Africa, Economy & Trade, Financial Crisis, Headlines, Middle East & North Africa

EGYPT: Financial Crunch Squeezes Suez

Adam Morrow and Khaled Moussa Al-Omrani

CAIRO, May 25 2009 (IPS) - At the Suez Canal, one of Egypt’s fiscal mainstays, the threat of Somali piracy pales in comparison with the potential knock-on effects of the global economic depression.

“We’re bracing for a significant decline in canal revenues this year,” Suez Canal Authority (SCA) spokesman Tarek Hussein told IPS. “And 90 percent of that decline will be directly attributable not to piracy, but to the dismal economic climate.”

Transit fees generated by the canal is one of cash-strapped Egypt’s prime sources of foreign currency.

“The canal’s importance to the national economy cannot be overstated,” Mohamed Mahmoud Youssef, president of Beni Sueif University (about 220km south of Cairo) and former head of Cairo University’s commerce faculty told IPS. “Along with tourism, and remittances sent home by Egyptians working abroad, the canal represents one the country’s three main sources of hard currency.”

As global economic growth fuelled heady volumes of international trade in recent years, the strategic waterway produced record-breaking revenue. According to Hussein, last year saw the highest annual canal revenues at 5.4 billion dollars, while the highest-ever monthly revenue of 504 million dollars was registered last August.

Since late last year, rising incidents of piracy off the coast of the Horn of Africa and in the Gulf of Aden raised fears that canal traffic might be adversely impacted. Some maritime transport companies – reportedly fearing for the safety of their cargoes – began re-routing their ships away from the Suez Canal, preferring instead to sail around South Africa’s Cape of Good Hope.

But according to Youssef, concerns about piracy would not bring any reduction in revenue. “Despite initial fears, piracy has had only a slight impact on overall canal receipts,” he said. “The main result of the phenomenon has been to drive up the insurance premiums paid by shipping companies, adding to their overhead costs.

“The same thing happens during every war in the Gulf, and the impact on the canal is always minor,” Youssef added.

Hussein agrees that the dangers posed by piracy to canal traffic have been overstated.

“Piracy doesn’t target ships traversing the Suez Canal, but rather ships sailing off the Somali coast and in the Gulf of Aden,” he said. “Besides, the route through Suez via the Straits of Mendeb is currently protected by naval fleets – from Europe, the U.S. and Russia – recently deployed to safeguard commercial shipping.

“The Suez Canal is actually a safer route than round the Cape of Good Hope, where there is no such protection,” added Hussein. “It should be noted that the Saudi Arabian super-tanker (Sirius Star) hijacked by pirates last November off the Kenyan coast was en route to the U.S. via the Cape, not by way of Suez.”

It is instead the global economic depression – not ragtag bands of Somali corsairs – that represent the bigger threat to the canal, commentators say.

“The crisis has already resulted in a major decrease in the volume of international trade, and this, more than anything else, represents the chief reason for expected decreases in canal receipts,” said Youssef.

The canal has already registered sharp losses. On May 9, Minister for Finance Youssef Boutros-Ghali said canal revenues between October and December of last year fell 13.4 percent in comparison to that period a year earlier. According to Hussein, canal receipts in January and February this year were 20 percent lower than for the corresponding two-month period in 2008.

“And we’re expecting further declines throughout 2009, although we can’t predict exactly how much,” said Hussein. “The economic crisis has affected every country in the world, and has had a particularly negative impact on the maritime transport sector.”

Hussein says that before the current crisis it cost roughly 180,000 dollars a day to rent an average-sized tanker. “Now, six months into the recession, the same tanker can be rented for only 18,000 dollars a day.”

Earlier this year, government officials predicted that annual canal revenue for 2009 would not decline more than 3.5 percent. But on May 10, Boutros- Ghali told members of parliament that this year’s canal receipts could face year-on-year losses of as much as 20 percent.

Due to the grim forecasts, Hussein says the SCA has temporarily ruled out raising canal transit fees.

“Every year for the last three years, the SCA has raised transit fees by between 2 and 4 percent, in line with global economic growth and rising levels of world trade,” he said. “This year, though, the authority decided against raising fees in light of prevailing economic circumstances.”

“The crisis has already affected all the main pillars of the national economy,” Youssef said. “Since the end of last year, tourism receipts have declined 18 percent; remittances have also begun to dry up as more and more expatriate Egyptians are coming back home jobless, especially from the Gulf.

“With developments like these to contend with, the issue of Somali piracy – never a serious threat to Canal traffic – fades into insignificance.”

Republish | | Print |

Related Tags