In a vegetable market in the Cairo district of Manial, mother of two Fatma Ibrahim is shocked by the rise of prices since the start of the Russia-Ukraine war and anxious about how she can afford to feed her family during the impending holy month of Ramadan.
“I am barely managing,” said the jobless divorcee. “Cooking oil has increased so much and the simplest dish requires it. I no longer buy cauliflower or aubergine because frying them uses up so much oil. Also the price of flour shot up suddenly.” The daily Ramadan fasts are broken by nightly feasts and many buy in more food. “I don’t know how we will cope in Ramadan.”
The rising prices on the market stalls in Egypt epitomise the deep impact the war has had on the North African country’s economy. Soaring oil and commodity prices have hit one of the world’s biggest wheat importers hard, as has the loss of tourists from Russia and Ukraine. This comes on top of billions of dollars of outflows in recent months from Egyptian debt held by foreigners. Last week, Cairo asked the IMF for assistance, the third time in six years. Egypt is already one of the biggest borrowers from the fund after Argentina.
The war in Ukraine had “heightened Egypt’s external vulnerabilities”, Fitch Ratings said this month. “Egypt will suffer reduced tourism inflows, higher food prices and greater financing challenges as a result of Russia’s invasion of Ukraine,” said the rating agency, adding that “the crisis aggravates Egypt’s vulnerability to outflows of non-resident investment from its local-currency bond market.”
The outflows had been spurred by rising interest rates globally combined with concerns about the Egyptian economy in the absence of an IMF programme and perceptions that the currency was overvalued, Fitch said. To shore up its pressured finances, and restore confidence in its economy that is heavily reliant on “hot money”, or attracting foreigners into the short-term local debt market Egypt devalued its pound currency last week just before it announced it was seeking IMF support.
“Egypt has a structural dependence on hot money and is therefore highly-exposed to investor sentiment,” said Farouk Soussa, economist at Goldman Sachs International. Some $15bn have been pulled out of Egypt since the end of January as a result of the war, he said.
Russia’s invasion of Ukraine has sparked huge increases in the prices of wheat, cooking oil and petroleum. Egypt is the world’s biggest wheat importer and its subsidised bread programme reaches some 70mn people — or two-thirds of the population. Cheap bread has been seen by successive governments as key to stability in a country where more than half the population are considered poor.
On top of that, the loss of visitors from Russia and Ukraine — the two biggest tourism markets — is a further blow to a sector which had just started to recover from the pandemic.
Occupancy in hotels in Red Sea resorts has plunged to 5 per cent, said Nader Henein, vice-president of Seti First Travel, a major travel company. “We were expecting Egypt to double the number of tourists we had last year to 7mn, and the Russians and Ukrainians would have been half of that,” he said. “Everything has stopped. It is a big disappointment. There has been growth in arrivals from Germany but they can never replace the Russians.”
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Resorting to the IMF should provide some respite, Soussa said, noting that because Egypt has exceeded its quota of borrowing rights from the lender, the fund will probably require it to secure co-financing from other sources. ADQ, an Abu Dhabi sovereign wealth fund, has been reported by Bloomberg to be discussing $2bn investments in some listed companies. Other Gulf states are said to be considering support for Egypt.
Soussa said he expected the IMF to focus on maintaining a flexible foreign currency regime and the “role of the military and the state in the economy and creating a level playing field for competition”.
Since Abdel Fattah al-Sisi, the president and former military chief came into office in 2014, the army has widened its footprint in the economy, some say, spooking the private sector which fears competition with the most influential institution in the country.
As Ramadan approaches, police and army, a major food producer, have stationed trucks in many poor areas selling basic foods like meat, rice, pasta and oil at reduced prices. “We are well-prepared [for Ramadan] and all goods can be found in the market,” Sisi said at a televised event last week. “The army has made available 2mn food boxes and is prepared to provide 3, or 4mn, without limits.” Turning to the defence minister, he instructed, “sell it for half its price.” The response came back: “Yes, sir.”
Back in Manial, Shaaban Hussein, a coffee shop owner who has four children, said food prices were already high before the war and increased further after the conflict. “I couldn’t pay the rent on the coffee shop because there have been so few customers,” he said. “How are they going to be able to buy drinks when everything has become so expensive?”/FT
