Foreign companies operating in Egypt have shut factories and closed offices in response to violent clashes between supporters of former president Mohamed Morsi and state security forces.
General Motors, Toyota, Royal Dutch Shell and Electrolux said on Thursday they had stopped operations in the country, as others advised foreign employees to stay at home amid the growing unrest.
The increasing risk of doing business in Egypt has also caused bond yields to leap as investors fret that the government’s bloody crackdown on protesters could escalate the country’s political crisis and weigh further on the struggling economy.
Egypt has declared a one-month state of emergency and imposed a curfew after at least 525 people were killed when security forces sought to clear two protest camps of supporters of Mr Morsi, the president ousted by the military in a July coup.
“We made the decision to close our Cairo office and halt production operations in our plant,” General Motors said in a statement. “The safety and security of our employees is of paramount importance to us. We will continue to monitor the situation closely.”
GM operates an assembly plant in 6th October City, an industrial satellite town about 30 kms from Cairo. Nissan, Daimler and BMW also build cars in factories there.
Egypt is Africa’s third largest car-producing country, after South Africa and Morocco, and built about 57,000 vehicles last year, according to the International Organization of Motor Vehicle Manufacturers.
A Munich-based spokesman for Daimler, which is present in Egypt in a joint venture with a local manufacturer, said the company had no information on whether its Mercedes-Benz factory was still running.
Nissan is evaluating whether to reopen its factory on Sunday as scheduled after a maintenance shutdown, a spokesman for the Japanese carmaker said, adding that the company had responded to the violence by advising expatriate workers in the country to stay at home.
Toyota, which assembles its Fortuner SUV model in Egypt, has closed its factory since Wednesday evening after advising employees to go home early.
Meanwhile, the yield of Egypt’s international bond maturing in 2020 has climbed from 8.1 per cent earlier this week to a five-week high of 8.85 per cent on Thursday. The stock market was closed because of a government curfew, but slid 1.7 per cent before closing early on Wednesday.
Egyptian financial markets have been buttressed by $12bn of aid from oil-rich Gulf states in the wake of Mr Morsi’s ousting. But some analysts are concerned that the aid may only provide temporary relief should Egypt’s political crisis continue to deepen.
“The risk that Egypt faces now is sliding towards a civil war, as polarisation keeps getting deeper among Egyptians, and within the government itself and the Muslim Brotherhood and its supporters feel more than ever in their right to retaliate, calling for ‘martyrdom’,” Souheir Asba, an analyst at Société Générale, said in a note.
The cost of Egyptian credit-default swaps, a kind of financial instrument that acts as insurance against a government default, has risen 45 basis points to 795bp since Tuesday. The level indicates that investors see Egypt as the seventh riskiest country in the world.
Emad Mostaque, a strategist at Noah Capital Markets, said that the generous Gulf aid should allow the central bank to keep the currency steady, but said it was “difficult to see a bull case” for the stock market – or the country as a whole.
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“We now believe that things in Egypt have the strong potential of getting much worse, pushing through the positive aura that has comforted local investors hoping for a business-friendly environment and no Muslim Brotherhood in combination with pressured fundamentals,” he said in a note.
Electrolux, the world’s second-largest appliance manufacturer, said it would re-evaluate its position on Saturday. The Swedish company employs about 6,800 people in Egypt in several factories producing white goods such as washing machines, refrigerators and cookers in the Cairo area.
“This is an unusual situation. This is an issue of judging the security environment from day to day and making sure we can guarantee the safety of our employees,” Electrolux said. “It’s not a long-term situation. Yesterday we just felt it was a bit too messy in the streets.”
Turkish biscuit maker, Yildiz Holding, also halted production in Egypt on Thursday. The company employs 910 people in its Egyptian plant and exports biscuits throughout the region. “We decided to halt production in Egypt after the state of emergency announcement on Wednesday to protect our staff,” Murat Ulker, chairman, told Reuters.
Europe’s biggest oil company, Shell, said it had closed its offices in Egypt and restricted travel into the country.
“To ensure the safety and security of our staff, Shell offices in Egypt are closed for business today and into the weekend and business travel into the country has been restricted,” a spokesman for the company said in a statement. “We will continue to monitor the situation in Egypt.”
