, was recaptured, beaten again, then finally died. In a video shown to Bloomberg News by a villager, the man, his face and torso covered in blood, is dragged by one leg along a road. The villager says residents would not hesitate to do the same thing again if they caught someone breaking the law.

Questions about the victim’s guilt have since arisen, with the man’s father saying he suffered from a psychological illness, says Major General Mohamed Kamal, the province’s security chief. The villager who showed the video says he didn’t take part in the beatings and that he felt sorry, as the man may have been innocent. The film’s authenticity couldn’t be independently verified.

Kamal says the police are in a difficult position. He recalls an incident a few months earlier when thousands of villagers snatched suspected criminals away from police custody. The mob later killed them to exact revenge. “What can a force of 10 or 15 do against 10,000 people?” he asks.

The vigilantism is tied to Egyptians’ loss of faith in the security forces, which are seen as either embracing the old Mubarak-era brutality or refusing to do their jobs. Emad Khaled, a 29-year-old doctor, recalls how his car was stolen. He was contacted by a man who said he could help him get it back for 30,000 pounds. He says he notified the police, who told him, “Go ahead and pay. It’s the only way you’ll see it again.”

The security vacuum has given rise to worries that militias will step in. Battles involving Islamists, secularists, and police have wounded hundreds. Ordinary Cairenes are buying knives and stun guns—widely available in Cairo’s Ataba district. Stun guns sell from 90 pounds to more than 300 pounds, while knives cost as little as 40 pounds—on par with a meal at McDonald’s (MCD).

Sara Ali, 25, says the blade she bought offers at least the illusion of security, which she says she needs after seeing a woman mobbed by men in Tahrir Square. Gunsmith Hussein says he also makes machetes and other knives, though he says the demand for guns is higher. “Even children are armed these days,” he says. “They’re stoned on drugs. They wouldn’t think twice about shooting you dead or maiming you, just to take a phone.”

The bottom line: The surge in violence in Egypt is scaring investors, who have retreated from the Cairo exchange and stopped investing in Egyptian industry.

El-Tablawy is North Africa bureau chief for Bloomberg News in Cairo.
Fam is a reporter for Bloomberg News in Cairo.
El Wardany is a reporter for Bloomberg News in Cairo.

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