Egypt's Chaotic Descent: Increasing Instability
Sober Look | Apr 06, 2013 02:26AM ET
Egypt's cities are erupting in protests once again. Commentators have been focused on the nation's politics and the government's attempts at suppression. The reality, however is grounded in Egypt's deteriorating economic conditions. It goes back to James Carville's "it's the economy, stupid" that helped Bill Clinton win the presidential election.
At this stage the Egyptian government is not hiding the fact that the nation is on the brink of a crisis.
Reuters: After two years of political turmoil, Egypt is struggling with an economic crisis and a high budget deficit. Foreign currency reserves are critically low, limiting its ability to import wheat and fuel.
An International Monetary Fund (IMF) delegation resumed long delayed talks with the government on Wednesday on a loan, which would throw Egypt a financial lifeline, and potentially unlock a much larger amount in foreign aid and investment.
"The economic situation has become worrisome and quick measures are needed to restore (economic) activity," Planning Minister Ashraf al-Araby said, according to MENA.
As the government runs out of foreign reserves, diesel shortages are becoming acute.
FT : -Egypt imports up to 70 per cent of its diesel, which it uses to fuel cars, farm equipment and power plants. In addition, it subsidises diesel to the tune of at least $1.5bn a month, draining the country’s already perilously low hard currency reserves. A spate of shortages in recent weeks has raised questions about Egypt’s ability to keep the lights on, feed its people and prop up its moribund economy in the coming months.
Economic data out Egypt is difficult to come by, but two indicators point to grim conditions.
1. The nation's currency continues to deteriorate in value, in spite if tight capital controls. Dollars and euros trade in the black market at a premium as businesses and wealthy families convert what they can into hard currency.
2. Business surveys indicate an ongoing contraction.
Markit: Egyptian non-oil producing private sector companies faced further declines in output and new orders during March. The rates of contraction were sharp, and picked up from the previous survey period.
Get The News You Want
... vendor performance continued to worsen. According to anecdotal evidence, the rise in average lead times was driven by increasing instability in the country, shortages of fuel and an increased desire amongst suppliers to be paid in cash.
March data signalled further job shedding at non-oil producing private sector firms in Egypt, and companies commonly linked this to lower business [activity]. Workforce numbers have decreased for eleven months in a row.
Signs of inflation propagating through the economy have been particularly troublesome.
Markit: input prices rose sharply in March, and the rate of cost inflation accelerated to a series high. Most of the cost increase was attributed to a rise in average purchase prices, where 55% of panellists reported higher costs. An increase in raw material prices, and the high dollar price were the main drivers behind the latest rise. In response to increased input costs, non-oil producing private sector companies in Egypt raised their output charges.
Williams, Chief Economist for the Middle East at HSBC said: “A fourth consecutive monthly score printing well below 50 leaves little to cheer. Falling output and weakening new orders would be big enough concerns on their own, but the data also show a sharp rise in inflation, suggesting real incomes and corporate margins are under acute strain. With the political outlook still so uncertain and the domestic economy subject to ongoing disruption, it seems unlikely that prospects will improve materially in the near term.”
The rage in the streets of Cairo and other cities is mostly about the day-to-day survival of ordinary people. Without the loan from IMF, the country is likely to descend into chaos, potentially endangering stability in the Middle East.
Below you may find the video.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.