Egypt faces soaring inflation and commodity prices amid war and energy crisis
Egypt is grappling with a severe economic crisis, as inflation, commodity prices, and the cost of living have skyrocketed in recent months.
The country's economy has been hit hard by the global commodity price shock, triggered by the war between Russia and Ukraine, as well as the domestic energy shortage and the ongoing coronavirus pandemic.
Egypt's Economic Crisis Worsens as Food Prices Soar
Egypt is facing a severe economic crisis as food prices continue to surge amid political turmoil and social unrest.
The country's inflation rate reached 40% in January, the highest level in decades, according to the official statistics agency.
The rising cost of living has pushed millions of Egyptians into poverty and hunger, sparking protests and anger against the government of President Abdel Fattah el-Sisi.
Sisi, who came to power in a military coup in 2013, has blamed the 2011 revolution that toppled former dictator Hosni Mubarak for the current economic woes. He has also defended his controversial economic reforms, which include cutting subsidies, devaluing the currency, and imposing a value-added tax, as necessary to secure a $12 billion loan from the International Monetary Fund (IMF) in 2016.
However, critics say that Sisi's policies have failed to address the root causes of the crisis, such as corruption, mismanagement, and human rights violations.
They also accuse him of suppressing dissent and silencing any opposition, as hundreds of activists, journalists, and politicians have been arrested, tortured, or killed in recent years.
The impact of the economic crisis is most visible in the food sector, which accounts for about 40% of the average household expenditure in Egypt.
According to the World Food Programme (WFP), the prices of staple foods such as bread, rice, beans, and sugar have increased by more than 50% since 2016.
The WFP also estimates that about 32% of the population is food insecure, meaning that they do not have enough food or money to buy food.
The food price shocks have also affected the diets and nutrition of poor households, who have been forced to reduce the quantity and quality of their food intake.
A recent study by the International Food Policy Research Institute (IFPRI) found that poor households in Egypt have reduced their consumption of animal products, fruits, and vegetables, and increased their reliance on cereals and legumes.
The study also warned that these dietary changes could have negative consequences for the health and development of children, especially those under five years old.
The food crisis has also triggered social unrest and political instability in Egypt, as many people have taken to the streets to demand lower prices, higher wages, and better living conditions. In January, thousands of protesters clashed with security forces in several cities, chanting slogans against Sisi and the IMF.
The protests were met with tear gas, rubber bullets, and arrests, as the authorities accused the demonstrators of being part of a "terrorist plot" to destabilize the country.
The situation in Egypt is not likely to improve soon, as the country faces multiple challenges, such as the COVID-19 pandemic, the Russia-Ukraine war, and the Grand Ethiopian Renaissance Dam dispute. These factors could further affect the supply and demand of food, as well as the availability of foreign currency and aid. Moreover, the political climate in Egypt remains tense and volatile, as Sisi prepares to run for a third term in the 2024 presidential election, amid growing discontent and opposition from various segments of society.
Egypt, once a regional leader and a key ally of the West, is now a country in crisis, struggling to feed its people and maintain its stability.
The economic and social problems that have plagued the country for years have been exacerbated by the recent food price shocks, which have exposed the fragility and failure of Sisi's regime. The question is whether Egypt can overcome this crisis, or whether it will descend into further chaos and violence.
According to official figures, the annual urban consumer inflation rate grew to 21.3% in December, exceeding economist predictions.
The inflation has not yet hit its peak, as the annual consumer price index (CPI) is projected to reach 25% by February 2024.
But the price increases consumers see in markets and grocery stores are much steeper.
Food prices in urban areas soared 48% last month, and the prices of building materials increased by up to 92% in March.
The commodity price shock is pushing up prices of building materials in Egypt, with local steel and cement prices soaring since the start of the Ukraine conflict.
Local manufacturers say that these price increases are necessary as they face soaring input costs, including the prices of key energy sources such as coal and pet coke.
Coal — the primary source of fuel used for cement production — has been rising since the beginning of the year, but began to really soar at the end of February, when the war broke out. One ton of coal was trading at around USD 240 on 25 February, jumping to USD 400 per ton on 2 March and peaking at USD 423 per ton on 9 March, according to market data. Prices have since cooled, with a ton of coal currently priced at USD 361.
Faced with these soaring energy costs, some local manufacturers decided to temporarily suspend production and rely on selling stockpiles in hopes of waiting out the price volatility, Arabian Cement CEO Sergio Alcantarilla told Enterprise.
But some producers who opted for this route depleted their cement stocks and are now faced with even higher input costs than when they had decided to suspend production, he said. “So it’s only natural that they will transfer this higher cost to the end product.” And even manufacturers who still have stocks to sell are likely going to be selling their cement at current market prices, to be able to ensure enough of a margin to cover the costs of their next coal purchase and manufacture more cement, Alcantarilla explained.
Producers are currently selling one ton of cement at anywhere between EGP 1k and EGP 1.6k, according to different sources.
The prices of steel, another essential building material, have also increased significantly, reaching EGP 17k per ton in March, up from EGP 13k in February.
The prices of other construction items, such as wood, glass, and paint, have also risen by rates ranging from 15% to 25%.
The jump in global energy costs is also affecting other sectors of the economy, such as transportation, housing, and utilities. The prices of gasoline and diesel have increased by 25% and 30%, respectively, since January, following the government's decision to lift fuel subsidies and link them to international prices.
The prices of electricity and natural gas have also increased by 15% and 20%, respectively, as the government aims to reduce its energy subsidy bill and encourage more exports of natural gas to Europe, where demand and prices are high due to the energy crisis.
The rising inflation and commodity prices have taken a toll on the living standards of millions of Egyptians, especially the poor and the middle class, who are struggling to afford basic goods and services.
