FACTBOX-Key political risks to watch in Egypt

CAIRO, June 1 (Reuters) - Uncertainty about who will lead Egypt after President Hosni Mubarak, 82, who has been in power for almost three decades, is the overriding risk to watch in the next year as the 2011 presidential election approaches.

Added to that are some lingering worries about governance, social unrest and Islamic militancy.

Below are the main political risks for Egypt:

TRANSFER OF POWER

Mubarak has no designated successor and has not said if he will seek another term in 2011. If he does not, the most common view is that he will hand power to his politician son Gamal, 46.

That might please business, as Gamal's cabinet allies are behind liberalisation measures that have secured rapid growth over the last five years. But the president's son has no military background, a possible hurdle in a country ruled since 1952 by former senior military officers. [ID:nLDE62501T]

Egypt held its first multi-candidate presidential election in 2005. But rules make it almost impossible for anyone to mount a realistic bid without the ruling party's backing. So, any new president is still likely to be chosen behind closed doors and not at the ballot box. [ID:nLDE6260GD]

Presidential transitions passed off before without a power vacuum. But in 1970 when Gamal Abdel Nasser died and in 1981 when Anwar Sadat was assassinated, both had vice presidents. Mubarak has not picked a deputy, creating uncertainty about how a transfer will proceed. Most analysts see little chance of social upheaval but questions remain. [ID:nLDE6270ON]

Almost a quarter of a million people have signed up to one Facebook site supporting a presidential bid by former U.N. nuclear watchdog head Mohamed ElBaradei, reflecting pent up frustration although analysts say turning that into a street movement needs a bigger grass-roots network. [ID:nLDE64G0Q7]

The Muslim Brotherhood, a banned group who analysts say has the capacity to muster thousands of supporters onto the street, has eschewed open confrontation with the government but could yet be a potent force if it changed tack. [ID:nLU648267]

Leading ratings agencies place Egypt just below investment grade. Succession risk is not exerting strong pressure but is a constraint on a higher grade, say analysts.

WHAT TO WATCH:

-- Capital flows. Any sign of reserves dipping, after rising to more than $34 billion, would indicate the central bank was defending the Egyptian pound against sellers at home or abroad.

-- Eurobonds. Egypt's small foreign debt ensured strong appetite for the country's latest Eurobond. Bond yields held steady in March despite rumours about Mubarak's health. But mounting succession worries could raise yields. [ID:nLDE63L1VP]

-- Insurance and shares. The cost of insuring Egypt's debt against default may rise with worries about Mubarak's health but will likely lag Egypt's bourse. Egyptian shares were already on a rebound when credit default swaps EGGV5YUSAC=R started rising on speculation about Mubarak after his surgery in March.

-- Street movements. Watch whether ElBaradei's web backers can mobilise or the Brotherhood changes tack. So far there is no sign of momentum for a street movement that could disrupt a transition to Gamal or another establishment figure.

-- ElBaradei U-turn. It would be easier to get on the ballot if ElBaradei ran for an existing opposition party. He has refused, but has until about mid- to late-2010 to change his mind. This could open up the race.

SECURITY OF INVESTMENT AND CORRUPTION

Capital inflows have surged during economic liberalisation in the last five years, despite a credit crunch hiccup, showing that investors still feel secure. But without more oversight or political accountability the hidden costs of business may rise.

Transparency International ranked Egypt 11th of 19 Middle East and North African states and 111th of 180 states worldwide in its 2009 corruption perception index, where No. 1 is judged the least corrupt. The watchdog said in May nepotism, bribery and patronage in Egypt were common. [ID:nLDE64802F]

Investors closely watched a legal tussle between Orascom Telecom (ORTE.CA) and France Telecom (FTE.PA) over ownership of mobile firm Mobinil (EMOB.CA). The two owners reached a settlement in April, but only after an Egyptian court halted the French firm's bid for Mobinil. [ID:nLDE60J257]

A dispute between an Egyptian firm and Japan's Mitsubishi Motors Corp (7211.T) is now in court and may also attract attention. [ID:nTOE63I061]

WHAT TO WATCH:

-- Another high-profile court ruling against a foreign firm may start looking like a trend, souring sentiment.

INFLATION AND PROTESTS

Inflation in Egypt rocketed to 23.6 percent in August 2008, pumped up by surging world commodity prices. Angry worker protests turned violent, which the government first met with heavy handed security and then a promise of higher wages.

Inflation has tumbled though it remains stubbornly above 10 percent, as the authorities avoid interest rate or budgetary tightening for fear of hurting growth. [ID:nLDE64908R]

But price rises remain a delicate issue in a country where many of the 78 million people struggle to make ends meet and a fifth live of less than $1 a day. Strikes for better pay have become increasingly common, although activists' efforts to encourage solidarity action have not succeeded. [ID:nLC693674]

WHAT TO WATCH:

-- World food prices. Surging international commodity prices will quickly feed through to shops, raising public ire.

-- Coordinated labour action. Solidarity strikes would indicate activists are mobilising more effectively and would prove more challenging for the government to quell.

ISLAMIC MILITANCY

Security forces crushed an insurgency in the 1990s by Islamic militants who targeted ministers, top officials and foreign tourists. In 1997, Islamists gunned down 58 tourists at a Luxor site. Leading figures of al-Gama'a al-Islamiya, which led the revolt, were jailed during the insurgency, but many were freed earlier this decade after renouncing violent ideologies.

Analysts see little sign of such organised militancy re-emerging but say sporadic bomb attacks like those that rocked Sinai resorts from 2004 to 2006 are likely. The latest fatal attack killed a single tourist in Cairo in 2009. [ID:nLDE60N0GN]

Tourism, accounting for 11 percent of GDP, dived after the 1997 killings, but the impact in later attacks has been limited, partly because even New York, London and Madrid have been hit.

However, frequent security sweeps against any Islamist activity reflect official concerns that, without vigilance, militants might regroup in Egypt, the home turf of many leading Islamist thinkers and also of al Qaeda's No. 2, Ayman al-Zawahri.

WHAT TO WATCH:

-- A bombing campaign. A string of attacks rather than an isolated bombing could show militants are regrouping. (Editing by Samia Nakhoul)