Egypt feels the pain of global disruption caused by war and pandemic
When the state-owned factory where Hesham el-Atar worked for 15 years was liquidated this month, he felt it was linked to international pressure on the Egyptian government to reduce its role in the economy in a context of severe slowdown.
El-Atar, 39, was a supervisor at the El Nasr Coke and Chemicals Plant, which processed coal into a fuel called coke used in the production of iron and steel. Now that his daily expenses are increasing, he says he fears he won’t be able to find another job near his home in the town of El Saf, about two hours south of the Egyptian capital.
“I don’t know what to do,” he said. “I have four children. We are used to a certain standard of living. That’s going to have to change. »
Egypt, which relies heavily on imported goods and foreign borrowing, has been hit hard by the cascading disruptions to global trade from the pandemic and Russia’s war on Ukraine. The outflow of foreign investment capital, collapsing tourism and soaring commodity prices have all resulted in a shortage of foreign currency.
The government responded by introducing more onerous import rules, devaluing the local currency and raising interest rates. It has also taken steps to privatize or shut down state-owned enterprises, a key demand from international investors and creditors who say the government’s oversized role in the economy is hampering private investment.
But at the same time, Egypt has managed to raise more than $22 billion this year in investment pledges from wealthy Persian Gulf allies, fearing it will see one of the pillars of the Arab world on the brink. chasm after a decade of tumult that began with the country’s 2011 uprising.
Consumers immediately felt the effect of the government’s response to the crisis, especially Egypt’s middle class, which has been plagued by a persistent lack of job opportunities, consumer subsidy cuts, paltry spending for health and education and a regressive tax system that does little to fund grand infrastructure projects.
Import rules introduced earlier this year required companies to pay for goods in advance through the domestic banking system. This left some imported goods stuck in ports and created shortages, although the government has since taken steps to ease the problems.
In March, the central bank devalued the currency by about 14% and prices soared. Salaries, however, did not.
“We have to pay European prices on Egyptian wages,” said Mona Hosni, 34, from Cairo. “Our salaries are not those of Europeans!”
Hosni works on one side of Cairo and studies on the other. With prices rising, she cannot afford to leave her family home in the suburb of Helwan. So she spends about three hours a day driving her 2011 Nissan between home, school and work.
A new car is out of the question.
The roads it takes are lined with new developments and billboards advertising luxury real estate, even as much of the country remains mired in poverty.
In recent years, President Abdel-Fattah el-Sisi has overseen a huge construction boom, borrowing abroad to fuel Cairo’s relentless expansion. The government is even in the process of erecting a new capital in the desert, not far from the current one, at a cost of some 59 billion dollars.
Samer Atallah, an economics professor at the American University in Cairo, said the country had gone into debt – which is getting more and more expensive as interest rates rise – without investing in the kind of stuff that could create more exports, more sustainable economic growth or stable government revenues.
“Basically the economy was primed for a crisis,” he said.
The government is in talks with the International Monetary Fund over a loan: economists estimate that Egypt could need $15 billion over the next three years, although the government has said it will seek a loan. more modest envelope. And Egypt is expected to further devalue its currency soon.
The government must balance the demands of investors – whose money could help ease the economic crisis – with the risks of implementing measures that could cause even more economic hardship for its citizens.
International lenders have urged Egypt to further privatize its economy as a way to achieve more sustainable economic growth. Much of the economy has long been controlled by the state through moribund state-owned enterprises.
In the case of the El Nasr factory where el-Atar worked for 15 years, the government said he suffered a loss of about $1.5 million last year and that he did not had no opportunity to modernize or improve its financial situation. The plant, which began production in 1964, was emitting significant pollution, according to government reports and documents.
El-Atar is now a union representative negotiating a severance package for the workers, but whatever deal is struck, the money surely won’t go far given the rising prices and devaluation of the currency.
Army control over a range of companies has stifled private sector competition in industries ranging from concrete production to pasta production by relying on advantages such as free conscripted labor and exemptions from taxes and customs duties.
Egypt previously promised to privatize without following through. But as the economy slumped this year, the government showed signs of renewed resolve, beginning to sell or close several state-owned companies.
Across Cairo, people from all walks of life have been forced to adjust their daily routines to accommodate economic pressures.
At a suburban car repair shop, two managers said the cost of parts they needed in Europe had skyrocketed and they were losing customers because of the higher prices. Business is half of what it was before the pandemic, they added.
“We are all struggling,” said Mostafa el-Gammal, the general manager. “It shows on everyone.”
Although they haven’t laid off anyone, the store’s wages are stagnating.
El-Gammal said he tried to protect his four children from economic decline. But he said he was surprised when he went to buy two of them back-to-school backpacks and paid double what he had in the past.
His colleague who runs the car shop, Mohamed Farouk, 33, said he transferred his 6-year-old son to a more affordable school near their home in Nasr City, another district of Cairo.
The government has also tried to increase revenue by raising fees for its services.
Assem Memon, 39, runs AdMazad, a 14-employee private company that collects billboard data to sell to businesses that want to optimize advertising campaigns. He said the economic downturn and devaluation have complicated his expansion plans outside of Egypt.
The government was creating headaches for employers, Memon said, including a new finance ministry online portal that must be used for all business-to-business transactions. The goal is to allow the government to see every transaction.
Some tax withholding practices have also been changed, he added, reducing the cash he can keep on hand. While he understands the government aims to increase revenue, he said this approach could discourage entrepreneurship.
“It’s suffocating small businesses,” he said.
Gamal Osman, 59, a warehouse worker in Tanta, a town about two hours north of Cairo, said he also pays more in fees for basic services, such as renewing his identity card . He said he only stopped eating meat once every two weeks and still couldn’t save money like he used to.
“You can feel it in everything you do,” he said. “From the moment you walk into the street until the moment you fall asleep.”
Yet others see an opportunity in the difficulties.
Mohamed Ehab is the marketing director of an automotive company that introduced Jetour, a Chinese brand, to the Egyptian market in 2020. Sales boomed last year, but new import rules hampered the company.
The company stopped accepting orders months ago and is focused on expanding service centers.
Ehab said there was still demand for a practical family car, even after prices soared with devaluation. The company’s cheapest car has gone from around $18,000 to $26,000, largely because importers have to pay China in dollars.
But he hopes the standoff will prompt the government to offer incentives for automakers to assemble their products in Egypt, which could create jobs and make cars more affordable.
“It’s a tough time, but I think it’s part of a bigger, good story,” he said.
[This article originally appeared in The New York Times.]