11 - 17 October 2001
Issue No.555
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Al-Ahram Weekly Online 11 - 17 October 2001 Issue No.555 |
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Feeling the pinch
Economic and commercial relations between Egypt and the United States won't be immune to the effects of last month's terrorist attacks in New York and Washington, reports Gamal Essam El-Din
Upon returning from a three-week visit to the United States in April, Mohamed Lotfy Mansour, president of the American Chamber of Commerce (AmCham) in Cairo described Egyptian-US economic relations as entering a golden era of opportunities. Mansour said, "Across the street from the White House, dozens of American companies are lined up waiting to do business with Egypt." Mansour was referring to an AmCham office dedicated to forging business partnerships between Egypt and the United States which was inaugurated during AmCham Egypt's last "DoorKnock" mission to Washington.
President Mubarak during his meeting with leading members of Washington's Chamber of Commerce in April
photo: Mohamed Abdel-Fattah
But such optimism for a golden future was surely clouded by events in the last few weeks. Economic pundits agree that 11 September's terrorist attacks will harm emerging economies, including Egypt, one way or another. They say that drops in exports, economic assistance, revenue from tourism and capital flows are all in the offing. These ills, say experts, will be compounded by a worldwide slump in demand, soaring commodity prices, and ultimately increased debt burdens.
Elaborating on the disastrous economic ramifications of the assault on America, Ahmed Rashad Moussa, chairman of the Shura Council's Economic Affairs Committee, argues that the United States is unquestionably the engine of the world economy. "Almost 25 per cent of world trade is exchanged with the US, while 40 per cent of capital investments come from there," Moussa said.
Moussa said that Egypt's alliance with the United States in the 1991 Gulf War resulted in stronger political and economic ties between the two countries. He said that although these ties are not as strong as businessmen in the two countries would wish, they did lead to the conclusion of a US-Egyptian economic partnership agreement. Moussa was also hopeful that an agreement for a free trade zone between the two countries would be concluded in the near future.
However, Moussa conceded that the attacks dealt the US economy a strong blow, which in turn will impact on the country's economic relations with Egypt. He suggested that three crucial areas of US-Egyptian relations will be affected most by this attack, namely, economic assistance, investment and exports.
Concerning economic assistance, no one from the American side has indicated if and to what extent the US's annual economic assistance to its largest recipients, Israel and Egypt, will be affected.
Prime Minister Atef Ebeid dismissed the possibility of cuts in American economic assistance to Egypt. Moussa, however, is of the view that the US's long-term campaign against terrorism will require considerable budgetary allocations. "By 14 September, Congress had allocated $40 billion to the costs of recovering from and responding to the attack. Out of this amount, $20 billion will be put into the American budget for the fiscal year 2002, which begins 1 October," said Moussa. One option for American lawmakers to compensate for the emergency budgetary allocations, according to Moussa, would be to cut US foreign economic assistance.
Annual US economic assistance to Egypt, which totalled $24 billion over the past 25 years, has already dropped by an average of five per cent a year during the past two years. Stated differently, the amount of aid provided has declined from $815 million two years ago to $695 million for the current year. Because of the attack, Moussa expects the annual average decrease to range from 10 to 20 per cent.
Trade is the area in which Egyptian-US relations are expected to sustain the most telling blow. AmCham's statistics show that the value of Egypt-US trade for the year 2000 was $4.2 billion. Last year, Egypt exported $887 million- worth of goods to the United States. This figure represents an improvement over the previous year's $617 million. However, trade relations are still unbalanced, with a deficit of $2.8 billion in favour of the United States.
Last year's upward trend, however, suffered a setback during the first half of this year. Mahmoud Abboud, a member of Port Said's Association of Free Zone Investors, noting that Egyptian textiles account for 45 per cent of its total exports to the US, said that "due to the recession in the US and declining demand, these exports dropped by 15 per cent in the first half of this year, and we expect the decline to exceed 25 per cent by the end of this year. The value of this loss is estimated at $230 million," Abboud said.
He said America's free trade zone with Jordan, the agreement on which was signed by US President George W Bush and King Abdullah last week, will give Jordanian exports preferential access to the United States. "This is added to the fact that the United States has similar agreements with 10 African states and Israel. All of these are at the expense of Egyptian exports," said Abboud.
Moussa believes Egypt's hopes for signing a similar free trade zone agreement (FTA) with the United States will have to be put on hold as a result of the attacks. "Egypt has long pressed for concluding such an agreement, but I doubt that it will materialise in the near future," said Moussa. Egypt, he added, should concentrate on building an Arab economic bloc. "Egypt, Syria and Iraq will soon be linked in a free trade zone. This should be expanded to include as many Arab countries as possible," he said.
Shock waves from 11 September's terrorist attack may also reverberate in Egypt's investment market. Statistics from the General Authority for Free Trade Zones and Investments (GAFI) show that Egypt accounts for 33 per cent of American direct investment in the Middle East. American investment in Egypt, GAFI says, is estimated at $3.1 billion, of which $2.3 billion is directed to the oil sector alone.
Moussa argues that the above figures clearly show that American direct investment in Egypt is relatively insignificant. "In this area, I think there is nothing to fear from any shock waves. The real fear, however, is that the American-led anti-terrorism campaign could push European investors to leave the Middle East," said Moussa.
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