Economy

Egypt Feels Pain of Global Disruptions Wrought by War and Pandemic

When the state-owned factory where Hesham al-Atar worked for 15 years was liquidated this 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.

Mr. 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 foreign-currency 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 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 impact 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 by about 14 percent and prices shot up. Salaries, however, did not.

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

Ms. 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.

High-rise buildings in Cairo seen from the Nile in 2020.Credit…Sima Diab for The New York Times

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 el-Sisi 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.

In the case of the El Nasr factory where Mr. al-Atar worked for 15 years, the government said that it had incurred a loss of about $1.5 million last year and had no possibility of modernizing or improving its financial standing. The factory, which began production in 1964, was emitting significant pollution, according to news reports and government documents.

Mr. el-Atar 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.

Across Cairo, people from all walks have been forced to adjust their daily routines to adapt to the economic pressures.

At an auto-repair shop in one suburb, two managers said that the cost of parts they need from Europe had shot up and that they were losing customers because of the higher prices. Business is half of what it was before the pandemic, they added.

“We’re all struggling,” said Mostafa el-Gammal, the general manager. “It’s showing on everyone.”

Though they haven’t laid anyone off, wages at the shop are stagnant.

Mr. el-Gammal said that he tried to shield his four children from the economic decline. But he said he was taken aback when he went to buy two of them backpacks for the start of the school year and shelled out double what he had in the past.

His colleague who manages the auto shop, 33-year-old Mohamed Farouk, said that he had transferred his 6-year-old son to a more affordable school near their home in Nasr City, another Cairo neighborhood.

The government has also tried to increase revenue by raising fees for its services.

Assem Memon, 39, runs AdMazad, a private business with 14 employees that collects data on billboards to sell to companies that want to optimize ad campaigns. He said the economic slowdown and devaluation have complicated his plans to expand outside Egypt.

A construction site at Egypt’s new administrative capital east of Cairo in September.Credit…Khaled Elfiqi/EPA, via Shutterstock

The government was creating headaches for employers, Mr. Memon said, including a new Ministry of Finance online portal that must be used for all business-to-business transactions. The aim is to allow the government to see every transaction.

Some tax withholding practices were also changed, he added, reducing the cash he can keep on hand. While he understands the government is aiming to increase revenue, he said the approach could deter entrepreneurship.

“It’s suffocating small businesses,” he said.

Gamal Osman, 59, a warehouse worker in Tanta, a city about two hours north of Cairo, said he was also paying more in fees for basic services, like renewing his identification card. He said that he had cut back to eating meat only once every two weeks and that, still, he could not save money like he used to.

“You can feel it in everything you do,” he said. “From the moment you step onto the street until the moment you go to sleep.”

Still, others see opportunity in the hardship.

Mohamed Ehab is a marketing director for an auto company that introduced Jetour, a Chinese brand, into the Egyptian market in 2020. Sales were booming last year, but the new import rules have snarled the business.

The company stopped accepting orders months ago and is focusing on expanding service centers.

Mr. Ehab said that there was still demand for a practical family car, even after prices shot up with the devaluation. The company’s lowest-priced car went up to $26,000 from about $18,000, largely because the importers have to pay China in dollars.

But he is hopeful that the impasse will spur the government to offer incentives for auto companies to assemble their products inside Egypt, which could generate jobs and make cars more affordable.

“It’s a difficult time, but I think it’s part of a bigger, good story,” he said.

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