Egypt, with one of the largest economies in Africa, also has one of the largest populations at nearly 100 million. The social and economic hit it has taken from the coronavirus is beginning to become more apparent. In the first part of our series on the impact of COVID-19 on Egypt, we look to see if its banks are strong enough to weather the pandemic slump. The challenge is to increase their lending to the private sector, and especially small business.
This is part 5 of a series.
“Tourism has been hit so hard that hundreds and thousands of people lost their jobs or were underpaid now and many hotels are up for sale,” Naguib Sawiris, an Egyptian billionaire and and chairman and CEO of Orascom Telecom Holding, tells The Africa Report.
By mid-March, Egypt had suspended international air traffic and imposed a partial lockdown and curfew to help contain the spread of the coronavirus.
Tourism was by far one of the “most severely impacted sectors by the crisis,” says Marina Wes, World Bank country director for Egypt, Yemen and Djibouti.
The sector’s added value was worth LE140.5bn ($9.4bn), 2.7% of GDP, in the fiscal year of 2018-2019, adds Wes.
Egypt had just been creeping out of its touristic slump following the political instability from the 2011 and 2013 revolutions.
“It’s impossible to overestimate the damage done to the tourism sector this year. Egypt was on its way to the largest number of tourists in nearly a decade, but this has entirely ground to a halt” says Mohamed Dahshan, Managing Director of OXCON and Fellow at Chatham House and TIMEP.
With the accommodation and food services employing more than 700,000 workers in the third quarter of 2019, accounting for 3.1% of total employment – according to Egypt’s Central Agency for Public Mobilization and Statistics (CAPMAS) – Egypt, like many countries in the region, is particularly vulnerable to this health crisis.
By April, CAPMAS announced that Egypt’s unemployment rate had increased to 9.2% due to the ongoing coronavirus pandemic, explaining that the rise was due to the government’s preventive measures to curb the spread of the virus.
The problem with tourism is its strong link to other sectors, “including hospitality, travel, food and beverages, and tourist attractions. Overall, one out of every nine jobs in the country depends directly or indirectly on tourism,” adds Dahshan.
Egypt’s’ informal sector, particularly the “sector’s artisanal and handicraft products, critically depends on the tourism sectors,” notes Wes.
And because tourism overlaps other areas, when it gets hit, “it collapses rapidly,” Dahshan says, “with travel reservations being cancelled en masse during or after crises.”
But it does bounce slowly, “with recovery building alongside the confidence of tourists and tour operators” he adds.
The problem that everyone worldwide is wading through is the lack visibility.
“As long as we don’t know the duration of the impact of the virus, it is difficult to predict how long tourism will struggle. However I anticipate that much of this year will be depressed,” says Timothy Kaldas, an independent risk adviser and nonresident fellow at the Tahrir Institute for Middle East Policy.
Informal sector: opportunity or burden?
The informal sector exceeds 50 percent of the national economy and employs two thirds of all labour in Egypt, 44.8% of them work in the agricultural sector, 24.6% in the industrial sector—mainly small workshops and food factories—and 30.6% in construction, retail, and catering.
These workers are all without social protection.
“High levels of poverty coupled with a large informal labour sector have added to the challenges faced by millions of Egyptians as well as the government’s struggle to encourage the public to stay home,” says Kaldas.
“Egyptians below the national poverty line increased from 27.8% in 2015 to 32.5% in the fiscal year 2017-2018 while the World Bank estimates 60% of the population was already under the poverty line or vulnerable to poverty at the time. The economic impact of COVID-19 could push even more Egyptians into poverty as many were already vulnerable.”
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In previous crises, like the 2008 financial crisis and the 2011 revolution that deposed former president Hosni Mubarak, the informal sector “stepped in to fill existing gaps” explains Nagla Rizk, professor of Economics at the American University in Cairo and Founding Director of Access to Knowledge for Development Center (A2K4D).
“In 2008 and 2011, the informal sector offered work for those laid off from the formal sector and fulfilled immediate needs of customers and businesses. It kept the whole of Egypt afloat,” she adds.
“1.6 million new employees joined the informal sector,” in that time period of 2008 – 2011 adds Dahshan. That surge is indicative of the government and private sector’s weakened ability to create jobs, which inevitably adds pressure on existing informal workers who are “already operating under difficult conditions.”
But this time with COVID-19, it’s different.
“The hit from COVID-19, [in] the informal sector is unable to fulfill its important role,” says Rizk.
The impact on tourism set in motion a domino effect, spreading to the Suez Canal, to closure of businesses, along with informal transactions such as handicrafts, bazars, and the like, she adds.
In addition to tourism, school closures cut the need for the informal neighbourhood corner stationary shops and the lockdown eliminated the need for parking attendants, a necessity in the streets of Cairo and Alexandria. “Needless to say, informal workers in formal businesses were the first to be laid off” adds Rizk.
Could local tourism be a solution?
It certainly offers “a breath of fresh air to the entire sector” says Dahshan. “I remember how the entire industry’s hopes turned to local tourism after the 1997 attacks on tourists in Luxor, which brought international tourism to a grinding halt. But it will be difficult to rely on it in this case.”
Tourism revenues alone accounted for 16% of the total current receipts in the 2018-2019 fiscal year, the third highest in fact after remittances and non-oil exports says Wes. That means domestic tourism can “and should play a crucial role in the recovery of the sector, especially for restaurants, recreational activities and hotels,” she adds.
But while it may ease some of the pain the tourism sector as a whole is going through, it’s not a lasting solution. “Domestic tourism is not a source of foreign income for the country and can only act as an important complement, rather than a substitute to international tourism,” says Wes.
Egypt has confirmed recovery loans from both the World Bank and the International Monetary Fund.
On 17 March, the World Bank and IFC’s Boards of Directors approved a $14bn package of fast-tracking financing to respond quickly to the rapid spread of COVID-19 and its impact confirms Wes.
Egypt also qualified for $50m funding, under the Fast Track Facility based on its criteria of population size.
Wes notes there are three areas that the government can make good use of these loans to vulnerable informal workers:
- Further expanding the coverage and improving the targeting of social protection programmes.
- Cutting bureaucracy and automating government services to alleviate administrative, financial and logistical burden for individuals and businesses.
- Enhances fiscal transparency including the comprehensive reporting of the various on-budget and extra-budget spending, in order to track and monitor the wider public spending.
Additionally, the government could start considering debt-relief assistance to informal firms “through buying-out Microfinance institutions (MFIs) debt or provide subsidy to the MFI’s to extend the debt-payment period until the economic disruptions are reduced or removed.
Glimmer of silver lining in all this? Perhaps “the pandemic could also be an opportunity for the government “to engage in necessary reforms,” says Wes.
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