The country of 110 million people is in economic dire straits, but it’s also in a strategically crucial region that is already aflame. Egypt is simply too big to fail. Simon Wilson reports
What’s happening?
Fears are growing over the slow-motion collapse of Egypt’s economy, and the possible knock-on effects on the Middle East and wider region, including Europe. For decades, Egypt has been a chronic underperformer, with a sclerotic economy dominated by state interests – in particular by those of the country’s all-powerful military. But in recent years things have taken a sharp turn for the worse. President Abdel Fattah al-Sisi, the ex-general who took power in a 2013 coup and assumed the presidency the following year, has proved a disastrous economic manager. Rather than dismantle the military’s long-standing chokehold over the economy, Sisi has reinforced it – and gone on a debt-fuelled spending splurge on prestige mega-projects that the country can’t afford. Egypt was already badly hit by the sharp rise in food prices following Russia’s invasion of Ukraine in February 2022. And now the conflict in Gaza, and its spillover into the Red Sea – restricting access to the Suez Canal – has made things even worse.
In what way?
Tourism brought in about $14bn last year, accounting for 14% of dollar inflows, but has collapsed since the start of the Gaza war, on Egypt’s northeastern border, in October. The Suez Canal normally accounts for about 30% of container-ship traffic, and earns Egypt almost $10bn a year – but the attacks on shipping by the Houthi rebels who control much of western Yemen have cut traffic by about half. In addition, Egypt is home to the eastern Mediterranean’s only two gas liquefaction facilities, where it processes and re-exports gas from Israel’s southern gas fields. But those re-exports have fallen 50% as a result of war-related disruption. Egypt, already struggling with an influx of 450,000 Sudanese refugees since conflict re-erupted in its southern neighbour ten months ago, is now facing a second humanitarian crisis on its doorstep, and the possibility of more than a million Palestinian refugees. Another big source of income – remittances home from Egypt’s large diaspora – is drying up due to fears over transferring money into the country’s tanking currency, the Egyptian pound. Foreign investors are also withdrawing capital, or demanding ever higher interest rates.
