The Middle East and North Africa (MENA) region was less sharply impacted by the global downturn than other regions, with overall GDP growth slowing to 2.9 per cent in 2009, a World Bank report said this week. The Washington-based bank forecast global growth to firm to 2.7 per cent in 2010 and 3.2 per cent in 2011, while growth in the North African country may hit 5.2 per cent this year and six per cent in 2011. While the report warned against risks Egypt's economy may face in the coming years in view of its import-dependent structure, analysts argue that these risks have been "a reality since the 1980s". In fact, the whole MENA region is in the same boat as the "food-fuel" crisis of 2007–08 was a challenge for the region, the report said. "[MENA] is the largest net exporter of oil and the largest net importer of food. Oil exporters were less adversely affected, but food import bills widened sharply," the bank said in its Global Economic Prospects report. "Food imports eat much of Egypt's dollar revenues. This has been the case since the 1980s," Hany Riyad, an analyst at Cairo-based Financial and Legal Consultants Centre, told the Egyptian Mail in an interview. "The global downturn hit Egypt's economy the hardest in 2009. Growth contracted to less than five per cent after an average seven per cent growth for three years in a row," Riyad said. The slowdown was driven by lower external demand with exports of goods and services declining by 25 per cent. Growth was negative in economic sectors with a strong exposure to external markets such as the Suez Canal, down by 7.2 per cent, compared with 18 per cent growth in FY2007/08) and hotels, restaurants, and related activities linked to tourism, down by 1.3 per cent in real terms compared with 30 per cent growth), according to the report. Exports from the most populous Arab country plummeted in 2009. The decline may persist in 2010 and 2011, the report warned. "The effects of the European downturn on exports from the region have been dramatic, with Egypt's merchandise exports declining from growth of 33 per cent in 2008 to minus 15 per cent by July 2009 (year-on-year)," said the report. "Declines in revenues from the Suez Canal and tourism, as well as contraction of foreign direct investment (FDI) inflows had a direct impact on growth rates," Riyad explained, pointing out to risks of uncertainty from a global perspective. "Global uncertainty risks are seen to persist. So FDI inflows and international trade are expected to decline in the coming two years," he said, adding that fluctuations in foreign exchange would characterise the economic performance. "Declines in dollar receipts would fuel the foreign exchange market here. The greenback would be on the rise in the local market, sending the cost of imports soaring," he forecast. "Skyrocketing cost of imports would trigger more pressure on the national currency. Spiralling inflation will be the most probable result in 2010," he reckoned. The country's urban consumer inflation stood at 13.2 per cent in December on an annualised basis, according to the State-run Central Agency for Public Mobilisation and Statistics (CAPMAS). Would exports help bridge the gap? "Exports depend on demand in Europe, the US and other countries. Economic recovery would scale up demand, creating export opportunities for Egyptian products," he argued. Decline in fixed investment, down ten per cent compared with 14.8 per cent growth a year earlier, has moved in tandem with increases in unemployment, which rose to 9.4 per cent from 8.4 per cent in 2008, according to CAPMAS. To combat the economic slowdown, the Government has carried out a crisis stimulus plan featuring fiscal, monetary, and direct support measures in the form of LE15 billion ($2.7billion) in additional spending, including higher subsidies and social benefits. On the monetary side, the Central Bank of Egypt cut interest rates six times between February and September 2009, reducing overnight deposit and lending policy rates by 325 and 275 basis points respectively. "Egypt relies heavily on food imports. Wheat tops a long list of the country's imports. There should be a way to maximise exports and minimise imports," Sherif Shawqi, a researcher at Alexandria University, told this newspaper. Egypt imports around seven million tonnes of wheat annually to meet growing local consumption, which stood at 14 million tonnes in 2008, according to the Ministry of Trade and Industry. "In the 1950s and 1960s, Egypt adopted a policy to replace imports with locally made products. Import quotas were applied to curb imports. But now it's a free market and everything is imported," Shawqi said, adding that inflation would be another hazard. "Given inflation rates above ten per cent, growth at five per cent wouldn't be felt by the majority of Egyptians. Inflation should be below five per cent on year-on-year basis so people could feel some improvement," he explained. At the global level, the recovery is "fragile and expected to slow in the second half of 2010" as the growth impact of fiscal and monetary measures wane and the current inventory cycle runs its course, according to the report. "Industrial production growth is already slowing (albeit from very high rates). As a result, employment growth will remain weak and unemployment is expected to remain high for many years," the report added.
