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The Men Responsible for Starving Egyptian Families

The ship is sinking, and the cry is, "Women and children last!"

by
David P. Goldman

Bio

April 15, 2013 - 11:05 am

Egypt’s pound has fallen by 40% since last December, from 6 to the dollar to 8.25 to the dollar on the black market. The prices of basic food items like beans and milk have risen by more than that, pricing all forms of protein out of the range of the half of Egyptians who live on less than $2 a day. And the worst is yet to come: according to the U.S. embassy, the Muslim Brotherhood government has vastly inflated its estimates of this year’s wheat harvest in order to keep export orders down — because it doesn’t have the money to pay for them. Egypt reportedly got $5 billion in emergency loans from Libya and Qatar (although it is not clear how much of that can be spent), but that barely covers the government’s arrears to oil companies operating in the country. I published an update on Egypt’s economic free fall in Asia Times Online this morning.

Mohammed Morsi’s Islamist government is living hand to mouth, stiffing suppliers and exporters, and cadging emergency loans, but it hasn’t ordered a shipload of oil or wheat since January. When things get this bad, everyone who can get dollars out will. The ship is sinking, and the cry is, “Women and children last!”

Here’s an example.

Just after I filed the story, Al Ahram reported that the country’s cotton exports had dropped 40.6% between September-November of 2012 and the same period of 2011 (hat tip: Daniel Pipes). According to the Egyptian daily, the drop is due to much larger domestic purchases of cotton by local textile companies:

Egyptian textile companies bought 415.8 thousand metric quintals of the local cotton in the period September-November 2012, a whopping increase of 326 percent compared with the corresponding quarter a year before.

That makes no sense, because Egyptian textile exports also fell by a big margin.

If the cotton is bought by local textile companies, and their exports are down by 10% during the first 9 months of 2012, where did it go?

It is all the stranger given that domestic cotton varieties are generally exported to manufacturers of high-end fabrics, while Egypt’s textile industry  imports cheap yarn from Asia for mass-market ready-to-wear clothing. As the Financial Times reports,

Egypt is known for the high quality of its cotton, but the local crop, most of it long-staple varieties, is mainly exported because it is too fine and too expensive to use for denim and T-shirts, the main items manufactured for western markets.
“The impact of the devaluation is not as positive as it could have been, because the problem here is that we have not deepened the industry so we still need to import a lot,” says Magdi Tolba, chief executive of the Cairo Cotton Center, an Egyptian manufacturer which supplies retailers in the US and Europe such as Macy’s, Nikeand Marks and Spencer.
“All fabric for exported garments comes from abroad. Even the yarn for T-shirts comes from southeast Asia.”

Domestic manufacturers can’t even use the local cotton. So why did they take down the domestic crop? The simplest explanation is that we are seeing capital flight. Local textile companies borrowed in Egyptian pounds to buy cotton and sold it covertly for dollars as a way of hedging against currency devaluation. So what we might be observing is capital flight rather than a drop in the physical volume of exports. In either case, it pushes Egypt closer to bankruptcy.

When hunger came to Egypt
By Spengler

Egyptians are getting hungry. The fall of the Egyptian pound to just 60% of its 2012 exchange rate against the dollar has priced everything but bread out of the reach of the poorer half of the population, and the bread supply is now at risk.

The news late last week that Libya and Qatar may lend US$5 billion to Egypt was overshadowed by reports that Cairo owes $5 billion to the oil companies that produce oil and gas on its territory. Half of the amount is overdue, and oil companies reportedly expect to wait years for payment. Egypt’s arrears on trade credits from suppliers of oil, wheat, and other essential items probably exceed its $8.8 billion cash reserves, leaving the country flat broke.

With a trade deficit running at $32 billion, the Libyan and Qatari money covers just a couple of months; stiffing the oil companies might have covered the past couple of months. If the Egyptian government finally comes to terms with the International Monetary Fund for a $4.8 billion loan, that will cover another few weeks.

Egypt’s Exports, Imports and Trade Balance

Source: Central Bank of Egypt

Egypt’s finances have been in free fall since the mid-2000s, when prices for food and other essential imports soared while export earnings for cotton and other products stagnated. At $60 billion, the country’s trade deficit is a seventh of its gross domestic product. The 40% fall in the exchange rate of the Egyptian pound from 6 to the dollar late last year to 8.25 on the black market last week will raise the cost of imports even further.

The half of Egyptians that lives on $2 a day no longer eats beans, let alone milk products.

