The global financial crisis that blew up in the US and went beyond to affect the rest of the world is expected to have a major impact on the Egyptian economy. Indeed, the Egyptian bourse was the first to suffer due to the collapse in foreign stock markets. Foreign investors hastened to sell the shares they own in Egypt's stock market to cover their vulnerable financial position, especially following their losses elsewhere. Moreover, most Egyptian giant corporations are listed in foreign markets particularly those of London and New York - thus their shares declined with the collapse that hit these markets. The fact that 70 per cent of investors in the Egyptian bourse are small shareholders -who always live in fear of losing their investments- compounds the crisis. This is because they hurried to sell their shares even when prices fell to the level of 20 per cent.

Hence the index of Cairo and Alexandria Stock Exchanges (CASE) made harsh losses as it fell from 2727.7 points in August 2008 to 1556.7 points in November 2008. The average of Case30 fell from 8449.6 points in August 2008 to 4205.9 points in November 2008. On 21 January 2009, it fell to 3780.38 points. Market capital of Egyptian-listed companies fell from LE 695 b in August 2008 LE 461 b in November 2008, i.e. losses amounted to LE 234 b. Such developments resulted in losses below 50 per cent of equilibrium value- therefore numerous investors suffered harsh losses.

It is worthy of noting that the drop in terms of shares' prices took place in May 2008 -prior to the world crisis- due to a number of economic decisions taken by the Egyptian government. Yet a greater decline occurred after mid-September 2008 following the eruption of the global financial crisis.

Sector of tourism
Because the crisis began shortly before the tourism season in Egypt, the sector of tourism was strongly affected. Although it was estimated primarily that losses would not be felt before March 2009, the real picture was bleaker as tourism began to suffer in December 2008. The Minister of Tourism said that signs of the crisis began to express themselves in August 2008 thought real losses stared to be felt in December 2008 - by 4.5 per cent. Secretary General of Chamber of Hotels said that reservations are in real decline and great numbers of workers in the sector of tourism are expected to be laid off. The media transmitted reports on the dismissal of temporary workers in some hotels in Luxor, Aswan, Hurghada, and Sharm el-Sheikh. The Israeli assault on the Gaza Strip aggravated the situation since it threatened to force hotels of Taba and Nuweiba to close. When some European tourist organisers were belated in meeting their financial obligations to Egyptian hotels, an atmosphere of worry dominated the field.

This situation predicts a decline in terms of tourism revenues, which would have a negative impact on 62 professions closely linked to tourism. Available data showed that the growth in tourism revenues decreased from 17 per cent in August 2008 to 10.8 per cent in the following month. In the first quarter of 2008/2009, the rate was 15.2 per cent against 32 per cent in the same period last year. The year 2009 is expected to witness a 20 per cent drop in tourism revenues. Should the crisis last, the revenues generated by tourism will further decline. The short-sighted policy usually pursued by tourist agencies and companies -i.e. reducing prices dramatically- will be to no avail.

Navigation in Suez Canal
Since world trade will certainly decline due to the recession, the movement of navigation and oil shipping will slow down. Hence shipping through the Suez Canal will be negatively affected, particularly when taking into account that some companies have already started to use the alternative route of the Cape of Good Hope due to the phenomenon of piracy off Somali shores. Hence shipping through the Suez Canal has witnessed a slowdown over the past three months and revenues fell from $504.5 m in August 2008 to $469.6m in September 2008. In October, November and December, revenues amounted to $467.5 m, $419.8 m and $391.8 m respectively. It is worthy of noting that revenues were $426.3 m in December 2007.

Oil sector
Falling oil prices will have negative ramifications on Egypt's oil revenues. The decline started to unfold, as the oil balance made a surplus of $ 1.6 billion in July-September against $3.5 b in April-June. It has to be noted here that although falling oil prices will reduce foreign currency, it will also cut the cost of oil subsidy, which will reduce the budget deficit.

The global financial crisis will cut revenues from commodity exports due to the troubles experienced by Egypt's trading partners in Europe and the US. Remittances by Egyptian expatriates will fall as Gulf States are expected to end the contracts of large numbers of migrant workers including the Egyptians. Many of those will come back to Egypt and join the column of the unemployed.

Foreign direct investments
It is beyond a shadow of a doubt that foreign direct investments will fall. Available data indicate that net foreign investments decreased by 44 per cent compared with last year. External portfolio investment flows rose to $3.5 b against $1.4 b last year.

All the above factors will express themselves in the balance of payments whose surplus fell in the first quarter of 2008/2009 by 4.5 per cent to become $0.5 b against $ 1.1 b in the same period last year.

The recession in the US and Europe is predestined to reach Egypt, wherein the GDP growth is expected to fall throughout 2008/2009 and 2009/2010. The recession will be followed by a declining internal demand, then a reduction in terms of production capacities. The outcome will definitely be a rise in the unemployment.

Growth rate slowdown
The first half of 2008/2009 revealed a slowdown in the growth rate to reach 5.8 per cent compared with 6.5 per cent in the same period last year. Thus the rosy picture Egyptian officials tried to paint proved unrealistic and their claims that the crisis will not go beyond the monetary economy - to reach the real economy-proved untrue.

Per capita NDP is expected to fall and create a climate of turbulence in view of the 'revolution of expectations' resulted from globalisation and advancement in communications technology. When a poor and unemployed individual is able to know how extravagant lives of the rich are, social turmoil becomes very likely.

The Egyptian government allocated LE15 b to counterbalance the ramifications of the economic crisis. The government was keen to convey a message stressing its aptitude to resolve the crisis. Yet some observers believe that the government allotment remains too small to be able to offset the repercussions of the crisis.







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