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Aladdin Elaasar

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Is Egypt's Economy in Crisis?

Posted: 03/22/10 11:59 AM ET

It's the Economy ... Stupid!

Economist Dr. Nimrod Raphaeli says that Egypt appears to be in the throes of an economic crisis. The macro-economic situation has deteriorated after September 11, in particular. Egypt is undergoing a severe liquidity crisis caused by the loss of hard currency from few sources: tourism was a key source of foreign exchange and the main engine of growth. Estimated losses in this sector range from $2-3 billion. Airline and shipping: besides the decline of passengers, primarily tourists, the industry was hit by 50% increase in insurance premiums.

Revenues from Suez Canal have also declined especially after the escalation of piracy in the Red Sea that made many shipping companies take safer routes. Remittances from Egyptians working abroad have declined from $3.8 billion in 2000 to $3 billion, and further declines are projected.

Ahmad al-Wakil, deputy chairman of the Egyptian chamber of commerce said in an economic symposium held in Alexandria, that the foreign exchange reserves have declined from $30 billion to $15 billion. He attributed the decline to the government's conflicting economic policies regarding the Egyptian pound which was devalued several times, and it is now traded at 6.35 pounds to the dollar in the black market which has hit a new low of pounds to the dollar.

Dr. Nabil Hashad, Director of the Arabic Center for Financial and Banking Studies, says that the foreign exchange reserves have declined to $14 billion. Governor of Central Bank of Egypt Mahmud Abul-Eyoon, declared that there was no intention to devalue the Egyptian pound. A few days later, it was revealed that the governor of CBE has asked Kuwait to deposit $150 million in the Egyptian central bank to bolster its foreign currency position.

Senior Advisor in the Central Bank of Egypt, Muhammad al-Barbari, indicated that additional devaluation of the pound in the near future was generally conceivable. The Egyptian government is to reschedule the internal debt to reduce interest and service charges from 23 to 20 billion Egyptian pounds ($5-4.4 billion) a year. Egypt domestic debt is estimated at more than $160 billion equivalent, in addition to external debt of $26-27 billion. While al-Ahram daily newspaper has reported that prices have gone up between 15 and 60 percent.

The Demographic Time Bomb

According to the former Egyptian Prime Minster Atef Ebid, the population of Egypt will reach 123 million in 2019. There are 800,000 new job seekers every year, and the number will rise together with the growth of population. He estimated the cost of creating one job in industry at 100,000 pounds ($20,000) and in agriculture 50,000 Egyptian pounds ($10,000). The total cost of job creation for 800,000 would be 36 billion Egyptian pounds, or more than $7 billion. Since there is no unemployment insurance in Egypt there was a tacit warning regarding social and political unrest if the problem of unemployment persists. The Director General of the International Center for Agricultural Research in Dry Areas, Adel al-Biltagui in a speech in Cairo said that Egypt projected an increase in food consumption pattern in the future remains to be higher than 2%. Also, if individual food consumption were to increase by 2020, as a result of changes in the diet or higher personal income, the challenge facing the country would be even greater.

The International Labor Office (ILO) in Geneva, a specialized agency of the United Nations, recently issued its annual World Employment Report. The report found out that, the number of unemployed people in Egypt climbed to new heights since 2005. Young people aged 15 to 24 comprise almost half of Egypt's unemployed and are more than three times as likely as adults to be out of work. The ILO called this figure "troublesome," given that youth make up only 25 per cent of the working age population.

The Middle East and North Africa, MENA stands out as the region with the highest rate of unemployment in the world. The Arab League Economic Unity Council estimates unemployment in the Middle East at 20 percent.

The employment to population ratio is a measure of the percentage of working-age population who are employed. Although MENA has registered a notable increase in this measurement, it has remained the lowest in the world, with 45.4 in 1993, and increasing only slightly to 46.4 a decade later.

Egypt had 37 percent below the age of 15 years in 2000, and 58 percent below the age of 25 years. The working-age population is increasing by three percent a year. The biggest challenge facing policy makers in Egypt is the high rate of youth unemployment, estimated at 25.6 percent in 2003, which is the highest in the world. According to the ILO report this steady rate of unemployment reflects an average of 500,000 of additional unemployed per year. The increase in employment is not enough to absorb all those who enter the labor market annually. Former Egyptian Minister Ahmad Gowaili referred to an unemployment rate of 20 percent in the Arab countries. According to Gowaili, this percentage is translated into 22 million unemployed, of whom 60 percent are youth. This figure, he added, is likely to increase by three percent annually. He attributes the main cause of unemployment to the failure in most Arab countries to link educational orientation to the labor market requirements. It's troublesome indeed.

Aladdin Elaasar wrote "The Last Pharaoh: Mubarak and the Uncertain Future of Egypt in the Obama Age." Elaasar has been a frequent commentator on Middle Eastern affairs on several local American TV and Radio networks and media and cultural consultant.