The price of fava beans, the country’s second-most important food staple, has already risen by 40% this year, to 5,000 Egyptian pounds (US$728) per ton from $3,000 Egyptian pounds in January. Imports of proteins have collapsed, according to the Egyptian Gazette:

”As for frozen food imports, namely meat, fish and chicken products, they fell by 25 per cent during the first three months of the year, compared to the same period a year before due to the surge in the dollar,” said Alaa Radwan, a member in the Food Stuff Industries at the FECC. Radwan, who is also head of the Association of the Meat, Fish and Chickens Importers, explained that banks had suspended offering importers with letters of credit, demanding them to seek dollars from the parallel market, which caused frozen food prices to increase by 25 per cent to 39 per cent.

The price of imported milk products, which account for 60% to 65% of consumption, has risen by 60% since January, the Gazette reported.

The only basic foodstuffs still available to poor Egyptians are state-subsidized bread, sugar and oil. That may change drastically during the next several months.

The Financial Times April 11 reported that the Egyptian government will be short 3 to 4 million tons of wheat imports this year. By overestimating the local wheat crop by more than a third, the newspaper quotes an American agricultural attache, Cairo has slashed orders for imports:

In a report written by the US agricultural attache in Cairo, the US warned that the Egyptian government was overestimating production for the current crop year by as much as a third or more. Egypt has predicted it will harvest 9.5m tonnes of wheat this year. The US report put its own estimates 10 per cent lower, at 8.7m tonnes, and warned that several “knowledgeable interlocutors” put the forecast even lower, at 6m-7m tonnes. “The government is setting import procurement and wheat stock policies based on significant local crop production overestimations,” the US agricultural attache wrote.

Egypt’s farmers are unlikely to produce that much wheat because they lack diesel fuel to operate tractors and to bring their harvest to market. The government has just three months’ worth of wheat in stockpile and is likely to run short of the country’s main foodstuff by earlier summer.

“Egypt has not received a crude oil cargo from open market suppliers since January and, with money tight, the state grain buyer has not purchased wheat since February,” Reuters had reported March 28, adding, “International trading houses Petraco and Arcadia were due to deliver crude after winning a tender, but the state importer, Egyptian General Petroleum Corp (EGPC) has cancelled both deliveries, several traders said. As a result, refineries are running well below capacity.”

The Morsi government’s behavior is hard to fathom. It may be that the Muslim Brotherhood government spends so much effort getting through the day that it has difficulty focusing on the three-month horizon. It may also be that it is trying to show a much lower financing requirement to the International Monetary Fund in order to reduce the stringency of IMF conditions.

The IMF requires a cut in the government’s deficit, now at 14% of GDP, before issuing a loan, and the Morsi government is reluctant to cut the energy subsidies that consume a fifth of government spending. It may simply be that Morsi’s lieutenants, like the late president Nasser’s generals during the 1967 war with Israel, are afraid to deliver bad news.

Events in any case have moved beyond the IMF’s requirements. Currency devaluation has already imposed de facto rationing of essential commodities, and the shortage of diesel, propane gas cylinders, and other essential items has imposed energy rationing. The question is how long Egyptians can go hungry before the Morsi regime loses its capacity to govern.

The only practical assistance the US has provided to the Morsi government took the form of a shipment of 140,000 teargas canisters. This arrived at the Abadeya Port in Suez, the Egypt Independent reported April 8. As matters stand, Morsi will need them. Perhaps Washington could follow up by donating coffins.

*****

Cross-posted from David P. Goldman’s Spengler Blog 

Image illustration made courtesy shutterstock / AntonSokolov

David P. Goldman is the columnist “Spengler” for Asia Times Online; his latest book is How Civilizations Die: (And Why Islam Is Dying Too). He is the Wax Family Fellow at the Middle East Forum.

Comments are closed.

Top Rated Comments   
Don't count on the current leadership to put much stock in that. At least one Muslim Brotherhood cleric has called for the destruction of the pyramids and other antiquities because they aren't Islamic. It would be interesting to see if the world will react any more strongly to such action than it did to the Taliban's destruction of those Buddha statues in Afghanistan.
1 year ago
1 year ago Link To Comment
"The only practical assistance the US has provided to the Morsi government took the form of a shipment of 140,000 teargas canisters."

