-->

Wednesday, February 23, 2011

What Does the Egypt Crisis Mean to the World Economy?

The anti-Mubarak stir in Egypt has proved to be more potential that previously imagined. With Mubarak finally reeling under the pressure to step down after a prolonged state of denial and no definite Government system yet in place, the fate of Egypt has become somewhat more precarious than before. At the heart of the protests was the rampant corruption under the 30-year old Hosni Mubarak regime, which pushed the nation back in terms of economic prosperity.

Where does Egypt stand?


The latest figures in ‘The World Factbook’ by CIA throw some light on the position of Egypt among the world economies. The 2010 GDP of approximately $216.8 billion, calculated at the official exchange rate, puts the nation at 136th position in terms of GDP per capita ($6,200). Almost 20% of its population lives below the poverty line with official unemployment rate of 9.7%. Egypt’s high public debt is a cause of concern. It stands 17th among the countries with highest public debt, which forms 80.5% of GDP. In June 2010, the debt spiked to almost 90% of GDP. In addition, the consumer price index was calculated 12.8% for the year 2010. No doubt, Egypt today is in a tight spot.


What is its international trade position?

The major export partners of Egypt include US (7.95%), Italy (7.26%), Spain (6.78%), and India (6.69%). Similarly, its key import partners are US (9.92%), China (9.63%), Germany (6.98%), Italy (6.88%), and Turkey (4.94%). However, converse is not true. Egypt does not appear anywhere as a significant importer or exporter for any of these countries. Further, it is a small exporter of oil, natural gas, and electricity. Therefore, a possible slump in its trading activity is not expected to affect international trade much.


Is Suez Canal a choke point?

Certainly, we are not likely to witness a repeat of 1956 Suez Canal crisis. The reason is apparent. Since 1956, the technology has embraced new dimensions and much larger carrier ships sails today than ever before. A large number of these ships are too big to pass through the canal. However, the opinions remain divided on what might be the impact of its complete closure. Egypt owns the Suez Canal and it is still a very important port for fuel, raw materials, machinery, and so on. The alternative journey around the Canal translates into over 6,000 additional miles and 21 days more on board. As per official statistics, 35,000 ships crossed the port in 2009, 10% being oil tankers. Interestingly, this constitute anywhere between only 2.3%-5% of the gross oil shipments around the world. Given the fact that Egypt is no major oil producing nation and Suez Canal is a relatively minor port for oil transport, the crude supplies may take only a minor hit.


What do analysts have to say?

Different economy watchers have different takes on the Egypt crisis. The Kuwaiti organization, The Supreme Petroleum Council fears a surge in oil prices (over $110 per barrel) if the situation remains volatile for some more time, while U.S. prefers to keep a close watch without any speculations. Two important international commodities, gold and crude oil witnessed a temporary rise when the stir first began. However, the markets corrected in time and the present levels are supported more by the same factors that pushed prices in the past. Bigger concern is the possibility of the protests spreading to the rest of the Middle East, particularly the oil producing nations.

It remains to be seen whether Egypt successfully copes with the turmoil and whether the other vulnerable countries take timely corrective measures to prevent an Egypt-like situation. Till then, it’s all about speculations.

Eurion Constellation is a research and consulting firm serving businesses in U.S., Europe and India. The research services have a global reach with focus on industry / market / economic research, financial analysis, equity research, company valuations and report writing. The consulting wing in India focuses on the startup and SME sectors. Please feel free to get in touch for any business requirements. Visit http://www.eurionconstellation.com

facebook.eurionconstellation.com | twitter.eurionconstellation.com

No comments:

Post a Comment