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Egypt: economy struggles in the maelstrom of protests

Egypt: economy struggles in the maelstrom of protests
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Seizing power in Egypt, the military last month stated one of its top priorities was to revive the country’s battered economy. How difficult will it be, how severe is the damage to their hopes as pictures of the stand-off with the Muslim Brotherhood supporters are flashed across the world?

Political stability is essential in any successful equation to tourists and investors while the protracted crackdown could lead to international financial sanctions.

Tourism is one of the prime sources of foreign currency for Egypt and it has paid a heavy price for the instability. After falling in the wake of the Arab Spring in 2011 the number of visitors was again on the rise. The target for this year is 13 million which seems unrealistic.

Traditionally, the tourism season opens at the end of June. This year, it got underway as the anti-Mursi movement began to gather momentum. The industry, which provides about 7 percent of GDP and employs 12 percent of the population has been hit.

“The country is politically unstable, so how can it be economically stable? It just doesn’t work. The first thing with the economic problem is security, if the issue with safety is resolved, the tourism problem will be resolved, everything will be resolved,” pointed out one shop owner Sayed Ahmed.

On Friday the British government along with several others advised against travelling to Egypt. Some tour operators have stopped all trips while several popular attractions in Cairo remain closed.

Amid rampant inflation poised to exceed 13 percent, work is scarce. Unemployment is officially estimated at around 13 percent. The actual rate may touch the 20 percent mark.

Major foreign companies, big employers like General Motors, German chemicals giant BASF suspended their operations for several days but have now fully or partially re-opened for business.

It seems likely they will remain open. But even an easing of the tension could hurt the economy at the margins making foreign buyers of its exports more cautious.

The army-backed government has inherited a budget deficit which since the start of the year has been running at around 3.2 billion dollars a month, that’s about half the state spending.

One analyst said if the violence continues then the government will be even less politically armed to go out and control the deficit by reducing subsidies.

International aid has been the lifeline in preventing the country going broke. Saudi Arabia could inject more to offset any withdrawal of Western financial help or if Qatar – close to the Muslim Brotherhood – decides to pull the plug.

The confidence created by such aid can help the government finance the rest of Egypt’s deficit with borrowing. But such dependence mortgages the country’s future as much of the aid is in the form of loans which ultimately have to be repaid.