For years, the Suez Canal has remained the main economic asset of Egypt. Each year, billions of dollars enter the state budget due to passage fees from vessels carrying oil, electronics, foodstuff, and all other sorts of cargo through the world’s largest shipping route.
Today, this channel is under threat.
While global media continues to report on the military operations in the Red Sea and shipping companies’ losses, some of the Egyptian economic publications start focusing on the real threat – a drop in revenues from the canal that impacts the entire financial system of the North African country.
With the ongoing financial problems such as high inflation rate, government debt, and weak currency, the current economic situation could hardly be better.
Shipping Companies Stop Using the Passage
According to Al-Ahram Online and Daily News Egypt, increasing number of shipping companies decided to avoid using the route through the Red Sea in favor of the Cape of Good Hope located in Southern Africa, which increases risks of being attacked in the waters near Yemen.
In addition to adding several weeks to the total shipment time, the change made shipping companies stop passing through the channel, thus reducing money flowing to Egypt’s budget.
This issue is particularly important for the state since Suez is one of the major sources of hard currency besides tourism and remittances of citizens working abroad.
During periods of increased tension in the region, canal traffic dropped substantially; however, the government managed to reassure the global market and potential investors.
However, the issue has not gone away.
It got much worse actually.
Why Does the Current Situation Matter for the Country?
The Egypt Suez Canal crisis matters since the country is highly dependent on foreign currency for its economic stability.
Egypt purchases huge amounts of:
- wheat
- fuel resources
- medicines
- industrial goods
- electronic devices
All these goods are purchased in U.S. dollars. This means that the income decrease significantly affects the state budget of Egypt.
As Egyptian economic publication Amwal Al Ghad reports, liquidity of foreign currency and debt obligations became some of the major issues for the authorities in light of current regional instability.
These financial issues influence every aspect of the economy, causing serious trouble for the state.
Losses Become Obvious Quickly
Reduced income leads to several consequences that impact the economy negatively.
First of all, it makes it harder for the authorities to pay off the country’s external debt since the budget is already under financial pressure because of high inflation rate.
Secondly, the state needs money to import necessary products from abroad; otherwise, the situation would get even worse since the country cannot produce enough goods domestically.
Finally, weakening of the income results in depreciation of Egyptian pound. Consequently, people feel additional financial pressure since the cost of living keeps on growing.
What Are Other Issues?
One of the biggest challenges faced by the current authorities relates to the external debt load of the country.
Over recent years, the government borrowed millions of dollars to finance various projects related to:
- building infrastructure facilities
- developing transport systems
- constructing new cities
- implementing numerous development initiatives
According to some experts, such projects helped modernize the economy and increase job opportunities. However, opponents claim that this approach resulted in too much debt, making the country highly dependent on the global market.
Thus, the situation related to Suez Canal revenues complicates the authorities’ financial tasks greatly.
Is It Really a Serious Issue?
Egyptian media outlets emphasize that the situation in the country remains unstable although it shows certain resilience.
For example, businesses and consumers face various economic issues:
- import costs keep on rising
- consumer spending is lower compared to previous years
- costs of transporting goods from overseas locations rise
- officials observe stable inflation rate although people continue suffering from higher prices for basic necessities
- wages of Egyptians do not rise fast enough compared to growing prices
Many people had expected that the economic stabilization program approved by IMF would help solve these problems and bring rapid changes to citizens’ lives.
Unfortunately, this process seems to take too much time.
How Can Egypt Fix the Current Situation?
According to the authorities, Egypt still has chances to recover from this economic crisis.
First of all, the country has numerous economic opportunities thanks to:
- tourism development
- investments from the countries of the Persian Gulf
- further infrastructure construction
- expanding industry
- development of the energy sector
In addition to these steps, the government plans to invest large sums of money into the development of the Suez Canal Economic Zone.
Hopefully, it will allow diversifying the country’s income and reduce dependence on canal revenues.
Unfortunately, the current reality is far from the ideal picture.
The Egypt Suez Canal crisis proves that the country is quite sensitive to geopolitical instability in the region since the latter may immediately have a serious impact on the state’s financial stability, foreign debt payments, and domestic market of imported products.
This is what happens when developing a country around trade channels is considered a good idea.
The Reality Facing Egypt
The Egypt Suez Canal crisis turned out to be the sign that proves how risky the current economy model is for the country.
So far, Egypt managed to prevent complete collapse of its economic system.
However, avoiding such disasters does not guarantee stability.
Under the influence of geopolitical processes taking place in the region, Egypt now faces tough questions: can the state develop independently from one of the most strategically important channels in the entire world?