Why Egypt's economy can take the lead in the Middle East and North Africa region

Why Egypt's economy can take the lead in the Middle East and North Africa region
Source: China Youth Daily

Author: Zheng Rong/Special Contributor

The author is an assistant researcher at the Arab Research Center of the Institute of Mediterranean Studies, Zhejiang University of Foreign Languages.

On October 19, the International Monetary Fund (IMF) released an update of its Economic Outlook for the Middle East and Central Asia. The report shows that Egypt is the only country in the Middle East and North Africa region that will achieve positive real GDP growth this year, with an expected growth rate of 3.5 percent. In addition, the IMF also ranked Egypt as one of the 30 largest economies, accounting for 83% of global output.

Since the massive outbreak of the neo-crowning epidemic in the Middle East and North Africa region in March, trade, tourism and foreign exchange inflows have deteriorated as a result of epidemic prevention and control measures, with real GDP in the Middle East, North Africa and some Central Asian countries, including Egypt, contracting by 5 per cent year-on-year in the first quarter of 2020. As one of only three economies in the Middle East and Central Asia that will not shrink this year, what is the reason for Egypt to be the first to achieve an economic breakout in such a short period of time under the weight of the epidemic? What impact will the future trend of the epidemic have on the Egyptian economy?

The outbreak has hit the economy, and Egypt is not immune.

On February 14, Egypt saw its first confirmed case of neo-coronary pneumonia. The outbreak in Egypt developed gradually between March and June, with the number of new confirmed cases per day peaking at nearly 2,000. Since the end of March, Egypt has implemented strict prevention and control policies, including strengthening entry and exit management, implementing the policy of "closing the country" and "curfew"; closing factories and restricting the business hours of shops; and stopping educational, religious and commercial activities. Under the active prevention and control of the government, the epidemic in Egypt has been gradually brought under control since July, and the number of new confirmed cases has dropped significantly since August, even falling to double digits at one time, and has recently stabilized at more than 100 cases.

As a typical representative of the open market economy in the Middle East and North Africa, the characteristics of the open market economy determine that the Egyptian economy is more affected by the epidemic. The epidemic has ravaged the world, and economic and trade activities between Egypt and several partner countries have plummeted. Under the dual pressure of internal and external, the four pillars of Egypt's economy, oil, tourism, Suez Canal and overseas remittances have all been affected to a certain extent.

The epidemic has led to an overall contraction in global trade in goods and services, with tourism being the most directly and most affected. Egypt's tourism-driven service industry accounts for about 50% of GDP. Due to global measures such as "maintaining social distance" and closing borders, Egypt's tourism industry is suffering heavy losses. According to data released by the International Tourism Association in March, Egypt will lose at least $1 billion a month in tourism revenue in the 10 months after March. Egyptian Minister of International Cooperation Masat believes that Egypt's tourism revenue will drop by at least 80% this year. Secondly, the international crude oil market is sluggish, and the OPEC crude oil production reduction agreement is not progressing smoothly, which has triggered a sharp drop in international oil prices. The already depressed natural gas prices have also fallen further. Affected by this, Egypt's natural gas export revenue is also far lower than previously expected. In addition, the collapse in international energy prices has led to a significant reduction in remittances from Egyptian expatriates and workers in Gulf oil-producing countries such as Saudi Arabia and the United Arab Emirates.

Preliminary GDP data released by the Egyptian Ministry of Planning show that in the second quarter of 2020, the Egyptian economy inevitably experienced negative growth due to the epidemic, and after excluding price factors, real GDP fell 3.1 percent year-on-year, down 7.4 percentage points from the previous quarter and 8.3 percentage points from a year earlier.

The anti-epidemic measures are appropriate, and the economy is the first to pick up.

The impact of the new crown epidemic on all aspects of the Egyptian economy was so severe that the Egyptian government, while strengthening the prevention and control of the epidemic, had to announce the end of the curfew at the end of June and gradually resume work.

The Government has invested heavily in fighting the epidemic and safeguarding the lives of its citizens. The Egyptian government reportedly allocated 100 billion Egyptian pounds ($6.25 billion) to fight the new crown. Guaranteeing national livelihoods and resuming work, including: lowering industrial gas and electricity prices, immediate release of export subsidy arrears, support for tourism and real estate through bank financing schemes, and so on. In addition, the Egyptian Ministry of Human Resources provided emergency assistance of 0.698 billion Egyptian pounds (approximately US $45 million) to nearly 400000 workers in September; the Egyptian Ministry of Social Security announced that it will exempt students with 1.1 million difficulties from tuition this year, with a total exemption of 0.28 billion Egyptian pounds. (Approximately US $18 million).

