Lack of sugar highlights Egypt’s bitter, deepening financial crisis

The waters of the Nile River turned yellow this week. Some say they even turned brown. The heavy rains, which also hit Israel, caused powerful floods that carried tons of mud and other substances into the Nile, changing the water’s color and disrupting the supply of water to some residential areas.

For some, it was an omen of bad news — or, perhaps, a comment about the present situation in the most populous Arab nation.

The water problem is only one in a long list of problems Egyptians have faced in recent weeks, a list that includes a dire sugar shortage. Simply put, there is no sugar. The drop in supply caused the price of sugar to soar from three Egyptian pounds a kilo a few years ago to five several weeks back, and to 10 and even 12 Egyptian pounds in the past few days. The government decided this week to set the price of subsidized sugar at seven Egyptian pounds per kilogram, a 40-percent increase since just before the current crisis.

What’s causing the problem? It seems to be the result of a worldwide sugar shortage combined with the cessation of sugar imports from abroad and a work stoppage at several sugar processing plants in Egypt.

Sugar is a potent example of the many economic problems that plague Egypt. The steady — and, recently, dramatic — decline in the value of the Egyptian pound is having a strategic effect. The US dollar is trading at 17 to 18 Egyptian pounds; a week ago it was 15 to 16, and a month ago 13.

The decline in the value of the Egyptian pound has forced numerous businesses and factories to shut down. Officials of two of the largest cigarette and soft-drink factories in Egypt announced this week that they were considering closing due to budgetary difficulties.

All this has created a sense of panic in Egypt’s streets. Merchants in Cairo told Reuters this week of the terrible fear of a collapsing economy. They said that they had ceased all financial activity: they are no longer buying or selling, mainly due to the public panic over the unknown.

A man pays his bill as his friend smokes a waterpipe, or shisha, at a cafe in Cairo, Egypt, October 22, 2016. (AP Photo/Nariman El-Mofty)

According to social indices from the United Arab Emirates, whose job it is to keep track of these numbers, economic activity in Egypt in industries other than fuel has sunk to an unprecedented low over the past three years.

Egypt’s currency reserves are also in decline — from $36 billion in January 2011, to less than $20 billion today.

The growing budgetary deficit, which has reached 12%, together with the decline in other indices, led to an agreement that the International Monetary Fund would extend a three-year loan of $12 billion to Egypt.

Egyptian President Abdel-Fattah el-Sissi speaks at the World Economic Forum Annual Meeting in Davos, Switzerland, Thursday, Jan. 22, 2015. (AP/Michel Euler)

The problem here is that the IMF has made the loan conditional upon several measures that could cost President Abdel Fattah el-Sissi his job. These include a demand for reform in the currency market — in other words, that Egypt stop setting the price of the Egyptian pound and allow it to be set by the free market. This, however, which could cause the pound to plummet still further and push even more businesses over the brink. The IMF also requires broad cutbacks in subsidies, which could trigger a major increase in the prices of basic products and a large-scale popular protest.

Aware of the severity of their situation, the Egyptian government and Sissi have decided not to take the risk. On Thursday, officials of the Central Bank of Egypt set a new official value for the Egyptian pound: 13 Egyptian pounds to the dollar — in effect, a devaluation in the local currency of almost 50%. Government and bank officials predict that demand for the dollar on the black market will decrease, leading to a certain amount of stabilization in the market.

This measure turned things around on the Egyptian stock market, at least for one day. Trading was particularly lively on Thursday, with profits the highest they have been in the past 13 years.

It is hard to say when or even whether Egypt will emerge from the crisis. It is in desperate need of that loan from the IMF — and of a revival of public trust in the economy. The sugar shortage, the water problems, terrorism, the suffering tourism industry, the dizzying rate of natural increase in Egypt (a baby is born every 15 seconds), which has a population of 93 million people — all constitute a real threat to the stability of Sissi’s rule.

The president is doing everything he can to cure Egypt’s ills, but without massive international assistance either from the IMF or from wealthy Persian Gulf states, the crisis will only worsen, bringing with it the possibility of bankruptcy, ferment and rioting. At a meeting with young Egyptians last week, Sissi said that the refrigerator in his own home was empty. His statement caused a flurry of posts on social media and other responses, some of which sniped: “We don’t even have a refrigerator.”

Of course, the political arena cannot be disconnected from the economic situation. One of the most significant donors to Egypt is Saudi Arabia. Riyadh and its Sunni allies in the Persian Gulf have transferred approximately $25 billion to Egypt over the past two years. But a sharp dispute broke out recently between Egypt and Saudi Arabia over Cairo’s agreement to the proposed Russian solution for Syria — a solution that includes Bashar Assad staying in power. Saudi Arabia has stopped the transfer of crude oil to Egypt, at least temporarily, since early October, when Egypt cast its vote alongside Russia in the Security Council.

In this March 28, 2015 file photo provided by Egypt’s state news agency MENA, Egyptian President Abdel-Fattah el-Sissi, right, talks with Saudi King Salman after the king arrives in Sharm el-Sheikh, in Egypt’s southern Sinai. (MENA via AP, File)

The Saudis’ feelings, and the feeling that Sissi did nothing less than spit in their faces, are understandable in this context. Professor Yoram Meital, an expert in Egyptian affairs at Ben-Gurion University of the Negev, says that the Saudis were astonished to see Sissi’s Egypt speaking out against Riyadh’s positions on Syria despite the generous help that Saudi Arabia had given it, and were angered too that Egypt was in no hurry to stand with them against Iran, the Saudis’ greatest foe, on issues such as the fighting in Yemen.

At the same time, Sissi must cope with the severe threat of radical Islamic terrorism, which has deprived Egypt of tourism revenue. Terror attacks and other assaults against military or civilian targets are reported every day. While most of the attacks take place in the Sinai Peninsula, a terrorist cell was eliminated in Cairo just this past week. This situation has caused foreign investors to stop coming, hence Egypt’s treasury is running out of cash.

“Even though I don’t know where things are headed, I know that this crisis is shaking up the government,” Professor Meital says. “This is a highly volatile process. There is harsh criticism against Sissi on the street. Egyptian society is divided. Thousands of people have been imprisoned. No sugar or rice has been on the shelves for weeks. The army is distributing food at the entrance to the markets in order to fight against the price increases, to the point where it has even begun giving out milk substitute for babies due to the shortage.”

Added Meital: “Egypt has almost 94 million people, of whom over 40 million live beneath the poverty line. The population grows by 2.5% per year. That means 2.5 million more people per year in a country that has no proper infrastructure to deal with it. No wonder there’s such a severe economic crisis.”