At a vegetable market in the Cairo neighborhood of Manial, Fatma Ibrahim, a mother of two, is shocked by rising prices since the start of the Russian-Ukrainian war and worried about how she can afford to feed her family during the impending holy month of Ramadan.
“I’m barely getting by,” the jobless divorcee said. “Cooking oil has increased so much and the simplest dish requires it. I no longer buy cauliflower or eggplant because frying them consumes a lot of oil. Also the price of flour suddenly increased. Daily Ramadan fasts are interrupted by nighttime feasts and many are buying more food. “I don’t know how we will cope in Ramadan.”
Rising prices on market stalls in Egypt illustrate the profound impact the war has had on the North African country’s economy. Soaring oil and commodity prices have hit one of the world’s largest wheat importers hard, as has the loss of Russian and Ukrainian tourists. This is in addition to the billions of dollars outflows in recent months from Egyptian debt held by foreigners. Last week, Cairo asked for help from the IMF, the third time in six years. Egypt is already one of the fund’s biggest borrowers after Argentina.
The war in Ukraine has “increased Egypt’s external vulnerabilities,” Fitch Ratings said this month. “Egypt will face lower tourist arrivals, higher food prices and greater funding challenges following Russia’s invasion of Ukraine,” the rating agency said, adding that “the crisis aggravates Egypt’s vulnerability to non-resident investment outflows from its local currency”. bond market”.
The outflow of funds was boosted by rising interest rates globally combined with concerns about Egypt’s economy in the absence of an IMF program and the perception that the currency was overvalued, said Fitch. To shore up its strained finances and restore confidence in its economy which is heavily dependent on “speculative money”, or to lure foreigners into the local short-term debt market, Egypt devalued its pound sterling last week. last just before announcing that it was seeking IMF support. .
“Egypt is structurally dependent on speculative money and is therefore very exposed to investor sentiment,” said Farouk Soussa, an economist at Goldman Sachs International. Some $15 billion has been withdrawn from Egypt since late January because of the war, he said.
Russia’s invasion of Ukraine caused huge increases in the prices of wheat, cooking oil and petroleum. Egypt is the world’s largest wheat importer and its subsidized bread program reaches about 70 million people, or two-thirds of the population. Cheap bread has been seen by successive governments as the key to stability in a country where more than half the population is considered poor.
On top of that, the loss of visitors from Russia and Ukraine – the two biggest tourist markets – is a further blow to a sector that had just begun to recover from the pandemic.
Hotel occupancy at Red Sea resorts fell to 5%, said Nader Henein, vice president of Seti First Travel, a major travel agency. “We expected Egypt to double the number of tourists we had last year to 7 million, and Russians and Ukrainians would have been half that,” he said. “Everything stopped. It’s a big disappointment. There has been an increase in arrivals from Germany, but they can never replace the Russians.
Are you personally affected by the war in Ukraine? We want to hear from you
Are you from Ukraine? Do you have friends and family in or from Ukraine whose lives have been turned upside down? Or maybe you do something to help these people, such as fundraising or hosting people in your home. We want to hear from you. Tell us via a short survey.
Resorting to the IMF should provide some breathing space, Soussa said, noting that because Egypt has exceeded its borrowing rights quota with the lender, the fund will likely ask it to secure co-financing from other sources. The ADQ, an Abu Dhabi sovereign wealth fund, was reported by Bloomberg as discussing $2 billion investments in some listed companies. Other Gulf states are reportedly considering supporting Egypt.
Soussa said he expected the IMF to focus on maintaining a flexible exchange rate regime and on the “role of the military and the state in the economy and creating conditions for fair competition”.
Since Abdel Fattah al-Sisi, the president and former military leader, came to power in 2014, the military has expanded its footprint in the economy, some say, scaring off the private sector which fears competition with the institution. most influential in the country.
As Ramadan approaches, police and the army, a major food producer, have parked trucks in many poor areas selling staple foods like meat, rice, pasta and oil to reduced prices. “We are well prepared [for Ramadan] and all goods can be found in the market,” Sissi said during a televised event last week. “The army has made 2 minutes of food parcels available and is ready to provide 3, or 4 minutes, without limit.” Addressing the Minister of Defence, he gave the order to “sell it at half price”. The answer came back: “Yes, sir.”
Back in Manial, Shaaban Hussein, a cafe owner who has four children, said food prices were already high before the war and rose further after the conflict. “I couldn’t afford the cafe rent because there were so few customers,” he said. “How are they going to be able to buy drinks when everything has become so expensive?”
The Trade Secrets newsletter is the FT’s go-to email on developments in international trade and globalisation. Written by FT trade expert Alan Beattie, it’s delivered to your inbox every Monday. register here