I have been hanging out with a business journalist over the weekend who specializes in the Middle East. An indication of the exciting life I lead, right?
Based in the Gulf, he is visiting Egypt researching the economy for his financial newspaper and he is predicting that the world economic slowdown will shortly touchdown in Egypt and it is not going to be pretty.
He declined to be named for professional reasons, and following is a summary of some of his thoughts and my own analysis.
Egypt has been purring along with around 7 percent economic growth for some years now, but that may almost halve by next year. Meanwhile, the population continues to swell.
Egyptians are not saddled with mortgage repayments or credit card debt, but it is suffering under the burden of a population boom.
Forty million Egyptians are under the age of 21. That is 40 million coming into the job market, searching for housing and then raising their own children, all within the next two decades.
Twenty years may seem like a long way off, but in 1978 Egypt had a population of 40 million, today it is 80 million and may double again.
A possible 150 or 160 million people living on 6 percent of Egypt’s land, all needing jobs, education and housing, must be of a concern to government planners.
The population explosion may be the least of the government worries, as piracy on the high seas threatens to turn ships away form the Suez Canal, which is one of Egypt’s big four foreign currency earners.
Shipping companies will surely be looking for alternative routes to avoid their cargo being hijacked off the coast of Somalia and held to ransom.
Egypt’s tourism industry relies heavily on Europeans looking for their winter sun and the knock on effect of the credit crunch and recession will be a tightening of the house hold budget in Britain, Germany, Italy and Russia. The exotic holidays to iconic destinations like Sharm El-Sheikh and Luxor will be replaced by a caravan at nearby lake.
How many jobs could go in the tourism industry if the beach resorts along the Red Sea coast started to see a significant drop in bed nights?
With 8 million tourists a year visiting Egypt, a 10 percent reduction would hurt the industry across the board from golfing holidays at the top end to Dahab’s scuba diving travel packages and independent traveler market.
Another of the big four foreign currency earners is remittances, the money Egyptians earn in foreign countries and send back home.
With global unemployment set to rise, this flow of cash through agencies such as
Western Union is sure to shrink. Into this mix you need to add some falling exchange rates like the British pound, thus Egyptians relying on family abroad may well be hit with a double whammy.
Egyptian government strategy has been to position Egypt as an export hub, which was far sighted in the globalization era. Now though, the situation is out of their control.
Last year, it was rising commodity prices and with the global recession there will be less demand for steel and cement exports, and Egypt will see less foreign direct investment flowing in, meaning fewer foreign companies will establish branches, offices or subsidiaries here.
The recession will hurt the US and Europe. But these economies have safety nets for their populations, such as social security and in some cases quality universal health care.
The developed countries can weather a recession. Whether or not 3 or 4 percent is enough for the Egyptian economy to keep back the tide, we will have to wait and see, but the economic future looks full of challenges and people.
Domestically, the housing market remains strong in Egypt. The middle sector, such as working class apartments and housing developments may be where a long term strategy lies for investors.
Investing in bricks and mortar has always been elementary investment advice. Though I have always dreamt of a semi-detached at Ain Sokhna, no one has ever been able to explain to me clearly my legal rights as a foreigner.
As foreign currencies drop against the Egyptian pound, earning local ginai helps balance the family budget and that is why, if anyone has the time or know-how, there is money to be made in an Ikea style factory outlet to furnish the millions of new families looking for a start in life. You’ll make a bomb from the population boom.
