The Middle East and the New Global Economy: Revisiting Egypt in the Wake of the Downturn
In our new series, “The Middle East and the New Global Economy: The Drive for Competitiveness, Skills and Innovation,” the Middle East Youth Initiative (MEYI) turns once again to our network of scholars to ask how the region is faring. Have chronic unemployment challenges in the region been exacerbated by the economic slowdown? Has the global crisis forced a rethinking of development strategies in the region? Have ambitious programs been put on hold due to declining revenues from commodities, investment, exports and tourism?
Part 1: Revisiting Egypt in the Wake of the Downturn
Tarik Yousef: Ragui, thank you for joining us for the series again. When we spoke to you in October of last year, we had discussed Egypt’s position going into the global economic slowdown. You predicted that Egypt would feel the effects of the global downturn in its real economy insofar as tourism, trade, remittances, and foreign direct investment (FDI) would decline. Now, as the rhetoric shifts from “global slowdown” to “global recovery,” where would you say that Egypt stands?
Ragui Assaad : My initial point was that Egypt was not going to be strongly affected by the financial side of the crisis in terms of capital flows, portfolio investments, and asset prices going down. That turned out to be pretty much true: Egypt is not heavily incorporated into the world financial system, so the effects of the crisis have been fairly mild from the financial point of view. On the real economy side – which is where trade and tourism come in – there has been an effect, but this effect has been relatively mild, at least from what I can tell from the growth rates. Real GDP growth rates went down from around 7 percent in 2008 to about 4 percent in 2009, whereas in many countries they declined into negative territory in 2009.
Therefore, Egypt has been spared the worse effects of the crisis. However, the crisis arrived at a time when the country already faced a pretty dire unemployment situation, compounded by the effects of an increase of food and fuel prices. This was creating a lot of pain through vulnerability to inflation. The crisis came on top of all of these things and resulted in a slowdown in the economy. This actually had one positive effect: the price escalation that had been occurring before the crisis was mitigated to some extent and there was a slowdown in the inflation of food prices and construction materials. On the other hand, the crisis had a relatively negative effect on demand for labor in some of the more internationally connected sectors like tourism.
 The IMF projects 3.0 percent real GDP growth for Egypt in 2010. World Economic Outlook Database, April 2009.