COVID-19 comes with a high cost to Egyptian economy
CAIRO - The COVID-19 pandemic will be devastating to the Egyptian economy in the short term but the overall effect of the disease-induced emergency will depend on how long before it subsides, economists said.
“The COVID-19 outbreak is paralysing all sectors of the economy,” said Yumn al-Hamaqi, a professor of economics at Ain Shams University. “This is opening the door for unprecedented losses.”
The Egyptian government has taken drastic measures to try to limit the scope of the outbreak, which has infected more than 500 people and killed over 30 in Egypt.
Measures include the suspension of flights to and from Egypt, which froze the tourism and travel sector. Tourism generally provides Egypt around $1 billion in revenue each month. The tourism and travel sector contributes 12% of Egypt’s GDP and employs 10% of the country’s workforce.
The slowdown of international trade will have negative effects on traffic in the Suez Canal, which provided $5.2 billion in revenues in 2019.
That revenue loss will compound an expected decline in remittances from Egyptians working in other countries. Thousands of Egyptians working abroad have returned home and others were expected to return when restrictions on air travel are lifted. In 2019, Egyptians living in other countries sent home $25 billion in remittances.
The Egyptian economy grew 5.6% in the 2018-19 fiscal year, up from 5.3% in the previous fiscal year. Credit rating agency Fitch Ratings said economic growth in Egypt would be 5.4% in 2019-20 but would pick up the following year to 5.8%.
The suspension of flights emptied Egypt’s hotels and resorts and was projected to cost tourism investors dearly, especially after an injunction by Egyptian Minister of Tourism and Antiquities Khaled al-Anani against tourism worker layoffs.
Egyptian President Abdel Fattah al-Sisi ordered banks to extend a credit line of $1.3 billion to the tourism sector. Tourist establishments were expected to use the credit to upgrading facilities, pay workers’ salaries and preparing for post-COVID-19 recovery.
“The hotels and other tourist establishments have started using the suspension in modernising themselves and preparing for the return of the tourist movement after the current emergency comes to an end,” said Hossam Haza’a, a member of the Tourist Chambers Association, a union of the country’s tourism investors.
Some hotels have started renovations and others are offering training courses to workers.
Egypt’s museums and ancient sites have started a cleaning and decontamination campaign. The Ministry of Tourism and Antiquities is putting some museums in order and introducing changes to others.
Whether such optimism holds depends on how long it will take for the COVID-19 emergency to taper off. It will likely have serious effects on the industrial sector, which is heavily reliant on raw materials from China.
Machines inside thousands of factories could stop whirring when raw material stocks run out. Imports from China have stopped and will not likely resume soon. “This will have deep effects on the industrial sector,” Hamaqi said.
Trade between Egypt and China totalled $13.8 billion in 2018, including more than $11 billion in Chinese exports to Egypt.
The effects of the economic slump will be strong on millions of poor and working-class Egyptians whose income will be drastically reduced, especially with intensifying calls for social distancing, economists said. Thousands of businesses, including coffee shops and commercial outlets, have been forced to close.
Laid-off workers who find no other means of bringing in income will likely increase the national poverty rate of 32.5%. Millions of factory workers will have to stay at home if Egypt imposes an all-out curfew. Cabinet spokesman Nader Saahas alluded to the possibility of such a curfew if the COVID-19 outbreak widens.
The government introduced a rescue package that includes reducing interest rates on bank loans by 3 percentage points and pumping billions of pounds into financial support programmes for some sectors of the economy.
The government also formulated a plan for cash payments to self-employed people and labourers. That plan goes hand in hand with efforts by the government to create a safety net for the poor and economically vulnerable Egyptians.
However, negative effects from the emergency are inescapable, especially with no end in sight, economists said.
“There will be very negative effects from the crisis and we cannot avoid them,” said Bassant Fahmi, a member of the Committee on Economic Affairs in the Egyptian parliament. “All we can do is to try to reduce these effects as much as we can.”