Foreign investors have withdrawn $3 billion from the Egyptian market since Thursday, February 24, coinciding with the start of the Russian invasion of Ukraine, fleeing an emerging market and looking for a safer one, according to a banking source quoted by Reuters.

According to the news agency, investors are concerned that emerging markets may be more vulnerable to any coming shock wave. This comes at a time when Egypt needs hard currency to face the fluctuations in the global market caused by the war in Ukraine.

Amid an expected hike in interest rates by the US Federal Reserve, Egypt, to remain competitive, will have to increase interest rates on its treasury bills, experts say. The high interest rate bill facing the Egyptian government could put pressure on the local currency, and threaten further budget deficits, as more than 36 per cent of spending already goes to servicing government debt.

Yvonne Mhango, an economist at Renaissance Capital, told Reuters that considering these developments, the Egyptian pound may fall to EGP 16.2 to the dollar by the end of June, from its current price of EGP 15.70. She added, “I think the Central Bank of Egypt is trying to move towards a moderate devaluation of currency… I don’t think they will continue to try to throw everything at the Egyptian pound to try to keep its rate fixed.” The damage to tourism, another major source of foreign exchange for Egypt, could also weaken the country’s ability to withstand the current crisis.

Experts in the tourism sector had said that the impact of the Russia-Ukraine war extended to the sector, which had only recently begun to recover from repeated shocks. The Russian escalation forced the Ukrainian government to stop all flights, including tourist and commercial, to and from Egypt. Tourist bookings from Russia and Ukraine had already begun to decline in February, with early tensions emerging between the two countries.

Peter Nathan, a hotel owner, and head of the South Sinai Hotel Chamber, says that the number of planes coming from Russia and Ukraine to Egypt fell 30 per cent in February compared to January, while occupancy in Sharm El-Sheikh hotels fell to much lower rates than in December and January. Elhamy El-Zayat, former president of the Egyptian Federation of Tourist Chambers and agent of Ukraine Airlines in Egypt, said that Ukraine’s importance to the Egyptian tourism sector has declined recently. According to Zayat’s estimates, Ukrainians make up about three per cent of the total number of tourists coming to Egypt. Their contributions amount to about 2.5 per cent of the total revenues of the tourism sector. He also made it clear that if the war continued, it could have a major impact on Egypt.

The Egyptian Hotel Establishments Chamber had detected a noticeable decline in the number of flights for Ukrainian tourists, especially the last three weeks. Ramy Fayez, a member of the chamber, said that the crisis has affected the tourism situation in Egypt. He explained that last year Egypt received nearly 700,000 tourists from Ukraine alone. According to the Ukrainian Tourism Agency, in 2021 the number of tourist trips abroad made by Ukrainian citizens was about 14.7 million. Turkey ranked first in receiving Ukrainian tourists at 28 per cent, while Egypt came in second place with 21 per cent.

Businessman Atef Abdel Latif says that Ukrainian tourism is important to Egypt, especially to the cities of the Red Sea, Marsa Alam and South Sinai, and it has played a major role in creating a tourism movement in Egypt during the past five years. Abdul Latif revealed that tensions between Russia and Ukraine led to a significant decline in Ukrainian tourism rates, especially after aircraft insurance companies cancelled their dealings with Ukrainian flights, and many airlines stopped entering Ukrainian airspace.

This crisis portends a complete halt to Ukrainian and Russian tourism to Egypt. Tourism will also be affected in general in Europe, and may decline in March, which has always seen an increase in tourist traffic in normal times. Abdel Latif called for the need for tourism markets in Egypt to diversify the countries they deal with, and not rely on traditional sources of tourism only. He pointed out the need to focus, besides traditional markets, on tourists from Indonesia, India, Japan, South Korea, and other Arab countries.