Anniversary violence deepens Egypt's economic crisis
- 1 February 2013
- From the section Middle East
The recent protests and violence in Egypt has proven enormously costly to the country's ailing economy.
This has combined with a perceived lack of progress in dealing with the economic crisis by Prime Minister Hisham Qandil's cabinet, further fuelling anti-government sentiment in recent months.
The recent clashes broke out on the second anniversary of the 25 January uprising that unseated Hosni Mubarak.
In the city of Port Said, at the head of the Suez Canal, riots erupted after a court sentenced 21 locals to be executed for their alleged role in the death of 74 supporters of Cairo's al-Ahly club during a football game in February 2012.
Majdi Kamal, director of the Free Zone Investors Association in Port Said, said that the losses incurred by investors in the industrial zone exceeded US $17m daily, a report in the privately-owned Al-Watan newspaper said.
Fuel shortages have reappeared, triggering the familiar scene of long cues at petrol stations. The diesel fuel crisis continues in the part of Egypt known as the "canal area" owing to the difficulty of delivering the product, Petroleum Minister Usamah Kamal told the opposition al-Wafd Party newspaper.
Many local shops in Port Said had to shut down, especially those located near the football stadium where last year's violence took place. Shortages in some commodities provided the opportunity for street vendors to offer their goods at "double the official prices", privately-owned al-Shuruk newspaper reported.
Maritime traffic through the strategic Suez Canal, which is protected by the army, has been largely unaffected by the wave of protests.
Al-Shuruk newspaper reported that 44 ships passed through the canal on 26 January, when violence peaked. This, the paper said, is the average number on a normal day.
The Suez Canal remains a major source of foreign currency for the country, providing US $5.13bn of revenue in 2012, according to Egypt's State Information Service.
Tourism in decline
The unrest has proven to be detrimental to the tourism industry as well.
Half of tourist bookings scheduled to arrive at Luxor International Airport from Europe have been cancelled, local Chamber of Tourism Agencies and Companies head Tharwat Ajami says, according to al-Dustur newspaper.
Several hotels in Cairo, such as the upscale Intercontinental Semiramis and Shepheard hotels, had to "seal and barricade their entrances" and even close their restaurants to the public, state-owned Ahram Online reported. The Semiramis was stormed by armed looters during protests against President Mohammed Morsi and his Muslim Brotherhood.
Tourism in Egypt accounted for 11% of the country's GDP in 2009-10 and is a vital source of foreign currency, according to the Organisation for Economic Co-operation and Development. The decline in the number of visitors to Egypt since the uprising has contributed significantly towards the sharp fall in the country's foreign reserves.
Some commentators have expressed concerns about the confidence of international donors and investors in the Egyptian economy. Egyptian banks' credit ratings may be subject to downgrades, experts say.
The possible downgrades could impact the country's financial dealings with the outside world, Mahmud Muntasir, a board member at the private National Bank of Egypt, says, according to Al-Watan newspaper.
Worried about Egypt's ability to repay its debts, investors and donors may demand higher interest rates on their loans. To allay the fears, the country's Central Bank issued a statement on 29 December 2012 reaffirming its "commitment to repaying interest and instalments for external debts".
The US-based credit rating agency, Moody's, on 18 January placed Egypt's government bond ratings on review for a possible downgrade, owing to "the re-emergence of unsettled political conditions" in the country.
IMF loan delay?
Local experts seemed less upbeat than the government about the possibility of reaching a deal with the IMF over a US $4.8bn lifeline any time soon.
The continued violence may affect the country's economic growth expectations and thus derail talks with the IMF, state-owned Egypt News website quoted financial expert Ahmad al-Atifi as saying.
Finance Minister al-Morsi al-Sayyid Hijazi insisted on 30 January that talks with the IMF were ongoing and that the government was committed to economic reform and stability.
The previous round of turmoil delayed the IMF talks for more than a month. It erupted after President Morsi signed a contentious constitutional declaration on 22 November 2012, banning challenges to his decrees, laws and decisions.
On 29 December, the Central Bank of Egypt announced that the country's foreign reserves, have reached a "critical level" of around US $15bn, enough to secure three of months of imports.
Injections from oil-rich countries have helped keep the economy afloat. Delays in the talks with the IMF, however, are worrying investors. According to local experts, the loan represents a statement of confidence in the Egyptian economy. The loan is also needed to stem a disorderly drop in the value of the Egyptian pound.