Tuesday, April 23, 2024

‘It’s scary’.. How the war in Ukraine plunged Egypt into crisis


Reporting by Sara Al-Sirjani and Lina Al-Wardani and contributed by Majdi Seman Subscribe to the newsletter (Click here)

CAIRO and ABU DHABI (CNN)– At any given time these days, Hanna Ayyat’s fridge is running low.

A fruit seller in Cairo restricts his family’s diet as Egypt’s war in Ukraine drives up inflation.

“Now we buy new clothes on holidays, we can give up eating meat, we buy it once a month, and we buy chicken two or three times a month, not like before,” Ayyat told CNN.

His customers can also buy only a fraction of what they buy, reducing his daily income.

“Some used to buy 5kg or 10kg of fruit, now they buy 1kg or 2kg,” he says.

It would take him days to sell the same amount of goods he sold in one day.

Ayyad relies on basic grants and government handouts to reduce the cost of his children’s education as his income dwindles. He watches the news with concern and fear that the situation could worsen.

Egyptian households of all income levels are experiencing a rapid erosion of their purchasing power.

The economic crisis raises the possibility of unrest in a country that was overthrown a decade ago by a “bread, freedom and social justice” uprising.

In recent months, dozens have protested against delays in new car deliveries due to import restrictions and the devaluation of the local currency (the Egyptian pound), and groups have opened on Facebook to find local alternatives for pets after imports were banned. , and led to reduced grocery purchases for the poorer classes of Egyptians.

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Ratings agency Moody’s warned of “social and political risks” in May, downgrading Egypt’s economic outlook from stable to negative.

Fearing unrest, Egyptian President Abdel Fattah al-Sisi launched a national dialogue with opposition figures, changing his approach to suppressing protests that have kept thousands of people in prison for years.

Egypt’s official inflation rate was 14.7% in June, about 5% higher than the same time last year, but consumers say prices have risen significantly from that figure since the Russian invasion of Ukraine began in February.

Inside a high-end supermarket in the capital, Haya Aref looks for cheaper local alternatives on her shopping list.

Earlier, he says, he would see price increases of 10% to 15% every 6 or 8 months, but now the price increases are bigger and more frequent.

“I used to buy a global cereal for 70 or 80 Egyptian pounds (about $4) and now it’s up to 250 ($13),” says the 23-year-old architect.

For her, she cut back on protein and snacks to cut her monthly budget, and locally grown vegetables became an affordable and healthy option.

The architect feels that the Egyptians are in a “slightly fearful” state.

The war in Ukraine has brought uncertainty to global grain markets and pushed up prices.

According to the government, Egypt, which depends on Russia and Ukraine for 80% of its wheat imports, is paying $435 a tonne, up from $270 last year.

In terms of tourism, Russian and Ukrainian tourists used to account for a third of Egypt’s annual visitors, but this number has been declining.

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At a time when the economy has yet to recover from the recession caused by the COVID-19 pandemic, the war has raised its lingering challenges to a higher level.

According to Standard & Poor’s, a rise in interest rates in more stable markets such as the US led to an outflow of $20 billion from Egypt.

Economic analyst Salma Hussain explains: “In the last five to six years, we have relied more on what we call ‘hot money’, and I call it hidden external debt.”

This has left the Egyptian government reeling from a cash crunch and debts up to 85% of the size of its economy.

As foreign currency reserves dwindled, the government began a limited devaluation of the pound, which lost 17% of its value in March.

Along with other government measures to restrict the flow of foreign currency out of the country, barriers to imports have increased, affecting both consumers and producers.

“We should all be aware that the crisis has serious consequences not only in Egypt, but throughout the world,” Egyptian Prime Minister Mostafa Madbouly told a televised news conference in May, explaining the government’s response to the “unprecedented” economy. Crisis.

He pointed out that the direct and indirect effects of the crisis cost Egypt 465 billion Egyptian pounds ($24.6 billion).

The Egyptian government is seeking more loans, particularly from the International Monetary Fund, which has already lent Egypt $20 billion since 2016.

Gulf countries have pumped billions of dollars into Egypt since February to replenish their dwindling foreign reserves.

Most of the money comes from the UAE in the form of investments and acquisitions in key Egyptian companies, which the Egyptian government hopes to see more of.

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Madbouly outlined a plan to sell shares in state-owned enterprises and the military, including 7 ports, to generate $40 billion within 4 years.

Economist Hussain sees the government’s initiative as a quick fix to repay the loans but does not address the underlying problems.

One of the main tasks of the Egyptian government at this time was to protect wheat in favor of bread to reach 70 million Egyptians in a country of about 100 million people.

The government is offering incentives to farmers to grow and sell wheat to fill part of the expected gap in grain imports.

Bill Dittman
Bill Dittman
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