Depth | 2021: Can Egypt's economy continue to be "unique"?

Depth | 2021: Can Egypt's economy continue to be "unique"?
Source: CCTV News Center New Media Official Account

Reporter: Liu Suyun/Wu Aimin/Mi Chunze/Liu Bingqing

In 2020, the Egyptian economy will inevitably be hit by the epidemic. However, reports issued by authoritative institutions such as the World Bank and the International Monetary Fund all show that Egypt is the only economy in the Middle East and North Africa that has achieved positive growth. The Egyptian economy has been able to "stand out" in the adverse trend, thanks to a better balance between economic activities and epidemic prevention, and the economic structural reforms implemented in previous years have also enhanced the Egyptian economy's ability to withstand risks. What are the difficulties and challenges facing Egypt's economic growth in 2021?

Bright eye statistics

In 2020, against the backdrop of the global economy being hit by the neo-crowning epidemic, the Egyptian economy has delivered a satisfactory report card.

In October 2020, the International Monetary Fund released its Regional Economic Outlook for the Middle East and Central Asia. According to the report, Egypt is expected to be the only country in the Middle East and North Africa region to achieve positive economic growth in 2020. The forecast data released by the agency at that time showed that Egypt's GDP growth rate in 2020 was expected to be 3.5 percent.

During the same period, the World Bank also made a similar forecast, saying that Egypt is expected to maintain positive economic growth in 2020, with a growth rate of 3.6 percent.

Many international institutions are also generally optimistic about Egypt's economic development prospects. Fitch Ratings maintains Egypt's long-term foreign currency issuer default rating (IDR) at "B" and sees a stable outlook for Egypt. JPMorgan Chase said: "In one of the most difficult times for the global economy, Egypt has maintained the confidence of the three international assessment agencies, Standard & Poor's, Moody's and Fitch."

The IMF report further explains that "even during the crisis, the Egyptian economy has exceeded expectations". "With the support of the government's effective crisis management, the measures taken to contain the epidemic and strong policy programs have mitigated the impact of the crisis."

International Monetary Fund (IMF) Headquarters
Regarding the praise from all parties, the Egyptian media reported in turn that President Sisi also expressed "joy and satisfaction" at a cabinet meeting ".

At the end of the year, the Egyptian government also released a series of optimistic statistics, bringing 2020 to a successful end.

Walk the balance beam of economy and epidemic prevention

In 2020, countries are carefully balancing the economy and epidemic prevention. For Egypt, which has a population of over 100 million, a weak economic foundation, and many people still live on daily wages, it is even more afraid to deviate.

In terms of epidemic prevention, Egypt has basically adopted a flexible and appropriate epidemic prevention policy. Since the beginning of the epidemic in mid-February, Egypt has been careful and slow, constantly sending out signals to test public opinion. The Government stressed positively that Egypt's economy was resilient enough to withstand the impact of the epidemic and called on the public to remain optimistic, while economic and medical experts appeared at the right time during the epidemic burnout period, counting the dangerous consequences of negative epidemic prevention and strengthening the awareness of epidemic prevention. The Egyptian parliament also passed a number of amendments to the "State of Emergency Law" in April, giving the president and government departments the power to close schools, prohibit public and private gatherings, prohibit the export of specific commodities, and restrict trade during a state of emergency. Egypt's central bank is a "big deal" to allocate 100 billion pounds for a comprehensive outbreak prevention and control plan.

However, the impact of the epidemic prevention measures on people's livelihood immediately surfaced. The Ministry of Planning and Economic Development of Egypt issued a report in June stating that nearly 824000 people in Egypt were unemployed in the first half of the year, and the inflation rate failed to be controlled as expected. Under this circumstance, the Egyptian government boldly played a "combination punch" of restoring international routes and relaxing preferential policies to attract tourists to stimulate the recovery of the tourism industry. According to statistics from the Egyptian Ministry of Tourism and Cultural Relics at the end of August, since Egypt resumed international flights on July 1, Egyptian seaside tourist resorts such as Hurghada, Sharm el-Sheikh and Matru have received more than 120000 foreign tourists in two months.

In mid-June 2020, Egyptian Civil Aviation Minister Manar announced that Egypt will gradually resume international flights from July 1.
Taking the peak of 1774 new confirmed cases in a single day on June 20 as the inflection point, the number of daily cases in Egypt gradually dropped below 200 in the following three months (to early September). The positive improvement of the epidemic prevention situation in the second half of the year directly promoted the acceleration of the local resumption of work and production process. In August, 96 enterprises in the China-Egypt Suez Canal Economic and Trade Zone have fully resumed work and production; the Egyptian Ministry of Human Resources provided emergency assistance of 0.698 billion Egyptian pounds to nearly 400000 workers in September to support employment; and the Egyptian Ministry of Health previously announced the implementation of the "three-stage prevention and control plan for the new crown epidemic" has also entered the third phase of "loose continuity.

At the same time, attracting external investment has been a priority for the Egyptian government in 2020. In September, the Egyptian Ministry of Finance promulgated a new tariff amendment aimed at encouraging the development of local manufacturing, increasing investment in Egypt, promoting employment, improving Egypt's production capacity and expanding exports.