On top of that, the US has provided UNpractical assistance in the form of Abrams tanks and F-16 fighter jets (12 already provided this year, with 8 more expected). It's hard to fathom the thinking behind this when they could have better used some good old American wheat. The one consolation, I suppose, is that if/when Egypt tries to field these weapons in a war with Israel they won't have the fuel to operate them for long.
1 year ago
1 year ago Link To Comment
All Comments   (14)
All Comments   (14)
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It is a delicate balance giving Muslim countries enough arms to keep the people down and the dictators in power; but not enough to cause too much external trouble.
Can you eat tear gas? What happens after the Bros. gas em, they still need food right?
1 year ago
1 year ago Link To Comment
Even if we sent them food aid instead of tear gas, none of it would reach the Christians unless they paid high prices for it to some muslim.
1 year ago
1 year ago Link To Comment
Ah Yes, the MB in charge of Egypt. To hell with Mubarak, let's get rid of him and run this place ourselves, we can do a perfect job with Obama helping us..... And now the reality comes walking in the door and starvation is in the streets and it will get worse... Bring on the riots and murder. At least if they are killing each other, they are leaving their neighbors alone. Such a civilized bunch these people are.... I wonder if they like eating sand!
And we have the MB all over our country attempting to dismantle our government..... We will find their finger prints in the Boston Bombing.... you can bet on it...
1 year ago
1 year ago Link To Comment
Well, when the government is in charge of fuel AND food it's no wonder it has fallen apart. But that's a lesson they just never learn in tribal lands I guess.
1 year ago
1 year ago Link To Comment
Egypt's only salvation will lie with her archeological treasures. Millions of Europeans and more than a few Americans make the journey over there every year. I have to believe the volume is off significantly since the revolution. They must improve security and perceived stability in the country and revive that industry or they will starve.

The ruins there are fantastic, in size and scope more and better than anything else I have seen. If you haven't been that and if you have any interest in the ancient world, it should be on your bucket list. Perhaps one day it will again be possible to travel to Egypt and the Middle-east without risk of violence.
1 year ago
1 year ago Link To Comment
Don't count on the current leadership to put much stock in that. At least one Muslim Brotherhood cleric has called for the destruction of the pyramids and other antiquities because they aren't Islamic. It would be interesting to see if the world will react any more strongly to such action than it did to the Taliban's destruction of those Buddha statues in Afghanistan.
1 year ago
1 year ago Link To Comment
"The only practical assistance the US has provided to the Morsi government took the form of a shipment of 140,000 teargas canisters."

On top of that, the US has provided UNpractical assistance in the form of Abrams tanks and F-16 fighter jets (12 already provided this year, with 8 more expected). It's hard to fathom the thinking behind this when they could have better used some good old American wheat. The one consolation, I suppose, is that if/when Egypt tries to field these weapons in a war with Israel they won't have the fuel to operate them for long.
1 year ago
1 year ago Link To Comment
"I suppose, is that if/when Egypt tries to field these weapons in a war with Israel they won't have the fuel to operate them for long".
Hey,Ya, just like the "battle of the bulge" were Adolf ran out of gas.Good thinkin. And consider that Now Israel has that Huge gas field right of the coast so gas won't be an issue for them.
1 year ago
1 year ago Link To Comment
"And consider that Now Israel has that Huge gas field right of the coast so gas won't be an issue for them. "

The gas fields off the Israeli coast are natural gas, not gasoline. I'm not aware of any tanks or other weapons that run on natural gas and I don't think you can convert natural gas to gasoline.
1 year ago
1 year ago Link To Comment
Not that it matters much, but the correct name of the port in Suez that you mention in the last paragraph is Adabiya, and not Abadeya. It's spelled incorrectly already in the original article of the Egypt Independent that you quote. Must have been translated from Arabic by a dyslexic. Perhaps the proverbial dyslexic Agnostic insomniac who spends all night awake in bed wondering if there is a Dog.
1 year ago
1 year ago Link To Comment
There probably isn't a definitive English spelling of any Arabic words. There seem to be several alternative transliteration schemes, which is why you see "Koran, Quran, Qu'ran" or "Gaddafi, Qaddafi, Khadaffi" depending on which of those schemes is in use by that particular writer. I expect Adabiya and Abadeya are just another example of the same phenomenon.
1 year ago
1 year ago Link To Comment
Lysdexia a thing awful is.
1 year ago
1 year ago Link To Comment
It's 'on the one hand, this,' and on the other hand, 'that.' The lesson of the past 10 years is that an outsider can't change a culture, and a culture is what determines the economy.

What will the Muslim Bros do (aside from running away), and will Egypt learn the right lesson: this is your own culture, Egypt and live with it.
1 year ago
1 year ago Link To Comment
Another lesson they should learn is stop having so many kids. The Egyptian population has just shy of doubled since 1980 and has increased 11 million just between 2000 and 2008. All of those new mouths to feed combined with an economy that isn't growing to pace means unemployment and poverty, not to mention a population far beyond what the land can support. That last might not be an issue IF the country had sufficient exports to buy food to make up the balance, but Egypt doesn't.
1 year ago
1 year ago Link To Comment
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