Gamal Essam El-Din reviews the first detailed parliamentary report assessing the impact of the global financial crisis on Egypt Bassem Mohamed, a 27-year-old accountant working with the Cairo branch of a multinational company, suffered a 30 per cent cut in his salary last month. However, he was lucky because he was not on a list of 300 employees who were dismissed altogether from their jobs in February. "Deeply battered by the global financial storm," Mohamed said, "the company told us that it had to close three of its overseas plants." As for the Cairo plant, Mohamed added, the company said it would get rid of all staff employed less than one year ago, while the others would have to bear a 30 per cent wage cut. "A salary cut is much better than losing a job," Mohamed sighed in pain. Economists and policymakers agree almost unanimously that the loss of jobs is the most severe impact of the global financial crisis incurred by the Egyptian economy. Addressing the People's Assembly on 9 February, Prime Minister Ahmed Nazif said unemployment in the second quarter of fiscal year 2008/2009 rose to 8.8 per cent from 8.6 per cent. "The biggest threat of the global downturn," said Nazif, "is that it could exacerbate unemployment." A parliamentary report confirmed last week that the economy of Egypt was facing the threat of a serious contraction as the global financial crisis hits inflows of foreign investment, tourist traffic and Suez Canal transit revenues. The report, prepared by the People's Assembly Budget Committee, said that when the crisis began to bite, a number of top policymakers lined up to emphasise that the country was well positioned, at least in the short time, to withstand the fallout from the credit crunch that has battered global banking and equity markets. "These same policymakers have since decided to adopt more cautious tones, warning of the risk of a further contraction because of the severity of the crisis," the report said. Assessing the impact of the global financial crisis in the first half of financial year 2008/2009, the report said economic growth slowed sharply to 4.1 per cent in the second quarter of 2008/2009, from the previous year's 7.2 per cent. "Sustaining the growth rate of 4.1 per cent should now be a key government concern and an inducement to ameliorate the impact of the financial crisis on the country," the report said. The report meanwhile praised the government's new economic stimulus package into the new fiscal year 2009/2010, which begins on 1 July. The government plans to spend LE13.3 billion ($2.7 billion) on infrastructure from July to December this year in order to stimulate the economy and fight the spectre of recession. Finance Minister Youssef Boutros Ghali told the upper consultative house of the Shura Council that the priority for spending is on infrastructure because this sector is the most effective tool in fighting unemployment. "This sector employs many people from different activities and creates a fast boom for many industries," argued Ghali. The Budget Committee's report said the global financial crisis caused a slowdown by 30 per cent in foreign direct investments (FDIs) during the first quarter of 2008/09. "As the world economic recession began to make itself felt, the value of FDIs fell from $3 billion in the first quarter of 2007/08 to $2.1 billion in the first quarter of 2008/09," the report said. The report indicated that contributions of foreign investors to newly- established companies or to the already existing ones collapsed from $1.7 billion to $0.4 billion because of the crisis. As for the Suez Canal, the parliamentary report noted a marked decrease in revenues by $200 million or 13.7 per cent in the second quarter of financial year 2008/09. "This is a direct result from the decrease in number of vessels crossing the canal and the net drop in cargoes by 8.8 per cent," the report explained. In the area of tourism, the report said this sector began to feel the pinch of the crisis in the first quarter of 2008/09. During this quarter, the report indicated, "the flow of tourist traffic fell by 15 per cent while revenues shrank by 11 per cent from $2.7 billion in the second quarter of 2007/08 to $2.4 billion in the second quarter of 2008/09." The report added that the number of tourist nights registered an 11 per cent drop from 32.1 million nights to 28.9 million nights during the same period. Minister of Civil Aviation Ahmed Shafiq confirmed the report's figures on tourism, adding that the last four months have even seen a marked drop in tourist traffic into four major resort destinations: a 20 per cent drop in Sharm El-Sheikh, 13 per cent into Hurghada, and 11 per cent into Luxor. Further, the report noted that the current balance of payments account, excluding remittances, secured a deficit of $4.1 billion in the second quarter of financial year 2008/09. "This means that this deficit ballooned by 75 per cent in one year," the report said. Commenting on the above negative signals, Ghali told the Shura Council that the global financial crisis has dashed the government's hopes of narrowing the budget deficit from 6.9 per cent at present to 5.1 per cent this year and to three per cent of GDP over the next three years. "Our major concern is stimulating economic growth through increasing public expenditure, rather than tackling the budget deficit," said Ghali. This expenditure, argued Ghali, is aimed not only at fighting the threat of recession, but also at deflecting the impact of a drop in demand on our exports in world markets.
