Crisis Management During the Arab Spring: Case of an Egyptian Company

A Crisis Defined

A crisis is a “turning point for better or worse”, it is also “a situation that has reached a critical phase ( Merriam-Webster's collegiate dictionary, 2019). This situation is faced by companies in their life cycle as it is faced by human beings in their personal lives. In both cases a plan should be prepared to face those situations. A crisis could come in different ways. There could be little or a lot of warnings; it could happen anytime or anywhere; could happen to international or national business; and it could be faced by small, medium or large companies ( Fink, 1986).

Crisis management is “the art of removing much of the risk and uncertainty to allow you to achieve more control over your own destiny” ( Fink, 1986, p.15). This art would allow managers to either turn the crisis into a better situation or at least to come out of the crisis with minimum loses. It is the place where managers are aware that a certain situation has happened or about to happen and all efforts should be put to fix or stop the situation while making sure that the daily operations are still working normally.

Crisis management is not a quick-fix solution. It includes knowing what the problem is, studying and analyzing the problem, and knowing how to deal with it or maybe even prevent it from happening ( Darling, 1994). Crisis management includes reacting to certain events during and after they have occurred, taking into consideration that each crisis is unique and should be handled in a different way, with different experiences ( Johnson & Peppas, 2003). But crisis management is not seen nor is it aimed to be a reaction for one certain event ( Crandall, Parnell, & Spillan, 2013).

Phases Of Crisis

The players and contents of each crisis might be different but the four phases of a crisis are the same. Not every crisis will go through these four phases though, but no crisis has more than these four phases. Knowing these phases assist managers to deal with a crisis. Fink (1986, p.20-28) discussed these four phases as follows:

• Prodromal Crisis Stage: This stage works as a proactive stage. If managers want to be proactive, they need to be ready before something happens. In this stage managers try to know the crisis before it happens and to either prevent it or be ready to deal with it. Doing an internal and external analysis as mentioned before helps knowing what kind of crises management might be facing. Knowing the kinds of crises helps managers through the other three stages.

• Acute Crisis Stage: At this point the crisis event and damages begin and become noticeable. This phase is influenced by the previous stage. If the right proactive actions were put in place, the percentage of damages is decreased. If the wrong proactive actions were taken or if there was no proactive actions in the previous stage, the percentage of the upcoming damage increases. In this phase the crisis becomes visible outside the organization.

• Chronic Crisis Stage: This stage could be referred to as a period of recovery. A period to know how much time those effects are going to last. A crisis might happen fast but its’ effects could last for a long time. Management could use this time to plan more and maybe in a different way. They could try to know what went right or wrong by analyzing the events and changing their plans if needed. After handling the situation, they become more experienced in crisis management and thus, this could help them to deal with subsequent crisis better. That experience could be what to do, what not to do, when to do it, how to do it and if to do anything at all.

• Chronic Crisis Stage: This is the final stage that indicates the ending of the crisis. Although everyone will see this as a goal, it cannot, nor should it, be rushed into. Management cannot jump the first three stages but having the right strategies help in ending the crisis faster. Also, after the crisis ends, management should try to understand the situation better so as to avoid or prevent such situation from happening again in the future. Although most companies tend not to plan during their safe situations, it might be impossible to plan during the crisis, because organizations would be put into a situation that would probably make them take the wrong decision ( Darling, 1994).

Managing Crisis

To manage could be defined as “Succeed in dealing with or withstanding something” ( English Oxford dictionaries, 2019). It can also be defined as “successfully achieving something even though there might be some difficulties” ( Merriam-Webster's collegiate dictionary, 2019). The achievement of managing a crisis – having control over the outcomes – might change according to the time a manager start taking actions to face the crisis. A crisis might be looked at as it has a before, during and an after phase, and each one would be handled in a different way ( Crandall et al., 2013).

Crisis management is a process and a plan that includes strategies to deal with certain situations. It should be a part of the strategic planning of the company. Putting a long term plan for a business contains analyzing the factors that might have an effect on that business. One way to identify potential crisis is through using SWOT analysis ( Crandall, Parnell, & Spillan, 2013). SWOT analysis would help identifying the opportunities and threats that have to do with the external environment, and the strength and weaknesses that have to do with the internal environment ( Wheelen & Hunger, 2012). A factor that might have a positive effect on the business could turn into a negative one if managers do not take advantage of it in the right way. After identifying the factors that might turn into a crisis, managers should deal with them according to priority. A plan should give priority to the ones that have high impact on the business and have high probability of happening. Knowing what you might be faced and having a plan that shows how you should face it, is what should be done in the pre-crisis stage before the crisis hits. It is always easier to take proactive actions than to face a crisis after it hits the business. But a crisis might also happen because of external factors. Factors that managers have no control over. Planning helps managers in dealing with different kinds of crises. A plan is organized steps that helps managers find a way to deal with a crisis, but does not the crisis.

The Beginning of the Arab Spring

Whenever there is a change in politics, a change in economics will follow. In order to understand the change in economics, political changes should be understood first. The economic change in Egypt began with what was later called Arab spring. The Arab spring is a series of anti-government uprisings that affected the Arab countries of North Africa and the Middle East beginning late 2010. It was a way of expressing what the citizens of those related countries wanted. It moved across several countries with people aiming and demanding for justice and for a better life ( Abdou & Zaazou, 2018). This was a movement that started by one man refusing to give up the source of his living and ended up being a revolution for several years in more than one country.

