Analysis: The challenges of the Egyptian economy and sustainable growth in...

Despite the continuation of the Corona pandemic and its consequences, the Egyptian economy achieved during the past year a growth rate of 3.3 percent, according to the expectations of the German Trade and Investment Corporation. Both the International Monetary Fund and the Arab Monetary Fund expected a growth rate of more than 5 percent. For the current year 2022, the expectations of the Egyptian Ministry of Planning and Development go to say that the growth rate will be around 5.6 percent, while the aforementioned German institution expects a growth rate of about 5.2 percent.

These growth rates reflect the positive impact of more than one factor on economic developments in Egypt. The most prominent of them is the continuation of developing and expanding the gas industry, extracting it and exporting it as liquefied gas to European and other foreign markets at prices that have more than doubled compared to the prices of 2020.

Western generosity in providing loans!

In a related context, the government continued to modernize and expand the infrastructure with huge projects in the areas of infrastructure and industrial and agricultural production. Among them are railways, electric power, water, housing and petrochemical projects. The state has allocated tens of billions of dollars to it through guarantees, private investments and foreign loans. Here, the loans generously provided by the International Monetary Fund and other Western financial institutions to Egypt are increasingly relied upon, despite Western criticism of President Abdel Fattah al-Sisi and his government in the field of human rights, political pluralism, and freedoms.

This generosity is aided by the easing policies of major central banks such as the US Federal Reserve and the European Central Bank, which make interest rates lower and debt servicing less expensive. With the stability of the Egyptian pound, the high interest rate offered by Egyptian banks and the high investment returns in government bonds for their projects, investments from abroad amounted to about 6 billion dollars during the past year, which constituted 15 percent of the total investments flowing to the African continent.

An illustration of the Siemens Express train that could enter service in Egypt

After its contribution to the modernization of the electricity sector, the German company Siemens enters the field of train modernization in Egypt

Increasing exports and improving tourism

Another factor that boosted growth was the increase in the agricultural and industrial sectors’ revenues from iron, cement, aluminum, plastic, vegetables and citrus exports, due to the increase in domestic and global demand for them. Between 5 and 6 million foreign tourists went to Egypt during the past year, after severe damage to Egyptian tourism before that. The resumption of Russian tourist flights to Egypt will boost the arrival of more tourists and financial flows to the Egyptian treasury.

Poverty and its threat to sustainable growth

Undoubtedly, the good growth rates mitigated the consequences of the Corona pandemic and reduced unemployment by no less than 2 to 3 percent, but the percentage of Egyptians below the poverty line is still high, at around 30 percent. This constitutes a risk factor for sustainable growth and for social and political stability. And the increasing inflationary pressures locally and globally since late last summer increases its danger.

A picture of Luxor, where millions of tourists flock annually

Tourism in Egypt is an essential sector, and its recovery mainly contributes to solving the problem of unemployment among young people

This is evidenced by the high prices of consumer goods, especially grains and oils, in the context of an inflation rate of 6 percent during the past two months. Such rates would make the poor poorer and weaken the purchasing power of low-income groups and the middle class, which has lost much of its prestige over the past ten years. One of the consequences of this is to make the political situation less stable and the investment climate less attractive. This is something that must be confronted by all possible means, because the repercussions of destabilization in a country with a population of more than 100 million people such as Egypt does not affect strongly the Middle East and North Africa, but also the European continent.

risk of falling In the foreign debt trap

In addition to the inflationary pressures reinforced by the high rates of global inflation that we are currently witnessing in an unprecedented way even in the major industrial countries such as the United States, Germany and Japan, the Egyptian trade balance deficit is still worsening. This is evidenced by the fact that the volume of exports is still less than half the volume of imports over the past four years. The value of the annual deficit rate exceeds 30 billion dollars, part of which is compensated through the revenues of the Suez Canal, remittances from expatriates and foreign loans. Undoubtedly, the increased dependence on these will increase the deficit and raise the volume of external debt, which currently exceeds 130 compared to 100 billion dollars in 2018. In contrast, foreign reserves of hard currencies are still medium in size, ranging between 38 and 42 billion dollars.

The Egyptian pound is linked to the US dollar and the provision of large reserves from the latter is very important for the stability of the Egyptian currency

The total foreign reserves of hard currency in Egypt are still below the level of the amount required to finance annual imports

The quantitative easing policies of the world’s major central banks and low interest rates on loans make borrowing from abroad more attractive. As for Egypt, the external debt service is still under control compared to the size of the gross domestic product and the good growth rate. But the question arises, what if the country becomes addicted to loans and debt service reaches a point where it is difficult to control its service, as happened in Turkey recently?

The importance of private sector funds for national projects

Thus, the policy of relying on foreign loans should be more cautious in the future in favor of encouraging the Egyptian private sector to invest its money in state projects and to practice various forms of economic activity in it, including large projects that contribute to the modernization of infrastructure. It is ironic here that the Egyptian government stresses on various occasions the need to enhance the role of the private sector in the economy from 30 to 50 percent within a few years, but the obstructionist policies followed so far do not allow this. Here the following question arises, how can the aforementioned sector contribute to 50 percent if its activity remains outside the main sectors?

Ibrahim Mohamed is an expert in economic affairs at Deutsche Welle, Germany

Ibrahim Mohamed: Egypt should be more careful about external borrowing

The obstacles facing the private sector in its activity are not easy. Among them, but not limited to, are public sector companies and military affiliated companies obtaining privileges and exemptions that make equal competition with them impossible. In light of this, the well-known Egyptian businessman Naguib Sawiris demands that the state’s role be limited to regulating the affairs of the economy and not to owning its institutions and activities. Sawiris said in a statement to Agence France-Presse that “companies owned by the government or affiliated with the army do not pay taxes or customs, which makes competition unfair with private sector companies and institutions.” Also, according to Sawiris, this frightens investors in general and foreigners in particular, and says: “I myself do not make offers when there are government companies in the arena, because the latter are not equal.”

