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Coronavirus fallout set to take heavy toll on global trade

Fears of the spread of the coronavirus are expected to slow global trade with China, with Egypt being no exception

Ahmed Kotb , Wednesday 4 Mar 2020
Coronavirus fallout
The Egyptian industry depends on importing about 80 per cent of its inputs from China
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In addition to raising health concerns after the global death toll has exceeded 3,000 and about 100,000 infections have been recorded in more than 30 countries, two of them confirmed in Egypt, the novel coronavirus has created economic disruption that experts believe will become severe if it is not contained soon.

Coronavirus (Covid-19) was first detected in the Chinese city of Wuhan in December and has been spreading rapidly since. Concerns have been mounting over the risk of wider restrictions on the movement of people and goods, slowing down production and hurting the world’s economies.

The coronavirus epidemic will likely cut 0.1 per cent from global economic growth and bring down growth for China’s economy to 5.6 per cent this year, 0.4 per cent lower than expected in January, the International Monetary Fund (IMF) said last week.

Trade and supply chains between Egypt and China are a major source of concern, as bilateral trade between the two countries reached about $13.9 billion in 2018, with a more than two per cent increase reported in the first half of 2019.

“Many local traders and manufacturers depend heavily on products and materials imported from China,” said Ahmed Shiha, a member of the importers division at the Cairo Chamber of Commerce. However, he added, the coronavirus still has had no effect on Egyptian imports of products or manufacturing materials from China.

This is mainly because what is being imported at the moment was previously contracted for through a four-month import cycle, Shiha explained.

He said that Egyptian industry depends on importing about 80 per cent of its inputs, including spare parts and intermediate goods, from China, and the stock of these is only enough for about three months. This could severely affect industry in the country if the coronavirus continues to spread.

The virus could result in a ban on Chinese products and affect the world’s economies severely and not only Egypt, he said.

Egypt does not import food commodities from China, except garlic, and Egyptian importers have suspended imports of Chinese garlic until the situation clears. This decision was made in early February.

China is the world’s largest garlic producer, with 21.2 million tons produced per year, making up about 40 per cent of global production, while Egypt produces about 280,000 tons annually, or about 1.1 per cent of global production.

Egypt’s imports of electronics from China are another source of concern due to the many electronic products produced in China. According to the importers division at the Cairo Chamber of Commerce, electronic devices and machines imported from China reached a total value of $3.9 billion in 2019.

“There is no need to fear about disruption in this sector at the moment, as traders have enough to supply the market for about five months,” said Fathi Al-Tahawi, deputy head of the electronic devices division at the Federation of Egyptian Chambers of Commerce.

“I don’t expect a rise in prices soon, but they will definitely be affected in the longer run,” he added.

Shiha also believed that the prices of many products would rise if the supply of materials and end products dwindles. Some production requirements cannot be replaced from anywhere else, he said, adding that China was one of the best producers of such requirements at the cheapest prices.

However, Egyptian exporters might benefit from the decrease in international interactions with China as their products could then enjoy less competition from cheaper Chinese counterparts, Shiha said.

“It is still early to determine the impact of the coronavirus on the Egyptian economy,” said Khaled Abul-Makarem, head of the Chemical Industries Export Council, adding that the current situation was still not clear enough to determine the long-term impact of the virus on economic activity in Egypt.

However, he added that there were great export opportunities for Egyptian companies in China, especially in the medical supplies sector, which has become important in terms of demand during the crisis in China and the spread of the coronavirus.

Demand has increased for facial masks and sterilisation products used to reduce the chances of infection and transmission of the disease.

Egypt’s exports to China amount to

$1.8 billion, most of them agricultural products.

“The effects of the coronavirus on global economies, including Egypt, will include growth rates and unemployment rates worldwide,” said Fakhri Al-Feki, a former assistant to the executive director of the IMF.

China contributes 17 per cent of global economic output, he said, and comes second globally to the US, which contributes 22 per cent.

Oil prices have dropped as a result of slowed demand in China and other countries. Brent crude oil went down from $65 per barrel to about $50 as a result of the fall in demand for oil caused by the coronavirus’ effects on manufacturing and production.

“The dropping dollar and oil prices will most likely bring down the prices of petroleum products in Egypt,” Al-Feki said. Tarek Al-Molla, Egypt’s minister of petroleum, said that gas prices could come down this month as a result of the falling prices of oil and the dollar.

International tourism will also be affected as a result of temporarily losing about 150 million Chinese tourists who spend about $280 billion per year, Al-Feki added.

Egypt receives more than 250,000 Chinese tourists per year, which is a low percentage compared to the total number of about 13 million tourists who visited Egypt in 2019. The relatively low number of Chinese tourists visiting Egypt will make the impact on the sector in Egypt lower than in many other parts of the world, Al-Feki concluded.

 

*A version of this article appears in print in the 5 March, 2020 edition of Al-Ahram Weekly

 

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