Egypt Investment Collapsing as Citizens Turn Into Vigilantes

May 8 (Bloomberg) -- Two years after the fall of President Hosni Mubarak, the proliferation of weapons and a spate of vigilante killings, violence and sexual attacks are eclipsing the hope born from the revolt in Egypt. Fueled by political deadlock and economic stagnation, the security breakdown threatens to put solutions beyond the reach of President Mohamed Mursi. (This report contains graphic violence. Source: Bloomberg)

In a dimly lit Cairo workshop, Hussein spins a metal pipe on a lathe, sending sparks flying. In a few minutes, it’ll 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 gunmakers at night, says Hussein, 54, who asked not to be identified by his full name for fear of prosecution. He only sells to a middleman because “trust the wrong person and you’re going to jail.” He can make as much as 3,000 pounds ($435) per gun -- about 20 percent of what a legally licensed one costs.

“Fear is big business nowadays,” Hussein said. “People buy the guns because they’re afraid. 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 proliferation of weapons and a spate of vigilante killings, violence and sexual attacks are eclipsing the hope born from the revolt. Fueled 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,” said Ezzedine Choukri Fishere, a political scientist at the American University in Cairo. Beneath that lies the “dashed expectation and hope of the youth,” he said.

Photographer: Mohamed el-Shahed/AFP/Getty Images

A protester grabs stones in front of another one holding a self-made gun during clashes between the Muslim Brotherhood movement's opponents and supporters in Cairo. Close

A protester grabs stones in front of another one holding a self-made gun during clashes... Read More

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Photographer: Mohamed el-Shahed/AFP/Getty Images

A protester grabs stones in front of another one holding a self-made gun during clashes between the Muslim Brotherhood movement's opponents and supporters in Cairo.

Hashish to Tramadol

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 reeking of the hashish he says dulls the boredom. A year ago, he was working in a Cairo gift shop, selling souvenirs. He said he had a fiancée, “but she left me for someone with hope.” Now he snatches the occasional purse to fuel his habits.

Egyptians who had expressed hope for food and jobs during the uprising, are instead confronted with unemployment and rising prices. Lines for subsidized fuel have triggered protests and strikes, as well as brawls.

Hardship heightens the sense of breakdown, and 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, said Michael Hanna, a senior fellow at the Century Foundation research group in New York.

‘All Interlinked’

Net foreign direct investment was negative for the first time in 2011, according to the World Bank. Investment will be 15.5 percent of gross domestic product in 2013, the lowest since records began in 1980, according to the International Monetary Fund, which is in talks with Egypt for a $4.8 billion loan.

Photographer: Shawn Baldwin/Bloomberg

Economic growth is barely outpacing the rise in Egypt's population. Close

Economic growth is barely outpacing the rise in Egypt's population.

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Photographer: Shawn Baldwin/Bloomberg

Economic growth is barely outpacing the rise in Egypt's population.

Foreign portfolio investors have also fled, driving a slump in Egypt’s stocks and bonds. The benchmark equity index, the EGX 30 (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, was at 7.17 percent on May 7. The Egyptian pound has weakened 11 percent to a record low since the central bank started limiting access to U.S. dollars in December to shield reserves, which dropped more than 60 percent since the uprising.

“The emerging security deterioration is going to dissuade potential investors,” Hanna said. Egypt’s political, economic and security crises are “all interlinked,” he said.

‘Create a Bubble’

The economic slump has eroded optimism that the uprising would mark a new beginning. In the months after the revolution, officials saw an increase in treatment being sought by Cairo’s drug users, said Amr Othman, head of Egypt’s Fund for Drug Control and Addiction Treatment.

“They used to say they believed there’s hope and the country is changing,” Othman said.

Now, the number of addicts is growing and Othman said he’s seeing a decrease in the age of users, with some as young as nine. “Everyone is trying to create a bubble” to escape reality, he said.

Decay in Tahrir

The decay is clear in Tahrir Square, the center of the 2011 revolt. It morphed into a tent-camp and finally an area of ill-repute with reports of theft, assault and drug use, which Mursi’s backers blame on the opposition.

On Jan. 25, the second anniversary of the uprising, 29 women were reported to have been sexually assaulted during rallies there, including one vaginally raped with a knife.

Government officials stress that security is a top priority, with Mursi vowing a tough line against lawbreakers and noting the difference between peaceful protests and demonstrations that descend into violence or undercut the nation’s interests.

Prime Minister Hisham Qandil, whose motorcade came under fire recently, yesterday pointed out the improvements in Tahrir, including police deployment and surveillance, since a Jan. 1 visit he made there. “There’s a significant improvement in security,” Qandil said in a televised press conference.

Raise Awareness

Interior Ministry figures back up anecdotal accounts of rising crime. Murders rose to 1,885 in 2012, a 130 percent increase, while robbery cases jumped 350 percent and kidnappings 145 percent, according to a report by the ministry’s public security and anti-narcotics departments.

Seizures of illegal weapons and drugs also surged, including crackdowns on illegal arms workshops as authorities try to stem the tide of crime. The Social Affairs and Religious Endowments ministries announced plans in April to use religious schools to raise awareness about the dangers of narcotics.

Some choose to confront the security collapse head-on. There has been a rise in vigilante incidents, with civilians doling 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 cut down, starting a fatal hours-long marathon in which he was beaten, escaped into a canal, was recaptured and beaten again. 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.

Guilt Questioned

Questions about his guilt have since arisen, with the man’s father saying he suffered from a psychological illness, Major General Mohamed Kamal, the province’s security chief, said in a phone interview.

The villager who showed the video said he didn’t take part. He said he felt sorry as the man may have been innocent. Even so, he said residents won’t hesitate to do the same if they catch someone breaking the law. The film’s authenticity couldn’t be independently verified.

Kamal, the Sharqiya security chief, said the police are in a difficult position, facing a population that’s “letting off steam.” He recalled 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 said.

Fields Torched

In another case late yesterday, dozens of residents of Gharbiya province’s Kafr Hassan village torched wheat fields in a neighboring village after someone from there allegedly killed a 16-year-old boy, the state-run Ahram Gate reported.

The vigilantism is tied to what Egyptians describe as a loss of faith in the security forces, which are seen as either embracing the old Mubarak-era brutality or simply refusing to do their jobs.

Emad Khaled, a 29-year-old doctor, recalled how his car was stolen several months ago, and he was contacted by a man who said he could help him get it back if he paid 30,000 pounds. He said 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 already wounded hundreds in recent months.

Stun Guns

To protect themselves, some are also buying knives and stun guns -- widely available in the narrow streets of central Cairo’s Ataba district. Stun guns range from 90 Egyptian pounds to more than 300 pounds, while knives cost as little as 40 pounds -- on par with a McDonald’s combo meal.

Sara Ali, 25, said the blade she bought offers at least the illusion of security, which she needed after seeing a woman mobbed by a group of men in Tahrir Square.

It’s those kinds of concerns that keep people like Hussein, the bootleg gunsmith, in business.

At his illicit factory, Hussein said he also makes machetes and other knives, though he said the market for them is flooded, and demand for guns is higher. He said he sometimes wonders whether the weapons will fall into the wrong hands.

“Even children are armed these days,” he said. “They’re stoned on drugs. They wouldn’t think twice about shooting you dead or maiming you, just to take a phone.”

To contact the reporters on this story: Tarek El-Tablawy in Cairo at teltablawy@bloomberg.net; Mariam Fam in Cairo at mfam1@bloomberg.net; Salma El Wardany in Cairo at selwardany@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net

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