Egypt’s $260bn economy is on life support

In time of continuing bloodshed and simmering social tensions and  in time of deep divisions on political, sectarian and class lines, a country’s compelling economic issues are always kept on the back burner. The deadly army assault on Muslim Brotherhood sit-ins and the continuing violent protests against state apparatus have left Egypt’s $260bn economy on life support.

Here is a quick look at the immediate economic fallout. Swedish home-appliance maker Electrolux halted production in Egypt and the vast majority of its nearly 7,000 workforce are employed locally. Swedish mobile network provider Ericsson has imposed travel restrictions for its 700 staff in Egypt. Anglo-Dutch oil major Royal Dutch Shell’s offices were closed on Thursday into the weekend. US automaker General Motors closed its Cairo office on Thursday and halted production. GM employs 1,400 Egyptians. German chemicals group BASF, employing about 100 people, closed its Egyptian operations. Most of the firms, however, reopened yesterday under watchful eyes.

The $13bn tourism sector, already down by about 50% since the 2011 revolution, has been dealt a severe blow. US and European governments have warned tourists to stay away and some travel agents have stopped all trips to Egypt. A good number of holidaymakers from Qatar, mostly Egyptian expats, have cancelled their vacation plans in Egypt.

Now, the bigger picture. Egypt’s economy was growing at an annual 7% for several years before the 2011 uprising, before dropping to just 2% in the year after Hosni Mubarak was toppled and 2.3% over the nine months to March. The interim government runs a budget deficit hovering around $3.2bn a month and the country has financing needs of $33bn over the next 18 months. Foreign direct investment is down 75% since 2011. More than 4,500 factories have been shut, leaving hundreds of thousands unemployed in a nation where two-fifths of people live on the poverty line.

Ultimately it all boils down to the basic needs of the people: when people are starving, societies tend to unravel, no matter whether they are led by an autocrat or a democratic government. With food inflation around 20% at the moment, Egypt has less than two months’ supply of imported wheat left in reserves.

Pictures of burning streets with wreckage strewn all over and scores of dead bodies lined up in makeshift morgues don’t inspire investors’ confidence. With a stubborn interim government supported by the army and an unyielding Brotherhood, which is hell-bent on drawing blood from the street, stability is nowhere in sight.

Using disproportionate force against a largely unarmed crowd may be the army’s way of quickly ending a stand-off, no matter what the consequences are. But it requires political courage and wisdom to take the hostile sides in Egypt into confidence to uphold the national cause. Qatar on Saturday urged political dialogue to avoid further bloodshed and has always advocated accepting the will of the people in Arab Spring countries. It applies to the hostile factions in Egypt to save the nation from the brink of a civil war and becoming a failed state.