CAIRO: Egypt’s political crisis has dealt a blow to any hopes for a quick economic recovery, but aid from its Gulf allies is likely to prevent a financial collapse.
Clashes between followers of deposed Islamist President Mohammed Mursi and security forces have caused the deaths of at least 830 people since Wednesday, the worst political bloodletting to rock Egypt in recent history.
When the army-backed government took over after the ousting of Mursi last month, it hoped to repair the business environment and attract money back to Egypt by improving security, removing logistical bottlenecks and pumping in new funds. That in turn could reduce social tensions by starting to create jobs and raise living standards.
The latest violence may have doomed such hopes for some months at least. If the conflict continues to worsen, the economy could slow further from the anaemic 2.2 percent growth in the first quarter of this year — a rate already much too low to cut unemployment, officially estimated at around 13 percent.
“If you see widespread terrorism and bombs, you won’t get a recovery in tourism or domestic investment, and capital flight may continue,” said Simon Kitchen, a strategist with investment bank EFG Hermes.
But after Mursi was deposed, Saudi Arabia, Kuwait and the United Arab Emirates promised Egypt a total of $12bn in loans, grants and fuel shipments. Of that, $5bn has already arrived — an unusually fast delivery of aid commitments, showing the importance the Gulf attaches to stabilising Egypt.
That means a balance of payments crisis or a collapse of government finances — which had seemed possible during Mursi’s administration — do not appear to be on the cards. Late on Monday, Saudi Arabian Foreign Minister Prince Saud Al Faisal signalled that the world’s top crude oil exporter was ready to provide more billions if necessary.
“To those who have declared they are stopping aid to Egypt or are waving such a threat, the Arab and Muslim nations are wealthy with their people and resources and will not shy away from offering a helping hand to Egypt,” he told state news agency SPA in Jeddah.
Much depends on whether the struggle between the army and the Islamists develops into a protracted armed conflict. Even if it does not, the latest violence is likely to have harmed the economy for some months.
Tourism may not recover before next year at the earliest. In 2010 Egypt attracted 14.7 million visitors, according to the Organisation for Economic Co-operation and Development; in the wake of the 2011 revolution, the number fell to 9.5 million that year before partially recovering to 11.2 million in 2012. The tourism sector directly accounts for about seven percent of Egypt’s GDP, according to its State Information Service.
In response to the latest violence, European travel agents are again suspending trips to Egypt, while the United States has warned citizens against travelling to the nation.
After closing facilities in Egypt for several days, major foreign investors such as General Motors, German chemicals firm BASF and Swedish home appliance maker Electrolux have fully or partially reopened for business this week.
Even a low level of political unrest or tension in coming months could hurt the Egyptian economy at the margins, by making foreign buyers of its exports more cautious.
Reuters
