Before the outbreak of the war in Gaza, Egypt was already facing difficult economic conditions. Several international shocks, including the COVID-19 pandemic and the Russian-Ukraine war, intensified Egypt’s longstanding economic challenges, heightening the risk of a foreign exchange shortage and debt crisis amid high levels of inflation.

Egypt’s reliance on fluctuating foreign earnings, such as tourism revenues, Suez Canal tolls, and remittances, made it vulnerable to external shocks. Accordingly, the Suez Canal has been negatively affected by the ongoing war, which disrupted foreign currency inflows to the country, further complicating the situation.

In this Factsheet, we will shed light on the ongoing and potential socioeconomic impact of the Gaza war on the Egyptian economy.

• The Suez Canal experienced the most significant disruptions in Egypt, with attacks in the Red Sea starting in November 2023. The canal traffic declined by 52% to 9,587 vessels in January-September 2024 from 20,155 vessels during the same period last year. As an alternative to the Suez Canal, many vessels routed via the Cape of Good Hope, leading to a 68% year-on-year (YoY) increase in traffic during the mentioned period.
• The Suez Canal revenues declined by 24.3% YoY during FY2023/24. The decline started in the third quarter (Q3) of the FY, as revenues fell to $959.3 million from $2.4 billion in Q2. Revenues continued to fall in Q4, hitting a low of $870.4 million.
• Despite the wide expectations based on the status of regional conflict, tourism revenues increased by 5.5% between FY2022/2023 and FY2023/24. However, this growth was considerably modest compared to the 27% increase between FY2021/22 and FY2022/23.
• In Q3 FY2023/24, tourism was sharply affected, with revenues declining by 6.6% on a quarterly basis.
• The $35 billion Ras El Hekma mega deal in February 2024 provided a lifeline for Egypt’s foreign direct investment (FDI) inflows. The deal led net FDI to hit a record of $46.1 billion in FY2023/24, marking an annual growth rate of 360%.
• However, despite receiving the first installment of the Ras El-Hekma deal, FDI inflows dropped sharply by 43.3% in Q3 FY2023/24 compared to Q2.
• The Egyptian government initially targeted a gross domestic product (GDP) growth rate of 4.4% for FY2023/24. However, the consequences of the war dragged the GDP growth rate down to 2.4% in the past FY from 3.8% in FY2022/23.
• The United Nations Development Programme (UNDP) estimated that under a high-intensity scenario, Egypt’s tourism and Suez Canal revenues could fall to around $13.7 billion between FY2023/24 and FY2024/25. Moreover, the expected average annual loss in GDP growth is 5.2%. The decline in GDP growth would imply an increase in unemployment and a decline in household consumption, and hence an increase in the poverty rate.

By: Amina Hussein

Global Coffee Industry Insights and Egypt’s Import Dynamics Updated 11/30/2024 9:00:00 AM

Egypt as a Global Olive and Olive Oil Powerhouse Updated 11/23/2024 9:00:00 AM

The State of Social Media in Egypt Updated 11/16/2024 9:00:00 AM

Egypt’s Pomegranate: From Local Fields to Global Markets Updated 11/9/2024 9:00:00 AM

Guava in Egypt: A Growing Market with Export Potential Updated 11/2/2024 9:00:00 AM