Egypt Economy Continues Downward Trend

Despite significant Gulf aid, Egypt's economic indicators continue to point in the wrong direction.

al-monitor Traders work at the Egyptian stock exchange in Cairo, Aug. 18, 2013. Photo by REUTERS/Louafi Larbi.
Ayah Aman

Ayah Aman


Topics covered

stock exchanges, egypt, economy, eu

Sep 3, 2013

Egypt’s economy continues to suffer large losses in all its sectors as a result of the political disturbances after President Mohammed Morsi’s ouster on June 30. The European Union agreed to halt military exports to Egypt, after initially threatening to halt aid and terminate economic agreements with Cairo, as Egyptian officials kept their hopes confined to assistance from Gulf states, which have become the main saviors of the country’s economy.

Last week, Prime Minister Hazem el-Biblawi held three urgent meetings of the Cabinet’s ministerial economic committee to adopt a rescue and stimulus plan, which will come into effect at the beginning of September. The plan aims to implement a basket of urgent measures meant to improve the quality of services offered to citizens, provide jobs to young people, attract local and foreign investment, as well as stimulate internal trade to the tune of 22.3 billion Egyptian pounds (EGP) (about $3.2 billion), according to a government communiqué obtained by Al-Monitor.

In a statement to Al-Monitor, Planning Minister Ashraf al-Arabi said the government’s plan to stimulate Egypt’s economy would rely on three different tracks: an urgent one focused on maintaining price stability and the adequate provision of foodstuffs and fuel; a second track predicated on executing the state’s investment plan through governmental investments in a number of service projects; and a third track whose aim is to employ young people in new projects that will be carried out as part of the overall plan.

Arabi explained that the plan’s funding would come from the state’s general budget, with the participation of friendly countries.

The Egyptian government did in fact receive an estimated $12 billion Gulf aid package from Saudi Arabia, Kuwait and the United Arab Emirates, following the ouster of Morsi and the June 30 demonstrations. A UAE delegation visited Egypt on Aug. 20 to put into effect a number of the aforementioned plan’s projects in the health, housing, education and transportation fields, which will all be funded through the aid package.

Concurrently, Egypt took possession of gas shipments that the Qatari government had donated before Morsi’s ouster.

Gamal Bayoumi, the ‎secretary-general of the Egyptian European Association at the Ministry of International Cooperation, told Al-Monitor that Egypt was receiving $1.55 billion from the United States and Europe in the form of development aid, and not grants or loans. These monies represent but a very small fraction of the state’s budget, and cutting them will not affect the country’s economy. He claimed that the Europeans will be more negatively affected by any disruption in trade as Egypt currently exports $10 billion worth of merchandise to Europe, while they export $19 billion worth of merchandise to Egypt. He clarified that the recent events’ only negative impact lay in foreign experts refraining from coming to Egypt as a result of foreign travel advisories.

But according to European figures, Egypt seems likely to suffer the most from any EU economic slap. The EU ranks as Egypt’s number one trading partner for exports and imports, accounting for 23% of Egypt’s trade volume. Conversely, Egypt ranks as the EU’s 39th trading partner, accounting for just 0.5% of total EU trade.

Bayoumi denied rumors the EU had allocated $5 billion worth of aid to Egypt following the January revolution, affirming instead that this aid is offered by Europe to eight countries of the southern Mediterranean basin spread over a four year period.

The EU, in its extraordinary meeting held on Aug. 21 in Brussels to discuss the Egyptian crisis, put the military and financial aid given to Egypt under consideration until a framework was adopted to restore Egypt on its path toward democracy. Furthermore, Germany froze a 25 million euro donation ($33.1 million) intended for the Egyptian government.

As an expression of popular anger, political activists launched a campaign called “Withdraw your Funds,” which reflected their concern that the current government might misappropriate bank deposits. On the other hand, branches of state banks in Cairo and other provinces were crammed with customers following a decision to limit business hours to only three a day, in order to properly secure their premises.

Amid all this anxiety experienced by Egyptians as a result of the poor economic situation, Minister of Finance Ahmad Galal said in a press statement published on the ministry’s website that the state remained committed to paying all its employees their August wages. Additionally, it had decided to provide them with a special bonus equaling 10% of their usual salaries. Galal also affirmed  that the current government sought to maintain fiscal discipline, while refraining from increasing tax burdens on citizens and continuing subsidies on essential commodities.

According to the Central Bank of Egypt, the rate of inflation in Egypt increased to 10.28% for the month of August. The economic growth rate was 2%, which meant that people’s incomes did not increase in three years. The investment rate reached 15%, while the unemployed, prior to June 2013, exceeded 13.3% of the population. Forty-six percent of Egyptian workers are currently employed in the unofficial market, which reflects the fact that 25% of the population lives in poverty, while the rate of poverty in the villages of upper Egypt was close to 50%.

The industrial sector was achieving slow growth rates as a result of the political turmoil that prevailed in the country for the past 30 months. The manufacturing sector meanwhile grew by 2.5% in the first nine months of the previous fiscal year, as a result of the challenges engendered by energy shortages, the lack of attached lands, and a decrease in the financing of factories by banks. This can be attributed to the latter now focusing more on investing in bonds and treasury bills.

Walid Hilal, head of the Egyptian Businessmen’s Association, told Al-Monitor that Egyptian industry lacked growth and proper protection mechanisms. It also suffers from financing problems, which necessitates backing from the government in order to decrease tax burdens and help the industrial sector recover from the damages it had sustained.

By the end of the session of Sunday [Aug. 25] and following the demonstrations’ dispersal, Egypt’s Stock Exchange lost 3.9 billion EGP ($560 million) in four sessions, as a result of the violence and chaos that spread through the country. The Exchange’s main EGX30 index lost 2.2% of its value when it fell from 5,546.73 to 5,424.63. The broader EGX100 index fell 2.17% to 721.7. The number of trades reached 17,300 transactions valued at 341.1 million EGP ($48.8 million), according to information on the exchange’s website.

Exchange expert Hani Tawfik, who is also the president of the Arab Union for Direct Investment, told Al-Monitor that what was happening to the Egyptian Stock Exchange could not be characterized as a gross loss, but as a decrease in the value of traded stocks. He explained that the drop in value amounted to 10 billion EGP ($1.4 billion) in the last two weeks.

He added:“The possibility of an American military intervention in Syria was the most influential factor on the Egyptian, as well as other Arab exchanges last week, which all were negatively impacted by the possibility of war in the region.” He conceded, however, that the Egyptian market has been primarily affected by the continued internal unrest that has prevailed since Jan. 25, 2011.

Ayah Aman is an Egyptian journalist for Al-Shorouk specializing in Africa and the Nile Basin, Turkey and Iran, and internal Egyptian social issues. On Twitter: @ayahaman

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