Referendum A Vote Of Confidence For Interim Government

BMI View : The results of Egypt's constitutional referendum point to broad support for the interim government and the army. Looking ahead, we expect defence minister General Abdel Fattah el-Sisi will announce his candidacy for presidential elections in the coming weeks. In this scenario, we see few risks to el-Sisi becoming Egypt's next president. Overall, we anticipate political risks in Egypt to decline as the country return to democratic rule, at least notionally.

The results of Egypt's constitutional referendum appear to give the interim government a strong mandate and indicate substantial popular support for the regime. Approval for the constitution came in at 98.1%, with turnout reaching 38.6%. The constitutional referendum was the first vote since the ousting of the Muslim Brotherhood in July 2013 and thus is useful as a barometer for assessing the popularity of the army and interim government. While the turnout was not as resounding as the current regime would have hoped, it is clear that, on balance, the result indicates a significant amount of legitimacy despite the ousting of an elected government.

As we highlighted before the vote, the referendum was as much about the constitution as about the army and interim government's position in power. The degree of popular enthusiasm among voters for the new constitution was unequivocal, however, the turnout was low, in part due to a boycott by Muslim Brotherhood supporters. That said, Egypt has traditionally had low turnouts, even though relatively free and fair elections are a relatively new phenomenon. Indeed, in the last constitutional referendum, in December 2012 turnout came in at 32.8%. Most strikingly, looking at the share of the electorate who voted in favour (ie people who voted, and then voted in favour), the 2014 constitutional vote came in at 37.5% compared with 21.1% and 31.7% for constitutional referendums in 2012 and 2011, respectively.

Significant Mandate For Regime
Egypt - Referendum & Election Results

BMI View : The results of Egypt's constitutional referendum point to broad support for the interim government and the army. Looking ahead, we expect defence minister General Abdel Fattah el-Sisi will announce his candidacy for presidential elections in the coming weeks. In this scenario, we see few risks to el-Sisi becoming Egypt's next president. Overall, we anticipate political risks in Egypt to decline as the country return to democratic rule, at least notionally.

The results of Egypt's constitutional referendum appear to give the interim government a strong mandate and indicate substantial popular support for the regime. Approval for the constitution came in at 98.1%, with turnout reaching 38.6%. The constitutional referendum was the first vote since the ousting of the Muslim Brotherhood in July 2013 and thus is useful as a barometer for assessing the popularity of the army and interim government. While the turnout was not as resounding as the current regime would have hoped, it is clear that, on balance, the result indicates a significant amount of legitimacy despite the ousting of an elected government.

As we highlighted before the vote, the referendum was as much about the constitution as about the army and interim government's position in power. The degree of popular enthusiasm among voters for the new constitution was unequivocal, however, the turnout was low, in part due to a boycott by Muslim Brotherhood supporters. That said, Egypt has traditionally had low turnouts, even though relatively free and fair elections are a relatively new phenomenon. Indeed, in the last constitutional referendum, in December 2012 turnout came in at 32.8%. Most strikingly, looking at the share of the electorate who voted in favour (ie people who voted, and then voted in favour), the 2014 constitutional vote came in at 37.5% compared with 21.1% and 31.7% for constitutional referendums in 2012 and 2011, respectively.

Significant Mandate For Regime
Egypt - Referendum & Election Results

There was a notable divergence in the referendum between the country's north and south. Turnout in the Egypt's north was significantly higher than in the 2012 referendum, whilst the opposite largely held true in the south. Southern Egypt has traditionally been a stronghold for Islamist groups, who almost all boycotted the poll in protest at former President Mohammed Morsi's overthrow and at a crackdown on Islamist dissent.

Constitution Marks Break From The Past

The draft constitution marks a significant break from the previous version under the Muslim Brotherhood, particularly regarding the role of Islam and the army. The draft allows military trials for civilians and avoids scrutiny of the army's spending by listing its budget as a single entry in the national accounts. In addition, over the next eight years, a council of top commanders will have to approve the defence minister. In terms of the position of Islam, the new constitution removes the role for clerics to decide if new legislation confirms with the principles of Islamic law, restoring that right solely to the constitutional court.

Sisi To Run For & Win Presidency

We expect the army to view the election results as indicating a huge degree of popular support for the regime. On the back of this, we expect that defence minister General Abdel Fattah el-Sisi will announce his candidacy for presidential elections in the coming weeks. There appears to be a groundswell of support for el-Sisi given his perceived role in stabilising the country after the unrest of July 2013. It appears extremely likely that el-Sisi would win any vote if he were to run. The defence minister appears to have substantial popular support, as well as the backing of key institutions such as the army and opposition candidates. As yet, el-Sisi has done little to dissuade rumours of his bid for presidency, most recently stating that he would only run for president as per request of the people and an army mandate.

El-Sisi's picture and name are recognised throughout much of Egypt, particularly in the cities - something which differentiates him from any other potential contenders. Crucially, the el-Wafd Party and a leading member of the National Salvation Front, have said that it will support el-Sisi if he runs in the presidential elections and will not field a candidate of its own. Moreover, as yet, the only politician to openly state that he will run for the presidency is Nasserist politician Hamdeen Sabbahi, who came third in presidential elections in 2012. Former presidential candidates Amr Moussa and Ahmed Shafiq have come out in support of el-Sisi's candidacy.

Elections To Reduce Political Risk
MENA - BMI Political Risk Ratings

Even if el-Sisi does not run as a presidential candidate, we expect little reduction in his, and the army's power in government. In this scenario, we would expect a candidate from outside the army to win the election, but become a figurehead, as much of significant executive power remains with the army.

Presidential Elections To Be Held First

We expect presidential elections to be held in Q214, with parliamentary elections following in the summer. Although Egypt's roadmap announced in 2013 stated the order of elections to be the reverse of this format it is very likely that parliament will be highly fragmented given the disarray of political parties, especially with the Muslim Brotherhood banned. Therefore, electing a president first will give the country a greater semblance of political stability. In addition, there appears to be significant support from all major parties to holding presidential elections first.

Further Upside Ahead As Risks Diminish
Egypt - EGX30 Equity Index

Following the announcement of referendum results, the Egypt Stock Index was down 2.0% to 6,969. We hold a moderately bullish view on the EGX over the coming months as presidential and parliamentary elections are held, reducing political risks. Indeed, we expect region of 7,200 to be reached. While we expect political risks to reduce over the coming months sporadic protests by Muslim Brotherhood supporters are likely. Indeed, the three year anniversary of the start of protests against the former President Hosni Mubarak which lead to his ousting on January 25 will likely see clashes. Furthermore, presidential and parliamentary election votes will also see clashes.

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Related sectors of this article: Political Risk, Domestic Politics
Geography: Egypt
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