Egypt's Economic Breakdown Deepens the Crisis
Prospective economic ruin has energized Egypt's political crisis since the fall of Hosni Mubarak in January 2011. Mohammed Morsi's Islamists and the opposition are not battling in the streets of Egyptian cities about economics, to be sure, but about how to govern a country that cannot meet the basic needs of most of its citizens. Egypt's pound dropped suddenly on the foreign exchange market Thursday as the country's central bank announced a drop in foreign exchange reserves during November. If the pound collapses--and it is hard to see how this can be avoided--the cost of necessities will soar and the crisis will deepen.
Egyptian Pounds to US Dollar
Egyptian news media are reporting signs of crumbling as the country's cash runs out. Western media have focused on the politics and the street fighting, but have reported almost nothing about the breakdown of economic life. Arab-language media, though, are full of alarming news. A few examples:
- The Food Industries Association warned Nov. 27 that lack of foreign exchange to purchase food commodities may reduce food imports by 40% during the next several months. Egypt imports half its total food consumption. Upper Egypt already is suffering a drop in food supplies (I presume other than state-subsidized bread) by 40%. Banks are refusing to provide financing for food imports because importers are already deeply in arrears.
- The Misr Beni Suef Cement company shut five plants due to a natural gas shortage.
- An epidemic of bird flu threatens to destroy Egypt's chicken population because of a lack of natural gas to heat poultry farms.
- Egypt's government electricity company warned that the provision of power is in danger because government agencies are 15 billion Egyptian pounds (US $2.5 billion) in arrears on their electricity bills.
- Gas and diesel supplies at filling stations are down 70% from normal levels since President Mohammed Morsi's constitutional declarations.
- Shortage of fertilizer has cut agricultural exports by 10%, according to the Agricultural Export Council, and it is likely that overall production has fallen by a similar margin.
In thirty-five years of following debt crises in emerging economies, I have never seen anything like this. Latin American economies suffered from hyperinflation during the 1970s and 1980s, but no-one went hungry, because the economies in question all exported food, while Egypt imports half its food. The difference between Egypt and a banana republic is -- the bananas.