Egypt feels the pain of global disruptions from war, COVID

When the state-owned factory where Hesham elAtar worked for 15 years was liquidated last month, he had a feeling it was linked to international pressure on the Egyptian government to reduce its role in the economy amid a severe downturn.

El-Atar, 39, was a supervisor at the factory, El Nasr Coke and Chemicals Plant, which turned coal into a fuel called coke used in iron and steel production. Now, with his daily expenses rising, he said that he fears he will not be able to find another job near his home in the city of El Saf, about two hours south of the Egyptian capital.

“I don't know what to do,” he said. “I have four kids. We're used to a certain standard of living. It will have to change.”

Egypt, which relies heavily on imported goods and foreign borrowing, has been badly battered by the cascading disruptions to global trade from the pandemic and Russia's war on Ukraine. The exit of foreign investment capital, a collapse in tourism and spiking commodity prices have all translated into a foreigncurrency shortage.

The government has responded by implementing more onerous import rules, devaluing the local currency and pushing up interest rates. It has also taken steps to privatize or shut down state-owned enterprises, a key demand of international investors and creditors who say the government's outsized role in the economy hinders private investment.

But at the same time, Egypt has succeeded in raising more than $22 billion this year in investment pledges from wealthy Persian Gulf allies leery of seeing one of the pillars of the Arab world on the brink 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, particularly Egypt's middle class, which has been whittled away by a persistent lack of job opportunities, decreases in consumer subsidies, paltry spending on health and education and a regressive tax system that goes in no small part to fund grandiose infrastructure projects.

The import rules introduced at the beginning of the year required companies to pay for goods up front through the national banking system. That left some imported goods stuck in the ports and created shortages, though the government has since taken steps to ease the problems.

In March, the central bank devalued the currency about 14% and prices shot up. Salaries, however, did not.

“We have to pay European prices on Egyptian salaries,” said Mona Hosni, 34, of Cairo. “Our salaries are not like Europeans!”

Hosni works on one side of Cairo and studies on the other. With the rise in prices, she cannot afford to move out of 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 she drives on 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 elSissi has overseen a huge building boom, borrowing from abroad to fuel Cairo's inexorable sprawl. The government is even erecting a new capital in the desert, not far from the current one, at a cost of some $59 billion.

Samer Atallah, an economics professor at the American University in Cairo, said that the country had taken on tremendous debt — which is becoming more expensive by the day as interest rates rise — without investing in the kinds of things that could create more exports, more sustainable economic growth or steady government revenues.

“Fundamentally, the economy was geared up for a crisis,” he said.

The government has been in talks with the International

Monetary Fund about a loan: Economists estimate that Egypt may need $15 billion over the next three years, though the government has said it will seek a smaller package. And Egypt is expected to devalue the currency even further soon.

The government must balance the demands of investors — whose money could help alleviate the economic crisis — with the risks of implementing measures that could cause even more economic pain for its citizens.

International lenders have urged Egypt to privatize more of its economy as one way to achieve more lasting economic growth. Much of the economy has long been controlled by the state through moribund government-owned companies.

At the El Nasr factory,elAtar is now a union representative negotiating a severance package for the workers but whatever deal is reached, the money surely won't go far given the rising prices and currency devaluation.

The military's control over a range of businesses has stifled competition from the private sector in industries from concrete to pasta production by leaning on advantages such as free conscripted labor and exemptions from taxes and customs fees.

Egypt has promised before to privatize without following through. But as the economy cratered this year, the government has shown signs of renewed resolve, starting to sell off or shut down several state-owned companies.