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Economy survives Covid-19

Despite the challenges posed by the global pandemic Egypt is striving to keep the economic ball rolling

Ahram Weekly , Wednesday 9 Sep 2020
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More than two months have passed since Egypt began to lift the restrictions in place to stem the spread of Covid-19 and gradually began reopening businesses. Life is, to a great extent, back to normal. People are catching up not only with family and friends but running errands that had been put off for more than three months.

Noha Mohsen, 51, had been wanting to do her annual mammogram but was worried about the risk of coronavirus infection at medical scanning centres. This week her doctor told her to try to go through with it while coronavirus infection levels are low as there are fears there will be a resurgence in numbers when winter approaches. On Monday, 178 new infections were reported and 11 deaths.

“Covid-19 patients currently suffer mild symptoms that can be treated at home. Everyday there are new Covid-19 patients but the numbers are much lower now than the beginning of the wave,” explained pulmonologist Khairiya Ebeid.

The government, just like the public, is catching up on various projects, with the aim of propping up economic growth. Egypt’s economy grew at 3.5 per cent in fiscal year 2019-20, Minister of Planning Hala Al-Said said last Thursday during the weekly cabinet meeting. Growth would have come in at less than two per cent if the government had not intervened to support the economy, Al-Said added.

The economy had been targeted to grow at 5.8 per cent before the outbreak of the virus.

As the pandemic raged the government launched a number of initiatives to help businesses weather the storm. The most recent, unveiled in July, aims to boost domestic consumption until January 2021 to the tune of LE125 billion by offering discounts of up to 25 per cent on durable goods and food commodities.

The thinking behind the scheme is that increased spending will have a kick-on effect on production. Earlier initiatives included the Central Bank of Egypt lowering interest rates by three points, exempting late payments, non-performing loans and ATM withdrawals from fines and fees for six months, and instructing banks to provide credit to companies to finance working capital and their payment of salaries. Industry-specific support was also extended to sectors such as tourism which saw business grind to a halt because of the pandemic.

The government is also pushing ahead with major infrastructure projects. The Ministry of Housing and the New Urban Communities Authority are constructing 14 “fourth generation cities” including the New Administrative Capital, and New Alamein City.

During a follow-up visit to the New Administrative Capital on Saturday Housing Minister Assem Al-Gazzar praised the contracting companies for increasing the number of workers and equipment in a bid to finalise the mega project. The 700 square-kilometre capital, located 60km from Cairo in the area between the Cairo-Suez and Cairo-Ain Sokhna roads, was launched in 2015 by President Abdel-Fattah Al-Sisi. When complete, it will have the capacity to house more than 6.5 million people.

“Between 65 to 70 per cent of the first phase construction work has been completed,” Khaled Al-Husseini, public relations manager for the New Administrative Capital’s Urban Development Company, told Al-Ahram Weekly.

The government was planning to relocate ministries and 52,300 government employees to the new capital by mid-2020 but the coronavirus pandemic forced it to reschedule the move.

In April, Al-Sisi instructed the government to reschedule the inauguration of all mega national projects planned for this year, including the New Capital and the Grand Egyptian Museum.

“The pandemic slowed work on the new capital. The curfew meant that shifts were cut back to allow workers to return home in time, and social distancing measures necessitated a reduction in the numbers of people on site. Now though,” says Al-Husseini, “we are back working at pre-crisis capacity.”

According to Al-Husseini it is expected that the majority of the first phase, including the government district, the parliament building, residential neighbourhoods, the cultural and sports zones and some universities, will be completed by mid-2021.

In a report issued last week US rating agency Moody’s praised the Egyptian economy’s resilience in the face of the COVID-19 pandemic and assessed the economic outlook as stable thanks to the diversification of the economy, low levels of foreign currency denominated debt and the declining costs of domestic borrowing.

Egypt’s total external debt stood at $112.6 billion in the second quarter of 2019-2020,16 per cent higher than a year ago.

While debt denominated in foreign currency, which accounts for most of Egypt’s foreign debt, still constitutes a heavy burden, Central Bank efforts to shore up Egypt’s foreign exchange reserves means that financing needs for the next year are covered, according to a recent report issued by Capital Economics, a London-based macroeconomic research house.

Reserves have resumed their upward trajectory after a hiccup in February, March and April when they fell $10 billion to $36 billion. Since May they have recorded a steady increase and now stand at $38.3billion.

Since reducing interest rates by three per cent in March, the Central Bank has kept rates stable at 9.25 per cent for deposits and 10.25 per cent for loans. While these are at least five per cent less than 18 months ago they remain among the highest, when adjusted for inflation, offered by any of the more than 50 major economies tracked by Bloomberg.

Interest rate stability has helped the pound remain steady, losing just three per cent of its value in the period between the outbreak of the virus in March till end of June, since when it has rebounded and gained two per cent.

Rating agency Fitch last week identified the pound as one of the best performing emerging market currencies and said it expects the currency to remain stable through the rest of 2020.

While the Purchasing Managers’ Index, which reflects production in the non-oil private sector economy, declined slightly in August, it is now signalling growth in activity and demand for the second month in a row.

“The index has risen nearly 20 points from its nadir in April at the height of the pandemic, suggesting that the downturn has slowed markedly,” a note by IHS Markit, issuer of the index, said.

Yet the challenges ahead remain anything but easy, with water security topping the list. Moody’s included it among other pressing problems, including declining industrial output and the slowdown in tourism sector, while Fitch said on Monday that Egypt’s sovereign credit rating is “particularly” exposed to water stress and drought risks.

“Water risks are likely to become a more important sovereign rating driver over the medium to long term, particularly in the event of severe climate change,” said Fitch.

The possibility of a second Covid-19 wave poses another challenge. According to Ebeid, the pulmonologist, the number of infections is expected to increase slightly by the beginning of winter, and could be given a further boost as students return to school.

Schools are reopening in hybrid mode, with pupils returning for refresher classes in mid-September, and the new academic year scheduled to begin on 17 October. Symptoms will be very similar to those of seasonal influenza, she said.

“No need to panic, but people must continue following precautionary measures and maintain social distancing,” she stressed.

*A version of this article appears in print in the 10 September, 2020 edition of Al-Ahram Weekly

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