CAIRO: The money 27-year-old Sherif made while working in the Gulf went mainly to supporting his retired parents back in Egypt. That is, until he lost his job in December 2008. When he got laid off, Sherif stopped remitting cash home - part of an overall trend of falling remittances in Egypt this past fiscal year, another piece of bad news for an economy that is also feeling the effects of the global financial crisis in key areas such as tourism and Suez Canal revenues. Some of Sherif's remittances to his parents went to household expenses, he says, but this money was also used for unexpected expenditures such as medical treatment following his mother's diagnosis with osteoporosis. After he was laid off, Sherif came home to Egypt in February. He found work on a part-time and temporary full-time basis before finding a more permanent gig at an advertising firm. While he notes that "things are a bit tighter now, he is happy to be back living with his parents. Like Sherif, many Egyptians seek economic opportunity abroad and remit funds home. But amid turbulent global conditions, the amount of these remittances to Egypt fell 8.8 percent to $7.8 billion in fiscal year 2008/2009, from $8.6 billion in the previous year, according to provisional data released by the Central Bank of Egypt (CBE). These cash flows are important for a number of reasons, ranking among Egypt's top earners of foreign currency. Remittances constitute the majority of net private transfers to Egypt, which on average make up 5 percent of Egypt's GDP, explains Reham ElDesoki, senior economist at investment bank Beltone Financial. The figure was 4 percent in fiscal year 2008/09, she said. Remittances supply "Egypt's local foreign exchange market with liquidity for business and household transactions, in addition to revenues from tourism and the Suez Canal, she adds. Remittances to Egypt come from a variety of sources. The six Gulf Cooperation Council (GCC) countries collectively accounted for nearly $4.2 billion of these critical cash flows to Egypt in last year, a 5.3 percent fall year-on-year and over half of the fiscal year's total. The US was responsible for almost $2.3 billion, or approximately 29.1 percent of the total, a 17.9 percent drop year-on-year. Eight European countries including the UK, Switzerland and Germany collectively accounted for almost $1.1 billion, actually increasing by 15.8 percent year-on-year. ElDesoki argues that contracting growth in the markets where these cash flows originate was the main cause for falling remittances to Egypt last fiscal year, but notes that while remittances did fall, the decline was not as large as expected. "The drop, she says, "was lower than our expectations given the gradual recovery in the US and the GCC's reluctance in many cases to fire skilled Egyptian labor, with the shortage in this type of labor in the region. The multitude of sources for remittances may have acted as a boon for Egypt in light of the economic downtown. ElDesoki argues "that the diversification of the remittances sources has served to hedge Egypt against being significantly negatively impacted by the conditions in any one specific area of the world. Senior economist at regional investment bank EFG-Hermes, Simon Kitchen, says that "remittances held up well at the end of the fourth quarter of 2008, as the most severe financial shock was felt. He argues that there was "smoothing caused by expatriate Egyptians being laid off and remitting significant amounts of money home before returning themselves. However, Kitchen says that this "smoothing phenomenon is now less consequential. "Remittances held up well at the end of 2008, thanks to the smoothing effect. but are now down quite severely, he explains. Remittances dropped by 19.9 percent year-on-year in the first half of 2009. With the global crisis easing, expectations for future remittances to Egypt differ. "Now that sentiment is improving in the GCC and globally, Kitchen says, "it will be interesting to see how remittances behave in the second half of 2009. Expats who may have been hoarding money, and remitting less, may now choose again to send back more. A recovery in expat hiring will of course take longer. EFG-Hermes expects net private transfers, which are largely remittances from Egyptian expatriate workers, of $7.6 billion in fiscal year 2009/10, about equal to the CBE's provisional figure for fiscal year 2008/09. The investment bank projects that the number will resurge to $9.1 billion in the following year. ElDesoki expects that these flows to Egypt will increase this fiscal year, arguing that "a recovery in the US and GCC will lead to a gradual recovery in remittances. Beltone projects that net private transfers will reach $8.3 billion in fiscal year 2009/10 and $9.6 billion the following year.
