No country in the world will emerge from the COVID-19 pandemic unscathed. As states and societies learn how to manage the virus and implement regulations to slow its spread, they must also devise policies to mitigate the economic impact of the crisis–an impact that has yet to be fully estimated.
Egypt began, on March 15, to implement a very reasonable suite of policies to counter the economic damage of the pandemic, including slashing the Central Bank’s interest rates by three percentage points; exempting late payments, non-performing loans, and ATM withdrawals from fines and fees for six months; instructing banks to provide credit limits for companies to finance working capital and salaries; and extend the exclusion period for some basic food commodities from their 100 percent cash cover for a year. Additionally, the government has also sought to offer industry-specific support, such as granting two-year credit facilities to support hotels.
But to evaluate the policies implemented—and more importantly, design new ones—a closer look at the individual sectors most affected is needed.
Tourism, for instance, was the first hit—the first COVID-19 case reported in the country, on February 14, was an American tourist in Luxor; several people aboard a Nile cruise of which she had been part of subsequently tested positive, and the first fatality in the country was a German who had travelled from Luxor to Hurghada. As tourism hotspots became vulnerable, the tourism sector promptly shut down—as the tourism sector was violently contracting globally.
A key industry and with strong ties to many other industries—including hospitality, travel, food and beverages, and tourist attractions—one consulting firm, estimates the cost of the tourism shutdown to approach EGP 87 bn ($5.52 bn) in the first four months until June 2020, between direct, indirect, and induced impact.
The Suez Canal
The Suez Canal—which represented 3.7 percent of public budget revenues last year—is also one of the country’s main sources of foreign inflows; it is a major employer, with 14,000 jobs, and a central point in the state’s development strategy, which has made a Suez Canal Special Economic Zone a central pillar of its investment promotion plans. Canal revenues however are, unsurprisingly, extremely sensitive to global trade and economic growth. During the 2008 crisis for instance, revenues fell by 22 percent, taking years to recover; it is reasonable to expect a similar figures during this crisis.
Egypt’s manufacturing sector, representing 16.2 percent of the country’s GDP and 12.4 percent of employment, offers a mixed bag of outcomes. Depending on the imminent need of people and their exposure to global value chains, some industries will actually fare better than others—medical supplies and food processing, for obvious reasons; whereas such sectors as the automotive, or non-essential manufacturing, will inevitably contract. Overall, the manufacturing sector, according to projections by the Egyptian Center for Economic Studies, could shrink by more than half for 2020.
The informal sector
A sector particularly difficult to both assess—and address—and which will inevitably represent a very complicated part of the response, is the informal sector. Exceeding 50 percent of the national economy and employing two-thirds of all labour in Egypt, 44.8 percent of them work in the agricultural sector, 24.6 percent in the industrial sector—mainly small workshops and food factories—and 30.6 percent in construction, retail, and catering. This breadth and diversity make informality a difficult issue to tackle but, in a way, can be an ally during crises. “During the 2011 lockdowns, what sustained the economy was the informal sector, and the demand from illicit construction, and the fact that people still moved around to purchase basic foodstuff”, says Mohamed Abdel Aziz Youssef, Chairman and CEO of Dcode Economic and Financial Consulting. Capable of supplying goods and services to the lowest economic quintiles of the economy and flaunting government restrictions and directives, the informal sector can often recover and resume operations faster than the formal sector does.
But until it does, its workers, usually operating with no contracts, no healthcare or social insurance, and with no access to paid leave, will also be disproportionately impacted by the ongoing crisis; the monthly EGP 500 ($32.60) stipend promised by the government for three months for informal sector workers will certainly be insufficient. And this will likely be exacerbated at the end of this crisis —following the 2008 financial crisis until the end of 2011, 1.6 million new employees joined the informal sector, reflecting the government and the formal private sector’s weakened ability to create jobs, but also adding pressure and competition on informal workers already operating under difficult conditions.
What this means, in essence, is that the informal sector is engaged in a downward spiral of its own, where it will ignore guidelines to stop working—but this will not only expose its workers to greater risk, but also would contribute to lengthening the crisis, thus further pushing more formal enterprises to collapse—many of whose employees will come to compete with them for informal jobs.
Small and Medium Enterprises (SMEs)
Small and medium enterprises, as sector-cutting across formal and informal businesses, are a particularly exposed sector. With limited reserves, they have significantly little runway to cover their expenses and salaries; for them, the crisis is measured in days, not months: the IFC suggests that a small business can survive, on average, ten days after a sudden loss of income. It would appear that SMEs are excluded from the government’s EGP 100 bn ($6.3 bn) stimulus for the private sector, which will benefit large firms; a few weeks later after it was announced, the Micro, Small and Medium Enterprise Development Agency (MSMEDA) launched an initiative for one-year SME loans to cover operational expenses, to help keep them afloat during the months of closure.
The longer the crisis lasts, the more likely are its implications to grow and compound. “Mitigation measures are very hard to maintain on the long term”, says Mr. Youssef. “The most difficult thing right about this crisis is that we don’t have a deadline. So we can’t overpromise and underdeliver; if the government continues to issue financial support it will end with ballooning deficits, and implications can last the long term. It would lose the entire benefits of the economic reforms from 2016.”
But since the government has already engaged an important set of mitigation policies, it is imperative that it carry on its supportive policies and more importantly expand on sector-specific interventions, including informal workers. Interesting examples exist around the world. The U.K., for instance, has created a “Coronavirus Business Interruption Loan Scheme,” whereby the government would cover the first 12 months of interest payments and provide lenders with a guarantee of up to 80 percent on SME loans. In Nigeria, the government suggested a one-year moratorium on all principal repayments. Singapore announced a co-funded $77 million package to support taxi and private hire car drivers, as well as announced a rental waiver to stallholders in hawker centers and markets.
In addition, a missing opportunity lies in collaborating with businesses and high net worth individuals (HNWI). Companies can redirect productive capacity to produce necessary goods and protective equipment, which would be supported by government contracts, thus guaranteeing business continuity; and HWNIs can, in collaboration with institutions, donate for real and clear relief packages for the most affected groups of people.