Global uncertainty resulting from the repercussions of the Russian military action against Ukraine is doomed to severely impact the world economy with prices of energy and food commodities going wild. Such a situation has already pushed oil prices above $100 per barrel.
Uncertainty about the severity of crisis is expected to further stoke the supply chain squeeze on the back of escalating economic sanctions against Russia. Egypt’s economy may be negatively impacted due to the country’s dependence on wheat imports. It is also a net oil importer.
Last week, the United States, the European Union and other countries revealed plans to cut off Russia from the Society for Worldwide Interbank Financial Telecommunication, or Swift. The Swift code is a mechanism to identify banks in international transactions.
How does Egypt stand in this equation? The answer depends on how long the crisis would last and how deeper it might be. In the coming lines, I explain where Egypt stands.
Higher energy prices
An increase in oil prices will directly push up the cost of Egypt’s petroleum imports. Consequently, such an increase will impact the state budget in terms of fuel subsidies.
Oil prices are estimated at $60 per barrel in the 2021/22 state budget.
The domino effect of higher fuel prices will lead to increases in electricity, water, natural gas and transportation prices. The ultimate reflection of such increases will stoke inflationary pressures. With the supply chain crisis still nagging the world economy, inflation rates in Egypt will be doomed to rise in the coming months.
Urban inflation rose to 7.3 per cent in January, up from 5.9 per cent a month earlier, data from the state-run Central Agency for Public Mobilisation and Statistics (CAPMAS) showed.
The core inflation rate also increased to 6.3 per cent in January, up from six per cent a month earlier, according to data from the Central Bank of Egypt (CBE).
Wheat imports
Egypt consumes around 22 million tons pf wheat annually, according to data from the Ministry of Supply and Home Trade, while it imports roughly 12.5 million tons of wheat from Russia and Ukraine.
The amount accounts for 84 per cent of the most populous Arab country’s grain imports, according to data from the Ministry of Supply and Home Trade. Russia and Ukraine accounted for 18 and eight per cent of world grain exports in 2020, according to data from the International Trade Centre.
Roughly one quarter of the world’s wheat exports will be affected due to the military conflict in Ukraine. Certainly, that situation will push up prices as supplies decline.
The domestic production of bread is estimated at 275 million loaves per day. Bread subsidies stand at LE87 billion ($5.5 billion) in the fiscal year 2021/22, which began on July 1, according to Finance Ministry data.
Tourism revenues
Certainly, the war has hit the travel industry in Russia and Ukraine. The number of Russian and Ukrainian tourists globing the world will definitely decline. Egypt is one the leading travel destinations for Russians and Ukrainians after Turkey, according to Russian and Ukrainian official data.
However, there are no accurate data about the number of Russian and Ukrainian tourists who visited Egypt in 2021. Uncredited data estimate the numbers at 700,000 tourists from each country.
Russia resumed flights to Sharm el-Sheikh in August 2021, ending a six-year ban following the bombing of a Russian aircraft in October 2015.
Ukrainians made a total 14.7 million world trips, of which Egypt accounted for 21 per cent, according to Ukraine’s State Tourism Agency. It’s hard to asses the impact on tourism yet, but if the military operations continue, the local travel industry in Egypt will be negatively impacted.
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