The revolutionary wave started with the Tunisian revolution and later on spread to other countries, including Libya, Egypt, Syria and Yemen. It all started after a young man called Mohamed Bouazizi set himself on fire in his hometown on December17th, 2010. His action was prompted by an incident that involved him and the police in which his cart that he used to sell fruits and vegetables – his source of living – was taken from him by the police because it was not licensed, according to the laws of Tunisia. The incident lead to the beginning of a series of street demonstrations that started in Sidi Bouzid, the hometown of the young man Mohamed Bouazizi, and then reached other cities in Tunisia and was the reason for the arrest and death of many citizens. The protest that had started off by citizens who refused the way the police handled the situation, later evolved into demanding the resignation of president Zine El Abidine Ben Ali and on January 14 ^th, 2011, the president was forced to flee the country to Suadi Arabia.

After the Tunisian protests succeeded in removing the president, the Egyptian society which had been suffering from problems like the constant increase in corruption and human rights violation decided that it was time for a change ( Wafa, 2015).

The Egyptian revolution started on the 21st of January 2011, Thousands of Egyptians took part in the protests with the aim of forcing the president to step down from his position. After the loss of many lives, the president left his position. This Situation turned Egypt into a country ruled by the military for about one and a half year which lasted until 30th June 2012 when the next president Mohammad Morsi was elected. Mohammad Morsi served in the role for one year until June 30 ^th, 2013 – on his first anniversary as president – when a new wave of protests started demanding his immediate resignation. The following day, the military that was led by Abdel Fattah El-Sisi gave Morsi a 48 hour time limit to fulfill the demands of the people. By the end of that time limit, the military took over the presidency from Morsi and on the July 4 ^th, Adly Mansour was named as the temporary president of Egypt and served till 2014 when Abdel Fattah El-Sisi became president by winning the elections that year. It is important to mention that 578 citizens lost the lives in these protests with an additional 4200 people sustaining injuries.

The Implications of Arab Spring on Egypt

The revolutions that happened mainly to change the political spectrum had other consequences for each country aside from the political ones. As citizens looked for freedom and change, it was inventible to achieve what they wanted without some negative consequences.

According to QadirMushtaq and Afzal, ( 2017), some of the consequences of the Arab spring were:

• Removal of the Authoritarian Rulers from Tunis, Libya, and Egypt.

• Granting of Political and Social Rights in other countries such as Oman, Saudi Arabia, Bahrain and Morocco. These countries gave better economic and social rights to their citizens, in order to not face the same circumstances as Egypt, Tunisia or Libya.

• Development of Public Political Sphere: The protests raised the idea of discussing issues related to their countries in public places and enable them to ask for changes and have expectations that can be achieved.

According to Khalofi ( 2016), the Egyptian revolution affected three aspects of the country:

• Political and security aspect: the 25 ^th January revolution led to an unstable and unsecure country. After Hussni Mubarak, the country had continuous protests during the 18 months that were led by the military. Even after Morsi was elected, the protest did not stop completely. It lasted until July 3 ^rd when Morsi also stepped down as president.

• Economic aspect: After the revolution, Egypt had a negative economic growth in the fiscal year 2010-2011, which was -4.2% in the third quarter of the year, and was the first negative quarterly growth rate since 2001-2002. The tourism sector had a -19.5% growth rate during 2010-2011. Although it got better in the first quarter of 2012-2013 by increasing to 7.8%, it declined again to -5.2% in the fourth quarter of that year. The FDI in the petrol sector that represents 70.9% of the total FDI in Egypt was 3.59 billion dollars in 2009-2010 and it decreased by710 million dollar in the first quarter of 2012-2013.

• Social aspect: Because of the decrease in the FDI of the country, the return of the Egyptian workers from Libya and the decrease in the revenues of tourism sector, the unemployment rate increased by 3% in one year to reach 12% in the year 2010-2011. The poverty rates reached 25.2% in 2010-2011 after it was 21.6% in 2008-2009. The inflation rates increased from 10.4% to 11.9% in 2010-2011.

The Exchange rate crisis in Egypt

A currency crisis is defined as “a situation in which the value of a currency becomes unstable, making it difficult for the currency to be used as a reliable medium of exchange” crisis (currency crisis in business dictionary, 2019. The effect of a currency crisis can be mitigated by sufficient foreign reserves. A currency crisis is a type of financial. It could also be defined as “a term used to refer to a type of financial crisis that encompasses an acute devaluation of a currency. That is to say, there is a sudden and often severe drop in the value of a currency” (currency crisis in Study.com 2019).

The revolution also affected the country’s currency as its value started to decrease for more than one year, due to the existence of black markets that were eventually shut down by the government. This crisis made the government to take a decision to float the currency on November 3 ^rd, 2016 partly to improve the value of the EGP which will encourage foreign investors to invest in the country and partly to fulfil the condition of the International Monetary Fund to give Egypt a loan of 12 billion dollar. Nonetheless, by the floating the currency means it is no longer controlled be the government and it is not pegged to another currency either. Hence, it fluctuates freely on a daily basis. Thus, after floating the currency, the EGP value declined by 48% against the dollar and reached a 13.5 rate per dollar in the morning of the floating decision, and by the end of that month, it had fallen in value to 18.16 per dollar. During the next month, the EGP reached its’ lowest value ever, getting to 19.52 against each dollar and ended the year at 18.83 per dollar.

The decision to float the currency was seen as a right decision by some people and for others it was a wrong decision completely or at least the right decision but at a wrong time. Nevertheless, floating the EGP had some positive implications as well as some negative ones. Negative consequences included the increase in the inflation rate from 13% before the floating to 35% after the floating which caused an increase in the cost of living in Egypt. The positives outcomes of the floating decision are the local and international trust that Egypt got and was the reason for having 60 billion dollars in 8 months, and as well as Egyptian banks receiving up to 7.8 billion dollar (Karima, 2017).