February 3, 2021


EGYPT: Continuing to Cruise in Choppy Waters

BY Jon B. Alterman

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  • Egypt’s economy continues to outpace the rest of the Middle East, despite the effects of COVID-19 on tourism and shipping.
  • The state remains the key driver of the economy, focused on major, visible projects.

Egypt’s economy continues to defy the downward pressure on other regional economies. Repeated IMF studies project positive GDP growth in Egypt this year, and negative growth elsewhere in the region. Population growth explains part of Egypt’s numbers, but the benefits of fiscal reform, access to credit and heightened remittances are a bigger part of the story.

There are many reasons to suspect that Egypt’s economic story would be a negative as 2020 wore on. Tourism creates more than a million direct jobs in Egypt (and even more indirectly), and tourist arrivals dropped almost 70% in 2020 from 2019 numbers, despite the fact that the first few months of the 2020 were Egypt’s high season and were unaffected by COVID-19. FDI dropped more than 50% in the first half of 2020, and a glut in global shipping capacity helped drop Suez Canal receipts 3% in 2020. Some economists were predicting a bloodbath.

And yet, the low oil prices wrought by COVID-19 actually increased remittances into Egypt, presumably as some Egyptians who lost jobs in the oil-rich Gulf returned home with their earnings. The Zohr gas field in the Mediterranean, operated by ENI, grew production to 3 bcf/day, and gas exploration onshore and offshore strongly increased. In recognition of Egypt’s economic reform efforts, the IMF struck a Stand-By Arrangement for USD5.2bn in June 2020, which provides the government significant breathing room.

Egypt is still facing considerable uncertainty. While the precise course of the pandemic remains uncertain, tourism is likely to remain sharply affected through much of 2021. Part of the challenge comes from wealthier countries whose citizens will defer visiting Egypt as long as their own countries are in lockdown, but part of the COVID challenge comes in Egypt itself. Egypt’s reported disease load is remarkably low, but its testing rate is remarkably low as well—closer to that of war-torn countries such as Yemen and Syria than a neighbor like Jordan, whose testing rate is 20 times as much. Egyptian officials admit that they do not have an accurate count of infections in the country. Further, while Egypt has just begun immunizations with the Sinopharm vaccine, most of Egypt’s more than 100 million citizens will wait until well into 2022 before vaccines become available. Even when global tourism resumes, it may be slow to resume in Egypt.

The other uncertainty is when Egypt’s government will cease to dominate the local economy. President Sisi has been engaged in visible megaprojects—widening the Suez Canal, expanding roads, building a new capital city in the desert, creating a new pedestrian walkway along the Nile, and tourist attractions like a USD1bn museum near the pyramids and the largest Ferris wheel in Africa. Many of the projects are carried out by companies either owned by the Ministry of Defense or staffed by retired general officers. While the government is working to improve the business climate, military networks continue to dominate decision-making, and personal relationships remain important tools to circumvent an often-stultifying bureaucracy.

There have been some promising efforts to boost Egypt’s entrepreneurial activity and channel the energies of what remains an overwhelmingly young population. Finding ways to grow small and medium enterprises into large-scale firms that remain entrepreneurial and free of state control, and to creating an investment climate that encourages investment in those firms, will be an important task to secure Egypt’s continued economic growth.

Investment, at this point, is concentrated on two sectors: energy and construction. The first is largely capital intensive and labor extensive. The second creates near-term jobs, but often relies on tourism in the longer term, and tourism has been a notoriously cyclical industry in Egypt for the last 30 years. A growing SME sector would boost employment prospects for the more than 600,000 young people who enter the job market annually. Among that group, the level of education is negatively correlated with employment, suggesting many of Egypt’s most trained and talented citizens are contributing the least to the economy.

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