Thus, achieving equal competition between state and army institutions on the one hand and private sector institutions on the other is also one of the most prominent challenges facing the Egyptian economy in the foreseeable future. This is more important than the tendency of the major central banks in the West to stop the monetary easing policies and raise interest rates. This will also make servicing the loans more expensive for the Egyptian treasury, which may have to borrow more to service old debts and not to finance new projects.

Ibrahim Mohamed

  • Egypt | Bread and Pastry Sellers | Mahmudiyeh Canal

    Food subsidies in Egypt… unforgettable stations and crises

    1910 – End of World War I

    In the second decade of the last century, Egypt for a long time took steps to keep bread prices affordable. Soon after the end of World War I, it imported wheat and wheat flour from Australia and sold it at a loss in government-owned stores in an effort to lower local prices.

  • Egypt | American Air Transport Command flies over the pyramids

    Food subsidies in Egypt… unforgettable stations and crises

    The 1940s – The effects of World War II reach Egyptian society

    Egypt introduced a card distribution system for all citizens to face the shortage of a number of basic commodities during the war, which severely affected the standard of living, through a program amounting to one million Egyptian pounds. Sometimes foodstuffs and other basic items such as sugar, edible oil, tea and kerosene were subsidized on a monthly basis. After the end of World War II and the stability of trade and economic conditions globally, government support was abolished.

  • Egypt | Women bake bread

    Food subsidies in Egypt… unforgettable stations and crises

    The fifties and sixties – the umbrella of support stretches and expands

    Egypt has expanded its food subsidy system, but the cost of subsidizing wheat has been minimal in many years. The support included all sectors, while the government provided indirect support to government agencies to fill their deficit, such as public transport, electricity, water, railways, fuel, and others. Ration cards began to be used to provide basic commodities that decreased after 1967 as a result of the war, and the citizen was able to obtain monthly rations that included flour, sugar, soap, rice and edible oil.

  • Egypt | Bread Sale | 1992

    Food subsidies in Egypt… unforgettable stations and crises

    The 1970s – the global wheat supply crisis reaches Egypt

    Some food commodities such as legumes and some frozen foods such as chicken and meat were added, while maintaining support for transportation, electricity and fuel, bringing the value of direct support in 1970 to about 20 million pounds. However, a sharp increase in wheat prices on the world market in the early 1970s led to a rise in the cost of food subsidies, which began to take up a large proportion of government spending.

  • Egypt | riots | January 1977

    Food subsidies in Egypt… unforgettable stations and crises

    1977 and the bread uprising

    The late President Anwar El-Sadat announced an increase in the prices of some foodstuffs and commodities, such as bread, tea, rice, sugar, meat, textiles and other necessary commodities by up to twice as much. acts of vandalism targeting government buildings and shops. Calm did not return until the government reversed its decisions.

  • Egypt | Baker

    Food subsidies in Egypt… unforgettable stations and crises

    Eighties and nineties – slight increases in the price of bread

    The prices of subsidized bread remained at half a piaster until the mid-1980s, when it was decided to increase its price to one piaster. During 1984, the government raised the price of subsidized bread to two piasters, and this continued until 1988, when it was decided to increase its price to 5 piasters. Egypt slowly reduced its subsidy programs during the 1980s and 1990s. While the prices of bread were not directly raised, minor changes were made regarding the size and quality of the loaves, which helped reduce the cost of the programmes.

  • Egypt | streets

    Food subsidies in Egypt… unforgettable stations and crises

    2011 – “Live – Freedom – Social Justice”

    “Bread” was the first word in the main slogan of the 2011 uprising that toppled former Egyptian President Hosni Mubarak. The reference to “live-bread” was symbolic as a sign of the lack of enough jobs and low income for many segments of citizens, a large number of whom resorted to working in two or even three jobs to meet the basic needs of education, health, food and housing. In Tahrir Square, graffiti artists painted “live” on the walls.

  • Egypt | Choose

    Food subsidies in Egypt… unforgettable stations and crises

    2013 to today

    Since 2013, the government has taken several decisions related to lifting subsidies on many services and goods, the most prominent of which was a successive increase in the prices of electricity, natural gas and fuel, and the matter recently extended to talk about lifting subsidies for a loaf of bread, with the aim of providing the necessary funds for the nutrition system allocated to schools at a value of 8 billion Egyptian pounds. . The government currently provides a loaf of subsidized bread to about 60 million people, at a rate of 5 loaves per person per day, at a price of 5 piasters per loaf.

These were the details of the news Analysis: The challenges of the Egyptian economy and sustainable growth in... for this day. We hope that we have succeeded by giving you the full details and information. To follow all our news, you can subscribe to the alerts system or to one of our different systems to provide you with all that is new.

It is also worth noting that the original news has been published and is available at saudi24news and the editorial team at AlKhaleej Today has confirmed it and it has been modified, and it may have been completely transferred or quoted from it and you can read and follow this news from its main source.

Author Information

I have been an independent financial adviser for over 11 years in the city and in recent years turned my experience in finance and passion for journalism into a full time role. I perform analysis of Companies and publicize valuable information for shareholder community. Address: 2077 Sharon Lane Mishawaka, IN 46544, USA Phone: (+1) 574-255-1083 Email: [email protected]