Egypt’s Grim Economics
Whatever the news media may be reporting I believe that the anger at Mohamed Morsi that lead to Egypt’s military ousting him was primarily due to economic factors.
Egypt has a trade deficit of about $30 billion per year, about 14% of Egypt’s economy. Egypt’s primary sources of foreign exchange are, in descending order, remittances from Egyptians working abroad of between $10 billion and $20 billion per year, tourism of roughly $10 billion per year which may have plummeted to $6 billion, and Suez Canal revenues of approximately $5 billion per year.
Tourism, as noted above, is collapsing. As more Gulf oil flows east to China and Japan rather than west to Europe and the United States, the Canal diminishes in importance. Egypt’s most important export has become its workers. There’s an old wisecrack that when you owe $100,000 to the bank, the bank owns you but when you owe $100 million to the bank, you own the bank. That’s something like the situation Egypt is in with respect to its neighbors. Egypt’s expat workers, 500,000 of them in Jordan alone, on whose remittances Egypt is so dependent provide those neighbors with leverage.
Egypt imports a lot of basic food items. In essence the country cannot feed itself. In a country in which 20% of the people struggle to get by on incomes of less than $2 per day and in which the 40% of the average Egyptian’s income is spent on food and, presumably, that’s even higher for the poor, that means that exchange rates are, quite literally, a matter of life and death.
Finding it politically impossible either to cut services or subsidies or to increase taxes, Morsi took the path of least resistance—currency devaluation. For Egypt’s poorest that meant that their few Egyptian pounds bought even less food or fuel than it did before.
There are no quick solutions to any of these problems and political instability and violence, particularly violence against foreigners, will only exacerbate an already grim situation.
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