While Cairo announced that its grain reserves would not last more than three additional months, the Egyptian economy is increasingly fragile in the country. Has the Ukrainian crisis exposed the irresponsibility of Abdel Fattah al-Sissi's economic choices?
Construction of a new capital and a nuclear reactor, launching of satellites, overhaul of road infrastructure, increase in the capacity of the Suez Canal... the economic choices of the Egyptian State have often been hailed by a cohort of journalists who, under threat of imprisonment and an anti-terrorist law tailor-made for al-Sissi, can only do otherwise than support the military dictatorship that holds the country.
However, the economic situation is not as good as the country's newspaper reports suggest. While Egypt is the fifth largest arms buyer in the world in 2021, al-Sisi's economic policy seems to have reached its limits: Egypt needs funds to ssubsidize basic necessities and maintain the Egyptian pound at a reasonable degree of devaluation.
On this last aspect, and specialists on all sides agree on this observation, the Egyptian state, under Abdel Fattah al-Sisi, has squandered its large foreign exchange reserves. Creating a market "too nervous" according to the American giant Goldman Sachs.
Today, it's time for accounts. This Wednesday, May 4, during a council of ministers, Egyptian Prime Minister Moustafa Madbouli announced that grain reserves “will be enough to guarantee local consumption for another 2,6 months”.
The head of government assures that the State will put the package to import the basic necessities threatened by the shortage. However, economists are worried about "a Lebanese scenario" in Egypt. Namely that, after massive indebtedness, and colossal spending on long-term projects, inflation due to the global crisis could get the better of Egypt's “economic miracle”.
Ukraine… a catastrophe for Egypt
Indeed, the conflict in Ukraine has cost Cairo two of its major economic allies: Ukraine and Russia. Kyiv was the second largest source of tourists to Egypt, and Ukrainian tourists brought Egypt more than $14 billion a year in foreign exchange earnings (official figures 2019-2020).
As for Russia, Egypt's leading energy partner under Abdel Fattah al-Sissi, the embargo it is undergoing has cut off Egyptian oil imports. Egypt was also counting on the Russian company Rosatom for the rapid construction of four hydraulic power stations and the first nuclear power station, largely financed by Russia.
Not to mention grain imports. Egypt is the leading African importer of Russian and Ukrainian cereals, accounting for more than 85% of its needs. A dependency which, today, risks costing Egypt dearly.
So many shortcomings that have repercussions on inflation that the State is trying to subsidize at all costs, in order to avoid social unrest. Where the urgency lies is that the North African country will have a lot to do to find a plan B.
Egypt between wild debt and precarious stability
Indeed, in 2016, Egypt had gone through a recession, followed by a rapid increase in the prices of essential products. Cairo had then quickly requested the International Monetary Fund (IMF), as well as Saudi Arabia and the United Arab Emirates (UAE) for loans amounting to a total of 43 billion dollars. In return, Egypt had let its currency float and had devalued it by 50%.
It has also had to cut public spending, only to find itself forced to subsidize Central Bank liquidity, which has cost far more than the loans and aid it has received in recent years.
Management at least risky. But if, at first sight, the cause of the current crisis is the war in Ukraine, certain specialists believe that deeper causes explain the fragility of the Egyptian economy.
For the dean of the American University in Cairo, Samer Atallah, the conflict between Russia and Ukraine is only " the drop that broke the camel's back ". For the economist, the structure of the Egyptian economy, which encourages investments called "hot money", has made it extremely vulnerable.
“These types of investments, while lucrative for Egypt in the short term, are easily uprooted and vulnerable to any economic, financial or political turbulence. And there has been little foreign direct investment to support the economy and boost its growth,” Atallah said.
Read: Egypt: the end of the “economic miracle”?
According to the macro-economist Michel Santi, if Egypt remains “too big to collapse”, the country declares only half of its sovereign debt. But faced with the urgent expenditure of the country, which is struggling to feed its populations, the specialist recalls that: "Egypt is the second most important debtor of the IMF after Argentina, knowing that it is also indebted to the World Bank, to the African Development Bank and even to Germany huge sums".
Is Abdel Fattah al-Sissi observing a scenario today that will force him to break away from some of his megaprojects or face the revolt of an increasingly impoverished people? File to follow.
What a crazy world! Semolina and wheat, without natural disasters, are beginning to run out in #Egypt and #Maghreb. The war in # Ukraine️ aggravates speculation and shortages. The Cargill or Louis-Dreyfus groups are enriched by hunger: another war against the people.
— Nathalie Arthaud (@n_arthaud) March 20, 2022