Since the beginning of the Russian invasion of Ukraine, in February, the Egyptian economy has been weathering significant pressure. Yet, the claims widely promoted in Western media that this economic stress is going to prevent the Arab Spring revolutions or lead to public riots and outrage are misleading and unrealistic. If you truly understand the dynamics of modern-day politics in Egypt, and if you know Egyptians well, you should realize that the current economic crisis is going to further enhance citizen satisfaction with the current political leadership of President El-Sisi.
Egypt is not the only country, in the world, to suffer from the consequences of the Russia-Ukraine war, especially since it is happening after grinding two years of the COVID-19 pandemic. Almost all countries are suffering, albeit with variant degrees; starting from the United States and the European states that are determined to raise the cost of the war on Russia through sanctions amidst their chronic crisis of energy resources shortage, down to the underdeveloped African countries that the United Nation’s Food and Agriculture Organization (FAO) warned that they may slide into a long-term famine.
In Egypt, the sharp decline in eastern European tourist turnout to the Red Sea resorts, the disruption of food supply chain, especially in relation to wheat imports, and the energy crisis which soared as a result of the economic sanctions that tripled the prices of crude oil and natural gas, and the spike in the exchange rates of the Egyptian pound against the U.S. dollar after international policies were made to contain unprecedented inflation rates; are some of the reasons leading to the heightened economic weight that the Egyptian government is trying hard to mitigate its influence on the huge population of more than one hundred million citizens.
Perhaps the heightened prices of the wheat, and its influence on local prices of the bread, is the motivator behind the appearance of such pieces of misled analysis. In 2008, Egyptians went to the streets in massive rallies to protest the shortage in bread production. The event was a shock for the Mubarak regime which had to seek help from the military, which enjoys an autonomous economy, to fill in the gap in the civilian economic system and provide the people with their needs from the wheat and the bread.
Egypt has been among the top three importers of wheat, in the past years. The Egyptian population of more than one hundred million citizens consumes an average of four million tons of wheat per year. In 2021, Egypt produced only 20% of its needs and had to import the remaining 80% from Russia (50%) and Ukraine (30%). The current war between Russia and Ukraine has already caused the prices of wheat to increase to unprecedented levels. In early March, the Egyptian Minister of Finance said that Egypt would need about fifteen billion dollars above its stipulated annual budget to handle this increase in prices.
Meanwhile, the Egyptian tourism sector, which is barely recovering from the consequences of the COVID-19 pandemic, is also expected to be badly affected by the ongoing war between Russia and Ukraine. A large percentage of the tourists pouring into Egypt, every year, come from Russia, Ukraine, and Belarus during the winter season. When the flights between Russia and Egypt were suspended in the period between 2015 and 2021, the Red Sea resorts suffered to keep their business. The Egyptian economy also suffered, as tourism accounts for 9% of Egypt’s GDP. Given the fact that the current Russia-Ukraine war is expected to keep happening for a long time, the Egyptian tourism sector is doomed to go through a similar period of sluggishness, that will eventually echo in other sectors of the Egyptian economy.
As a result, this week, the inflation rate in Egypt jumped above 10%, and the exchange rate of the Egyptian pound against the U.S. dollar exceeded 17.40 compared to 16.65 in the days before the war. That forced the Central Bank of Egypt (CBE) to make a fast decision to raise interest rates by 100 basic points (1%). No doubt, this decline in the value of the Egyptian pound and the uncertainty arising from the lack of a clear date when this global crisis is going to conclude are frustrating to the Egyptian public who were very optimistic about the performance of their economy at the beginning of the year.
A report by the International Monetary Fund (IMF) expected, in December 2021, that Egypt, in 2022, will be the second largest economy in Africa, after Nigeria, and the second largest economy in Arab countries, after Saudi Arabia, with a record GDP that exceeds US$438 billion. In February, only one week before the eruption of the Russia-Ukraine war, the Egyptian Minister of Planning celebrated, in a press conference, the fact that Egypt successfully achieved a growth rate of 8.3% during the second quarter of the current fiscal year 2021/2022, compared to a growth rate of only 2% during the second quarter of last year. Unfortunately, the heightened inflation and unstable exchange rates are going to swallow this hard-won progress.
Nevertheless, contrary to what several Western analysts claim, Egyptians will not go to the streets to call for El-Sisi’s ouster, the same way they did with Mubarak, in 2008 under the bread crisis. Here are a few reasons why:
First; the Arab Gulf deposits at the Central Bank of Egypt (CBE) are still large enough to keep the Egyptian economy relatively stable in face of the global pressure. In November 2021, the periodic External Situation Report of the CBE showed a decrease of $2.2 billion in the volume of the long-term deposits of the Arab Gulf countries, which totaled $15 billion in June 2021. Right now, Saudi Arabia is keeping a deposit of $2.2 billion at the CBE until the end of 2026, in addition to UAE’s deposit of $5.7 billion, and Kuwait’s deposit of $4 billion.
Second; the international confidence in the performance of the Egyptian economy is quite high. The Egyptian Central Bank’s decision to increase the interest rate by 1% and let the Egyptian pound freely float against the dollar has already succeeded in the recent past in pushing the economy forward at difficult times of depression. Meanwhile, it enhances Egypt’s position if it asks for an emergency loan from the International Monetary Fund (IMF), which has already shown confidence in the Egyptian economy in the past years, as explained above.
Third; the bond of trust and interdependency between the general public and El-Sisi’s leadership is still intact. The grassroots citizens still believe that El-Sisi is not corrupt and that he is sincerely working for their interest, not for the interest of a privileged elite of his own, as was the case under Mubarak. The poor who lived for decades in inhuman conditions at random housing areas are the ones who benefited the most from El-Sisi’s “Hayah Karima” initiative. They know, by experience, that the government cares about protecting them against any arising economic crisis.
Fourth; the middle-class citizens, who were the leading force behind the 2011 and 2013 uprisings against Mubarak and the Muslim Brotherhood, clearly understand that the current economic crisis is not resulting from an ill performance by the state. It is an external pressure that the government is trying its best to mitigate its influence on the citizens. After a tough decade of Arab Spring, this politically powerful group of citizens learned that public protesting or popular uprisings hurt the struggling economy rather than fixing it, and their economic consequences usually take years to cure. Therefore, it is almost impossible for them to think of using public demonstrations, once again, to express their frustration over the economy.
Fifth; the Egyptian citizens have already experienced a similar economic stress, between 2016 and 2019, when Egypt started its economic reform program, under the recommendation and support of the World Bank and the International Monetary Fund. Throughout this tough experience, the people as well as the state learnt some important lessons that they are currently using to manage the current economic crisis. One of them is keeping the flexibility of currency exchange rates and adopting a monetary policy of gradual increase of the interest rates on citizen deposits. Many citizens have already benefited from these monetary policies, in the recent past, to increase their wealth by investing in bank certificates and medium to long-term deposits.
Sixth; there is a hidden opportunity for Egypt in the global economic crisis of the Russia-Ukraine war. Since 2018, Egypt has been building up its reputation as the new regional hub for Liquified Natural Gas (LNG) in the Mediterranean. Since the last quarter of 2021, Egypt started to export regular shipments of LNG to Turkey and southern Europe. In January 2022, for the first time, Egypt started shipping LNG to countries as far as the Netherlands, in northwestern Europe. Although Egypt is not one of the giant producers of Natural Gas, like Qatar, Iran, or Russia, it has a strategic geographic location that will make it more favorable for Europe to import gas from.
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