Tuesday,12 December, 2017
Current issue | Issue 1164, (12 - 18 September 2013)
Tuesday,12 December, 2017
Issue 1164, (12 - 18 September 2013)

Ahram Weekly

Collateral damage?

How might a Western military strike on Syria affect the Egyptian economy, asks Nesma Nowar

Warship
Warship
Al-Ahram Weekly

Already in crisis, Egypt’s economy could be further damaged by any US-led military strike on Syria, which would have inevitable economic repercussions on the region and the world at large.
Minister of planning Ashraf Al-Arabi said this week that a Western strike against Syria would negatively impact the Egyptian economy, adding that the government was working within a poor regional and international context in its attempts to realise its economic plans.
Though Al-Arabi said that the government had plans to handle emergency and tough political and security situations, these would inevitably negatively impact the efficacy of the interim government’s stimulus plan, which aims at boosting the economy over the coming months.
However, Sherine Al-Shawarbi, a professor of economics at Cairo University, said that any economic repercussions from a Western strike on Syria would not be graver than the stringent economic challenges Egypt was already witnessing.
“You already have many shock elements; one more would not add much to the situation,” Al-Shawarbi said.
Egypt was facing many internal problems, she said, with the economy in a shambles as a result of deteriorating security conditions and main sources of revenue, such as tourism, drying up. External factors were not helping, due to the poor economic conditions in Europe, Egypt’s largest trading partner.  
“The whole environment, whether external or internal, is not favourable,” Al-Shawarbi added.
Any economic effects resulting from a strike on Syria would not be too serious, she said, as there were few direct economic transactions between Egypt and Syria.
Professor of economics at Cairo University Ahmed Ghoneim agreed, saying that a strike on Syria would not have direct economic implications for Egypt, though it would have political and security effects.
These could have indirect impacts, such as further reducing tourism and foreign direct investment flows and raising insurance rates for the Suez Canal, he said.
Ghoneim said that no direct impacts were expected, however, as there was little migration from Egypt to Syria and the new regulations issued by Egypt after the 30 June Revolution that required visas for Syrian nationals had stemmed the Syrian refugee flow.
“A Syria strike would not deal a direct blow to the Egyptian economy,” Ghoneim told Al-Ahram Weekly.
However, a strike could result in a hike in oil prices, and this would affect Egypt, Al-Shawarbi said. Estimates from the International Monetary Fund (IMF) indicate that a military strike would lead to a US$10 jump in the price of a barrel of oil.
As a net oil importer, any hike in oil prices would add to Egypt’s ballooning budget deficit, Al-Shawarbi said. The possibility of a military strike against Syria had triggered market concerns over oil supplies in the Middle East, where one third of the world’s crude is pumped, driving oil prices higher.
The Middle East accounted for about 35 per cent of global oil production in the first quarter of this year, according to the International Energy Agency. Syria borders Iraq, the largest producer in the Organisation of Petroleum Exporting Countries (OPEC) after Saudi Arabia.
Another impact could be to increase the flow of Syrian refugees arriving in Egypt, Al-Shawarbi said. However, this was unlikely to be as intense as it was in the past two years after the civil war in Syria first flared up.
“It’s not clear if Syrians would choose to come to Egypt, especially when the public perception in the country now is not so favourable to them,” she said.
The flow of refugees has had its own benefits and pitfalls. Al-Shawarbi pointed out that some Syrians coming to Egypt were investors seeking to invest in the country, while others sought employment, potentially competing with Egyptian labour.
The refugees also placed increased demands on the country’s infrastructure and services, which in turn pushed up prices at a time when Egypt was already suffering from high inflation rates, she added.
Amid speculation of a collapse in the stock market, Eissa Fathi, managing director of the Cairo Brokerage company, said that the Egyptian exchange had already been stung by a potential Western strike on Syria.
The worst had already happened when Egypt’s stocks shed four per cent in two days when the US announced it would intervene in Syria, he said, adding that the downward trend coincided with a similar trend in global stock markets.
Fathi said that the sooner the strike took place, the fewer the risks to the market. When the US invaded Iraq in 2003, he said, the Egyptian stock market lost 10 per cent of its value a week before the invasion but then started to register gains on the day the invasion took place.
“In the 12 days following the invasion, the market gained some 12 per cent,” Fathi told the Weekly. “If the strike on Syria takes place, this could actually ease investors’ concerns,” he added.
Egypt’s stock market could also benefit from such a strike, Fathi saying that the Gulf stock markets were more susceptible to damage should Syria be attacked, and this could prompt Arab investors to abandon those markets. “The Egyptian stock market could serve as a haven for these investors as a result,” he said.
The Gulf states are more vulnerable to a strike than Egypt because some of them support the Western strike and some of them are financing it, making them susceptible to retaliatory attacks. Egypt, on the other hand, has rejected any Western military intervention in Syria and supported a diplomatic solution to the crisis.
Dubai’s stock market fell seven per cent on prospects that the US might launch a military strike on Syria. Qatar’s index dropped 2.3 per cent, while Saudi Arabia’s slipped three per cent.
“The Egyptian stock market has been the least affected,” Fathi said, adding that the market would probably be safe should a limited and quick strike on Syria take place.
As a military strike on Syria would not only affect the region, China’s vice finance minister, Zhu Guangyao, warned at the G20 summit held last week in Russia that such action would hurt the global economy.
Zhu said that the strike would have a negative impact on the world economy, referring to IMF projections that the conflict could add another $10 to the price of oil, which in turn would cut global economic growth by 0.25 per cent.
China’s concerns were reiterated by Russia, India, Brazil, and South Africa, who all share kinship as members of the BRICS group of developing nations.
The debate over a strike on Syria has been making headlines over recent weeks after the Syrian government’s alleged use of chemical weapons.
The leaders of several Western nations, including the US and France, have been sounding rallying cries to the international community to mount a punishing strike against the government of Syrian President Bashar Al-Assad, which they believe is responsible.

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