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- Russia's illegal invasion of Ukraine has led to spiraling food prices worldwide, including in Egypt.
- The Egyptian government has taken steps to keep the price of staples down.
- Falling tourism numbers are also hurting the Egyptian economy.
Egyptians are paying a heavy price for Russia's war in Ukraine. Soaring food prices are just one consequence of the conflict; higher inflation and a weaker economy are also in part due to the war. Tourism is also suffering, given Ukrainians and Russians accounted for one-third of pre-war tourist arrivals in Egypt.
Before the war, Ukraine and Russia typically supplied 85% of Egypt's wheat imports. Now, spiraling prices weigh heavily given the Egyptian government's subsidy on bread, a lifeline for more than 70 million of its 104 million citizens. The situation has deteriorated to the point where, in recent months, wheat has been stuck in ports because private importers have been unable to pay the higher prices.
"The import of food commodities has slowed due to shortages of dollar liquidity, which affects the payment of customs fees at Egypt ports," said Dounia Mahlouly, assistant professor at SOAS University of London and founder of the Middle East Research Hub. "As a result, wheat is primarily imported through the private sector, which increases the price of flour and other basic food products. Consumers have reported an increase of 80% for the cost of pasta."
The Egyptian government continues to seek new grain suppliers and earlier this month announced that Serbia and Romania would be stepping up exports. Any progress here will be especially welcome due to the pressure on consumers. "The lines for the government subsidized bread are growing," said Nathaniel Greenberg, professor of Arabic at George Mason University in Virginia in the US. "This is a problem because about 70 million people are on the government's national food rationing program."
But the economic problems exacerbated by the war go far beyond the prices of wheat and bread. Thanks in part to the impact on food prices of Russia's war on Ukraine, the official rate of inflation in Egypt has hit a five-year high of more than 20%. And the price increases for many goods, including food staples, are far higher. Shortages mean that some shops have had to ration basic supplies.
"Egypt, like a number of other countries, is being buffeted by an almost perfect storm of events that are having a direct and clear impact on the day-in, day-out lives of the Egyptian people," US Secretary of State Antony Blinken said in Cairo last month. In particular, he noted the impact of the Russian aggression against Ukraine on the cost of food and energy. The price of chicken, to take just one example, has doubled in the past year.
Other challenges remain. Russia's invasion of Ukraine has also damaged another important Egyptian industry. Tourism, a mainstay of the economy, has dropped significantly as a direct consequence of the war. Ukrainians and Russians represented about 33% of annual tourist arrivals prior to 2022, and now they are gone. The resulting collapse in tourism revenues has added to the pressure on the Egyptian pound, which lost half of its value last year. In the aftermath of Russia's invasion, foreign investors withdrew $20 billion from the Egyptian debt market. As a result, the Egyptian government has approached its Gulf neighbors and the International Monetary Fund (IMF) for support, resulting in a $3 billion loan.
In 2020 the Egyptian economy was already facing significant headwinds. In its most recent report, published in January, the IMF acknowledged the scale of the challenges facing Egypt, which have been accentuated by the Russian invasion, but praised Cairo for its "bold policy actions," especially the shift to a flexible exchange rate and measures to help protect the Egyptian population from the mounting cost of living crisis.
These are not the only actions taken to mitigate the economic impact of Russia's invasion of Ukraine. On 17 February, the Egyptian government announced it was launching a new wave of IMF-mandated privatizations of 32 public companies, including three major banks, as well as large state organizations in the insurance, electricity, energy, industrial, agricultural, and hotel sectors.
There will also be separate but related moves to improve the business environment, again mandated by the IMF. "The state will gradually and definitively exit seven sectors," said Egyptian Prime Minister Mostafa Madbouly, promising to complete this tranche of privatizations within a year. Additional revenues have also come from some of Egypt's Gulf neighbors, including Saudi Arabia and the UAE. "The investments by Gulf states into Egypt last year helped to alleviate some of the immediate financing concerns that Egypt encountered, prior to securing further funds from the IMF," said James Swanston, an economist at Capital Economics in the UK.
For most Egyptians, global turbulence means there is little immediate relief on the horizon. Russia's war in Ukraine has triggered one of the country's most severe domestic crises. While many fear that this crunch will get worse before it gets better, the sooner Russia withdraws its forces from Ukraine and Ukrainians regain control over their sovereign territory, the less pain Egyptians will have to endure.
This article was created by Insider Studios with FCDO.