CAIRO: Income from the Suez Canal, which analysts have expected to decline since the severity of the economic crisis became clear last fall, dropped by about 8 percent in December, the government said on Sunday.
Revenues fell to $391.8 million for that month, down from $426.3 million in December 2007.
With the financial crisis hampering trade between Europe and Asia and pirates off the Somali coast pushing more ships to reroute around the Cape of Good Hope, few observers thought the Canal could continue to profit as mightily as it had in the first half of last year. Revenues were $419.8 million in November, slipping from $467.5 million in October.
Lower demand for fuel and in recent months has also made it cheaper for those who are still shipping to reroute around Africa, a lengthy journey that the Suez Canal was built largely to help ships avoid.
“Shipping prices have fallen very sharply over the last three or four or even six months, said Simon Kitchen, an economist at investment bank EFG-Hermes. “What that means is that if you’re thinking about sending a ship around the Cape to avoid piracy, it’s much cheaper.
Suez Canal revenues are traditionally linked to Asian exports, which have fallen dramatically in countries such as South Korea, Thailand, Japan and China in recent months, as Europeans and others hit by the economic downturn have been less eager to spend their money on goods produced there.
There is no reason to expect these figures to pick up in the near future, meaning that canal revenues will continue to fall for the next few months, Kitchen said. He expects canal income will drop by 5 percent this fiscal year, despite strong returns in the first half that followed a hike in shipping fees by about seven percent. Next year, revenues could tumble by as much as 20 percent, he added.
It will take at least six months for growth to return, said Abdel-Fattah El-Gebaly, an economist at the Al-Ahram Center for Political and Strategic Studies. How much further revenues sink depends on the situation on the Red Sea and how long the economic crisis affects Egypt, he said.
“The negative effect is increasing monthly, said El-Gebaly. “If you put into consideration what happened in Gaza, also, you’ll find there are a lot of problems related to the revenue from the Suez Canal. The Israeli bombardment of Gaza and other headline issues provoke concerns about regional stability and discourage trade here, he said.
Red Sea piracy, at least, will continue as long as Somalia remains in crisis, he said. “I think [a solution] will take a lot of time, he said. “[Piracy] will still be with us for a minimum of one or two years.
According to state sources, the number of boats using the Suez Canal declined to 1,560 in December from 1,815 the previous year.
While the Canal authority said in January that it would not change tolls in 2009, flagging demand could push them to lower their rates to encourage more ships to come through, Kitchen said. “I would assume that some downward revision would be necessary at some stage in 2009, he said.
The state’s rebate committee, which offers rebates for long-haul cargoes, could also boost their offerings, thereby lowering revenue per load, Kitchen added.
Income from the Suez Canal is vital to Egypt’s often cash-strapped government. Following decades of rising traffic, the canal netted $5.2 billion last fiscal year, about 3 percent of the nation’s gross domestic product.
Lower Canal revenues will likely push Egypt’s balance of payment down this year, leading to further depreciation of the Egyptian pound, Kitchen said.
“[Lower Canal revenues] will be one of several factors contributing to larger fiscal deficit in 2008-2009, he said.
Finance Minister Youssef Boutrous Ghali said this week that Egypt’s budget deficit stood at 3.1 percent of the estimated GDP.
Increased government investment and spending on an economic stimulus package are also expected to widen the deficit, Kitchen said.
The local press recently reported that the Egyptian government may decrease the LE 15 billion economic stimulus package announced recently due to shortages in resources and a growing budget deficit.
