Egypt’s vulnerable economy cannot stand the Russian Ukrainian war

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Since the outbreak of the Russian-Ukrainian war on February 24, the political and economic fallout has affected all countries of the world, especially Egypt, which imports a lot of wheat from these two countries.

The war will also affect tourism and investment in the bond market on which the regime relies mainly in the process of attracting foreign investment as easy and quick loans, which is generally affected during times of wars and major international crises.

The price of wheat

Wheat was the first important impact on Egypt because Egypt imports 80 per cent of its needs from Russia and Ukraine. Cairo’s wheat imports last season amounted to 13.2 million tonnes, of which 8.96 million tonnes were from Russia, and 2.7 million tonnes were from Ukraine. This equals 88.33 per cent of the volume of its imports. On the impact of the ongoing war, wheat prices rose globally to levels that have not occurred in 14 years, by nearly 40 per cent, to reach $11.44 per bushel. This rise in wheat prices has not happened since the global economic crisis of 2008, with expectations of further increases with the continuation of the Russian-Ukrainian war, especially that the two countries together account for about 30 per cent of global wheat exports.

Effects on the price of rice
In parallel with the increase in wheat prices, the prices of other grains also increased, including rice. The price increase reached EGP 1,000 bringing the price of local rice (with wide grain) to EGP 6,500 per tonne instead of EGP 6,000, and fine grain rice to EGP 6,300 instead of 5,300, in the Egyptian markets.

Effects on tourism
The war will also affect the tourism sector. The tourism sector is one of the main sources of foreign exchange in Egypt as it contributes about 15 per cent of the economic output. Its revenues in 2021 amounted to about $13 billion. The number of Russian tourists coming to Egypt in normal times amounted to about 3.2 million, which represents 33 per cent of total foreign tourism in Egypt.
The Egyptian Ministry of Tourism expected to receive between 300,000 and 400,000 Russian tourists per month during the current year. Ukrainian tourists constitute about three per cent of the total number of tourists coming to Egypt, and their contributions amount to about 2.5 per cent of the sector’s total revenues. In the wake of the crisis, about 20,000 Ukrainian tourists were stranded in Egypt, according to the Ukrainian embassy in Cairo, distributed among the Red Sea resorts of Sharm El Sheikh and Hurghada, while others resided in Marsa Alam. This came amid great confusion between the Ukrainian embassy, the Egyptian authorities and tourism companies, and the lack of a plan at a time when there is no clear horizon for the end of the war or a third destination that can be travelled to.

Foreign investments in Egyptian were quickly affected by the war, as Reuters announced that foreign investors withdrew $3 billion from Egypt during the first week of the war. This is the expected behaviour in such circumstances as investors fled emerging markets in search of safer markets. This coincides with the expected rise in interest rates by the US Federal Reserve. This will lead to more pressure on the budget deficit, as more than 36 per cent of it goes to servicing the governmental debt, in addition to pressure on the currency which is expected to decline, bringing the pound exchange rate to 16.2 EGP to the dollar by the end of June, compared to its current semi-pegged rate of EGP 15.70.

Also, the activity of the non-oil private sector in Egypt continued its contraction in February for the fifteenth consecutive month due to the impact of price pressures, according to the Purchasing Managers’ Index issued by the IHS Market Group, which reached 48.1 points during the month of February, to remain below the 50-point level which separates between expansion and contraction.