Today at TILE we talked about the massive political upheaval in Egypt – the 27th largest country in the world – and what it means for the country’s economy.

First, it’s important to know that Egypt’s economy relies heavily on two things – tourism and foreign investment. In other words, it depends heavily on the money of outsiders. And the protests – at least for now – have put a stop to that outside money.

Tourism contributes $11 billion to Egypt’s economy every year, and it’s responsible for 13% of the nation’s jobs. But in less than a week, massive anti-government protests have all but eliminated tourism for the near term. Right now, the only tourists in Egypt are the ones trying to get out. And Egypt’s other big source of economic power – foreign investment – is feeling just as anxious as those tourists are. Everyone from from automakers (Volkswagen and GM) to beverage producers (Coca-Cola and Heineken) to telecom companies (Alcatel-Lucent) has an operation on the ground in Egypt. Now the foreign companies that used to provide jobs, industry, and cash are shutting down operations and sending their employees home.

In general, political stability is a requirement for economic growth (kind of like chocolate chips for a chocolate chip cookie, you can’t have one without the other). But right now, Egyptians are dealing with a political meltdown, including the shutdown of the banking system. Egyptians prefer to carry cash – credit and debit cards are not as popular there as they are in the U.S. However, there is no cash to be had – the ATMs are empty, and even if a person is receiving a paycheck (which is increasingly rare), there is no place to cash it.

So has political unrest disrupted Egypt’s economy, or did Egypt’s economy set the stage for political unrest? Or both?

Before the protests began, Egypt was struggling with an unemployment rate of 9.4% and more than 25% for young people. Commodity prices (or the cost of the basic stuff, like farm products, oil, minerals) are rising all over the world. This means that consumers, in Egypt and elsewhere, have a much more expensive basket of groceries. Finally, the gap between rich and poor is an important indicator of a country’s health; if the pie gets bigger for everyone, the political and economic situation looks better. But in Egypt, 20% of the population lives below the poverty line, and the poorest 10% of its citizens control only 4% of the country’s income. In other words, the economic situation wasn’t so bright to begin with.

We did a bit of comparing to our economy in the United States. The unemployment figures in Egypt and the U.S. are quite similar and we are all impacted by rising commodity prices. But interestingly, in terms of income inequality, Egypt is more equal than the U.S. – the U.S. ranks 34th in income inequality, while Egypt ranks 90th. Does this mean we are in for political unrest at home? Not necessarily. Economic data is just a piece of the puzzle (although key to helping see the whole picture).

What does this mean for the TILE Community? In general, just like tourists, financial players (banks, companies, and individuals) like stability. If you know what to expect, you are much more likely to take a chance. For example, are you the type of person that will travel someplace without doing homework beforehand? Lend your car to someone you don’t know? If yes, you are probably a high risk taker, but most people would prefer to know a little bit more. In the case of Egypt, will foreign companies decide to return? Will the price of oil continue to climb? The ancient pyramids and the mighty Nile will still be there, but will anyone be brave enough to visit… or invest?

- Amy