A year of trying to deal with things going wrong for the economy
Courtesy: shutterstock.com

The year 2015 witnessed some major triumphs for President Abdel Fattah al-Sisi and his economic team. GDP growth came in at 4.2 percent for the 2014/15 fiscal year, the strongest performance since the 2011 revolution. The Egypt Economic Development Conference succeeded in gathering a massive show of support from investors, even if actual money has been a bit slower to arrive. The Suez Canal expansion opened on schedule. A massive natural gas field was discovered off the Mediterranean coast.

Some things, however, haven’t gone quite to plan.

Attacks on Tourists

Egypt’s tourist industry was showing signs of a modest recovery in the beginning of the year, but things started going downhill after two deadly, high-profile attacks on tourists. In September, the Egyptian Armed forces mistakenly launched an air strike against a tour group in the Western Desert, killing eight Mexican tourists and four Egyptian drivers and guides.

The following month, a passenger jet full of Russian tourists went down over the Sinai Peninsula, killing all 224 people on board. Foreign governments — including Russia, the United Kingdom and the United States — have said they believe terrorists were responsible for the crash, and the Islamic State claimed responsibility for the attack. In the wake of the crash, countries including Russia, as well as individual airlines like Turkish Airways, Easy Jet and British Airways suspended flights to Sharm el-Sheikh airport, or to Egypt as a whole.

The impact on tourism has been devastating. Egypt’s tourism minister estimated that the flight bans alone will cost the country’s tourism industry LE2.2 billion per month.

How did the government respond?

On the public information front, Egypt’s government seems to have opted for a strategy of deny and minimize. Faced with a global media spotlight and pressure from the Mexican government, Egypt promised a full and transparent investigation of the incident. That has still not materialized. In the meantime, the government banned further coverage of the incident.

After the Russian plane crash, Egypt faced even greater scrutiny, especially after Russia’s report that the plane was brought down by terrorists. However, Egypt’s investigating team, however, has said there is no evidence to support claims of foul play or terrorism.

On the practical side, the government announced it has signed a contract with British consulting firm Control Risks to strengthen its airport security. It has also tried to lure in Arab tourists with a new campaign, and to promote domestic tourism to make up for the decline in foreign visitors

Declining Suez Canal Revenue

The “New Suez Canal” was launched, on schedule, with pomp, triumph, and a host of foreign dignitaries. Response to the actual shipping channel has been muted.

So far in 2015, revenue has declined year-on-year every month since January. The opening of the canal extension failed to reverse the decline.

Suez Canal revenue November.JPG

Suez Canal revenue November

This isn’t Egypt’s fault, of course. An economic slowdown in China and in other developing economies has depressed global trade. Less trade means fewer ships, in the Suez Canal and elsewhere. However, it seriously undermines government claims that the canal extension would lead to a massive increase in revenue from the Suez Canal.

How did the government respond?

The government has been relatively silent on the issue, in sharp contrast to the barrage of news and announcements in the lead up to the August launch of the canal expansion. It has been focusing attention instead on the development of the Suez Canal Economic Zone, a larger project aimed at turning the canal and surrounding cities into a global shipping and logistics hub. In mid-December, Egypt announced that as part of an aid and investment package, Saudi Arabia would help boost Suez Canal traffic, but did not clarify how.

Foreign currency shortages

In addition to problems in the tourism industry and falling Suez Canal revenues, exports have weakened and the Central Bank has spent out billions to prop up the pound’s exchange rate against the dollar.

An influx of foreign loans has staved off a macroeconomic disaster. Businesses, however, still list dollar shortages among the primary difficulties they face. 

How did the government respond?

In February, the Central Bank introduced currency controls aimed at fighting the black market and slowing the flow of dollars out of the country. Businesses view these restrictions as a disaster, saying currency controls have prevented them from importing vital supplies and equipment. According to an August report by UK-based research firm Capital Economics, manufacturing was down 30 percent, due at least in part to currency shortages.

The government has also tried to capture a larger share of the dollars migrant workers send home by encouraging people to put their dollars in local banks, including the launch high-interest local currency bank accounts to try to make the pound more attractive as a currency for savings. On December 21, the Central Bank announced additional restrictions on food imports.

Rising cost of living

Despite a fall in global commodity prices, inflation has been high this year, making life harder for already overstretched citizens.

Food prices were a major factor, especially in late summer and early fall. In September alone, vegetable prices rose by almost 20 percent, a major hardship for low-income families.

inflation with legend.JPG


How did the government respond?

The government moved aggressively to bring food prices down following a November 1 speech in which Sisi declared that: “God willing, by the end of this month, the state will have lowered prices.”  The government plan to tackle high food prices included an initiative by the Supply Ministry to sell discounted food through 4,000 local outlets, and direct sales of low-cost food by military carts.

Farmers and other agricultural experts argue that lasting change requires serious reform of mechanisms to support local food producers. However, food price inflation slowed dramatically in November, with fruit and vegetable prices dropping by 8.2 percent, according to CAPMAS. How much of this is due to government programs and how much to agricultural cycles — food prices generally spike in the early autumn interim between harvests when supply drops — is impossible to say.

And what ever happened to the Arabtec Project?

First announced in March 2014, an ambitious project to build a million housing units by 2020 still had nothing to show for itself at the beginning of 2015 — not even a building plan. It looks likely to close the year with no further progress.

After stumbling in late 2014 and early 2015, the Arabtec Project seemed to take a turn for the better in April 2015, when a preliminary agreement was finally announced. At the time, Arabtec said it had reached a preliminary agreement with Egypt’s Cabinet to launch an initial phase consisting of 100,000 units.

Since then, almost nothing has happened, apart from occasional sniping between Arabtec and the Housing Ministry. In mid-November, Arabtec submitted a separate proposal to build 13,000 homes.

How did the government respond?

Reports in 2014 suggested the initial delays to the project were due to Egypt seeking to renegotiate the terms of the deal. More recently, Egypt’s housing minister blamed internal problems at Arabtec for the delay, telling Reuters: “The company had continuous change of its board and its strategy and its policy … They limited their ambitious program. It’s not the project we were expecting.” Arabtec denied the report, claiming it is still waiting for feedback from Egyptian authorities.

Isabel Esterman 

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