Rising food prices, collapsing tourism industry, military dictatorship and foreign investors reaching for exits; grey clouds surround the Egyptian economy from all directions. The widespread bloodshed in Cairo, the financial capital of the country, spells doom for the people of Egypt and its lucrative tourism industry which centered on Cairo. With the number of deaths due to bloody streets crossing the 1000 mark, the city’s dicey political situation is bound to have drastic, long term effects on the Middle Eastern economy.
Statistics say that since 2000, due to many economic reforms and policies, Egypt has progressed towards a more foreign investment friendly market with the annual growth rate averaging 5 percent annually. According to the numbers issued by the Egyptian government, before the global crisis of 2008, the economic growth was as healthy as an annual 7 percent. These statistics clearly mask the widespread economic disparity that prevailed in Egypt with one in four of the young population being unemployed.
Due to this internal angst, a youth outburst took place in 2010-2011 with a demand for political freedom, eradication of corruption and better standards of living. This disrupted the political balance and finally in February 2011, President Mubarak had to step down and one by one the dominos started falling.
Economic Growth Rates
In 2012-13, the economic growth rate fell to a shriveled 2.4 percent after the military Government took over. In the first three months of 2013, the growth rate reached a new low of 2.2 percent according to Government figures. But this is just the tip of the ice berg. The political implications are bound to take a toll on Egypt’s already frail economy.
Foreign Direct Investment (FDI)
Foreign Investors, clearly more far-sighted than the military government, have begun abandoning the sinking ship of Egypt’s Economy. With the Egyptian currency hitting new pits everyday and widespread violence on the streets rendering people too terrorized to work, the chances of improvement in foreign investment are dismal.
In the past few years, FDI has reduced from $10 Billion to as low as $1.3 Billion after the stepping down of President Mubarak. The foreign reserves have fallen alarmingly making it tough for the country, which is the world’s biggest wheat importer, to purchase food and refined petroleum products. As a result, most of the population of Egypt is hovering over the poverty line due to a big hike in food rates. The Government subsidy policies have done minimal to rescue the poor because data shows that most of the benefits of subsidies were reaped by the rich with microscopic amounts trickling down for the poor.
Another big chunk of Egypt’s revenue comes from its tourism industry. With reports of political outbreaks and ongoing violence, tourists are expectedly, shying away. The situation has further worsened since the Travel Ministry, Berlin, recently issued a travel warning for all of Egypt; amending its previous warning which applied only to Cairo and few other parts of Egypt. After this announcement, Germany declared that it would change the travel destination of scared tourists from Egypt to any other place with no extra cancellation fee. It seems that everything has possibly been done to drive away tourists from the country. Tourism revenue has dropped to about a third of its initial value breaking the very spine of Egyptian economy.
Import vs. Export
According to the latest numbers available, Egypt imports $4.7 billion with the export value being $2.4 billion. Presently there is a growing rift between the country’s import and export values and with time it seems the task to bridge the gap would be Herculean. This would be the last straw for the country’s terribly weak economy.
President Obama recently gave a statement declaring that he will be withdrawing monetary military aid to Egypt as a sign of his protest against the military coup and stated that he is in favor of the former President Mubarak. Unfortunately, this statement is unlikely to bring any stop to the present internal political disputes of Egypt with the country’s rich neighbor’s willing to offer financial aid to the military government in the name of attempts to establish financial security.
With the collapse of FDI and tourism industry, the backbone of Egypt’s economy has been shattered and it’s only a matter of time till the new government runs out of temporary financial aids. The already terrorized residents of Egypt are likely to witness even worse financial turmoil as time passes.