After a lot of pressure in the early stages of epidemic prevention, Egypt finally grasped the main line of protecting people's livelihood and held the bottom line of non-negative epidemic prevention, while some countries talked about the "blockade paradox", Egypt was on the "balance beam of economy and epidemic prevention" to eliminate distractions and go all out.

How can the Egyptian economy resist risks?

As a representative of the open market economy in the Middle East and North Africa, Egypt's four pillar industries, oil, tourism, the Suez Canal and remittances, have all been hit by the epidemic to varying degrees.

However, how can the Egyptian economy withstand risks and achieve positive growth? It is its economic resilience.

Faced with problems such as excessive population growth, water shortages, slow economic growth, increased public debt, deteriorating balance of payments, and severe shortage of foreign exchange, the Sisi government has introduced a series of measures to stimulate economic growth in recent years, and in 2016 Introduced the "2030 Vision" plan called the "Sustainable Development Strategy.

On May 25, 2016, President Sisi announced the "Egypt 2030 Vision" strategy, which aims to increase Egypt's GDP to 12% and reduce the fiscal deficit to 2.28 by 2030.
If the "2030 Vision" depicts a road map for Egypt's future development, then the loan agreement reached between Egypt and the International Monetary Fund in 2016 directly pushed Egypt forward on the road of reform.

At that time, the International Monetary Fund agreed to provide Egypt with a loan of US $12 billion on the condition that Egypt must implement extensive structural economic reforms and promote inclusive growth. The International Monetary Fund calls it an "opportunity" to transform Egypt's economy ". This agreement eventually forced Egypt to begin implementing its reform plan in November 2016.

Blessed? Misfortune?

Egypt has experienced the throes of reform: the floating exchange rate has led to a sharp devaluation of the Egyptian national currency, fuel subsidy cuts have led to a 16-30% increase in fuel prices, and inflation has reached 30% in 2017......

However, it is the series of economic reform measures implemented since 2016 that have partially freed the Egyptian economy from its dependence on traditional industries and enhanced the resilience of the economy itself; and it is this resilience that has enhanced Egypt's ability to respond when the epidemic strikes.

The Egyptian Pyramid Online website analyzed in a year-end economic report: "Although the economic reform plan supported by the International Monetary Fund has had a serious impact on Egypt since its launch in 2016, it also provides a buffer to enable Egypt to absorb the economic impact of the pandemic with minimal losses."

The Egyptian government has also made no secret of this. Egypt's Minister of Planning and Economic Development, Hala Said, has said that the Egyptian economy has been able to withstand the risk of the epidemic, thanks in large part to the diversity of its economic structure.

According to statistics from the Egyptian Ministry of Planning and Economic Development, in the 2019-2020 fiscal year, Egypt's wholesale and retail trade, industry, agriculture, real estate, construction, transportation and warehousing industries have achieved varying degrees of growth.

Today, the Suez Canal Economic Belt, the new administrative capital Central Business District, and the national highway network are becoming the new business cards of the Egyptian economy in addition to the pyramids.

Is the growth sustainable?

What exactly are countries fighting for in this human-virus encounter?

In December 2020, the World Economic Forum released its annual flagship report, Global Competitiveness. Citing a survey of business leaders, the report highlights the important role of the following factors in achieving economic recovery: digitalization of the economy, governance and planning capacity, social safety nets and sound finance, and the ability of health systems to respond to crises.

If we use this as a reference to analyze the Egyptian economy in 2021, it can be said that there is a long way to go.

At present, Egypt is still in the initial stage of industrialization and modernization, and digitization is coming. The two are advancing simultaneously, which is a huge challenge for Egypt, which has a weak industrial foundation and R & D capabilities. In recent years, the Egyptian government has made active efforts to keep up with the pace of global digitization, and launched the "Digital Egypt" plan, committed to building a "digital city" and building a "digital government" public service platform. Half of the country's population is connected to the Internet. However, as a new economic format, the digital economy has put forward new requirements for infrastructure and talents. Egypt still has a lot of room for improvement in these areas.

As another example, the epidemic has led to a sharp decline in Egypt's foreign exchange reserves. In 2020, Egypt was able to weather the crisis with external financial support through IMF loans and the issuance of sovereign bonds. If the epidemic continues, will Egypt's fragile financial system be able to cope?

In 2020, the neo-coronary pneumonia epidemic led to a sharp decline in Egypt's foreign exchange reserves, in a bank in downtown Cairo, the capital.
Also, the new coronavirus is still raging around the world, and Egypt has also seen a second peak of the epidemic since December last year, with its menacing momentum challenging Egypt's fragile health care system.

In its assessment report on the Egyptian economy, the World Bank noted that the long-term challenges posed by the pandemic will continue. With the epidemic continuing into early 2021, growth in Egypt is expected to decline further to 2.7 per cent in 2021, with household incomes affected by the economic downturn, increased unemployment and wage cuts, rising poverty rates and increasing inequality.

It is fortunate that the Egyptian economy can pass the crisis in 2020, but the real recovery depends more on advanced industrial foundation and science and technology, modern governance and high-quality talents. This will be a challenge for Egypt in the 2021 and even beyond.