Resume international flights and restart tourism. Tourism has been an important pillar of the Egyptian economy. On July 1, Egypt reopened international flights that had been closed for three months due to epidemic prevention and control, and reopened major tourist attractions including the Great Pyramid of Giza, gradually recovering the tourism industry.

Opening up new markets for the export of agricultural products. During the outbreak, Egypt opened up seven new export markets for fruit and vegetable products, including Australia, New Zealand, Mauritius and Indonesia. Ahmed Attar, director of Egypt's Central Plant Quarantine Bureau, said that with the opening of new markets and the implementation of the new export system, coupled with stricter quality standards and quarantine requirements, the export volume of Egyptian agricultural products has increased significantly. Compared with last year, the export volume of grapes, garlic, strawberries and beans even increased significantly this year, with an increase of 10%-30%.

Seek international assistance and strengthen international cooperation. Since the outbreak of the epidemic, Egypt has taken the initiative to seek international assistance from WHO, the World Bank and the Islamic Bank, and has actively carried out epidemic prevention cooperation with China and other countries. Among them, China has provided multi-channel assistance to the Egyptian side, including the latest new crown diagnosis and treatment program and prevention and control measures, the commissioning of a mask production line for Sino-Egyptian cooperation, and cooperation in clinical trials of vaccines developed in China. Up to now, more than 3000 people in Egypt have volunteered to get the Chinese vaccine. In terms of economic cooperation, as a key construction project of the "Belt and Road", as of the first half of this year, the TEDA Suez Economic and Trade Cooperation Zone jointly built by China and Egypt has attracted 85 companies to settle in, with cumulative sales of US $1.7 billion, directly helping more than 4000 people in Egypt. Employment.

The economic reform plan has strengthened Egypt's ability to withstand the impact of the epidemic. The Egyptian economy has been able to break through and pick up relatively quickly, thanks to a series of reform measures implemented by the Egyptian government since 2016. In 2016, in the face of slow economic growth, increased public debt, deteriorating balance of payments and severe shortage of foreign exchange, the Egyptian government issued many new regulations and measures to stimulate economic growth, including the release of the "Egyptian 2030 Vision". Signed a $12 billion loan agreement with the IMF to stabilize the financial market, raise taxes, implement tax reform, reduce price subsidies, and launch a number of large-scale construction projects to stimulate domestic demand, wait. These measures have greatly enhanced Egypt's ability to withstand the impact of the epidemic.

New outbreak could still trigger economic volatility in Egypt

Some analysts believe that Egypt's economy will continue to improve in the post-epidemic era. In particular, the demand for light industry and agricultural products in Europe will become an opportunity for Egyptian enterprises. Egypt's population under the age of 25 accounts for nearly 50% of the total population. Compared with countries with a larger elderly population, Egypt can obviously recover from the epidemic faster. Once the global epidemic situation improves, the income component of remittances, which is important to Egypt, will grow again. Moreover, the epidemic will objectively reduce the frequency and intensity of conflicts in the region, which will also promote greater cooperation among countries in the region. Egypt's obvious advantages in terms of geographical location and population structure will not only make its own economy recover, but also hope to drive the economic recovery of the whole Middle East and North Africa region.

However, the Egyptian economy took the lead in "breaking through" in the Middle East and North Africa, which does not mean that it can sit back and relax. Economists said that the epidemic in many parts of the world, including Europe and the Americas, is becoming more serious again, which will also make the Egyptian economy, which has just shown signs of recovery, face another impact, and the government must take measures as soon as possible. For Egypt itself, as of October 23, the number of confirmed cases of new crowns in Egypt has risen again to more than 1,000. Egypt's primary and secondary schools have officially resumed classes on October 17, and with the further expansion of the resumption of work and the resumption of schools, there may also be a resurgence and rebound of the epidemic in Egypt. Once this happens, the recovering Egyptian economy is bound to face the adverse impact of the epidemic again.

Sahar Dama, former deputy governor of the Bank of Egypt, said that trying to attract external investment back and get the tourism industry back on track as soon as possible is the most important task for the Egyptian government and the key to the restart of the Egyptian economy. The Egyptian government has begun to prepare for renewed economic volatility. In response to the potential economic volatility caused by repeated outbreaks, the Egyptian Ministry of Finance enacted new tariff amendments as early as September, which could cut tariffs on industrial inputs by up to 90 per cent. The amendment also includes a package of adjustment measures to the current tariff structure, aiming to encourage the development of local manufacturing, increase investment in Egypt, increase employment, increase Egypt's production capacity and expand the export base. In addition, the Egyptian government also intends to increase investment in innovative industries to promote economic structural reform.