By Cam McGrath
CAIRO, Mar 18 2003 (IPS)

Egypt is preparing to handle the political and economic fallout of a war in Iraq.

"Egypt has played its part in trying to save the region from the dangers of war," a senior Egyptian official quoted President Hosni Mubarak as saying. "It played its part in organising an Arab summit and offering constant advice to the Iraqi regime on the steps to be taken to save itself and its people."

Mubarak stopped short of saying Egypt had abandoned hope of a peaceful solution, but like everyone else he is expecting a war.

The Ministry of Labour and Immigration announced a plan last week to evacuate Egyptian nationals from Iraq and neighbouring countries. Some 65,000 Egyptians work in Iraq and more than a million live in Kuwait, Saudi Arabia, Syria and Jordan.

Airports, sea ports and land crossings are preparing to receive people. Authorities are also expecting many Gulf Arabs.

Egypt is also preparing for other consequences. Officials say even a short conflict would cut deep into Egypt’s foreign revenue earnings.

"The losses which our economy would suffer in the event of a new war in the Middle East would amount to six to eight billion dollars," minister of state for foreign affairs Fayza Aboul Naga told a recent economic conference. "The biggest losses would occur in the tourism sector, exports and Suez Canal revenues."

Aboul Naga is in Washington this week seeking economic aid to offset anticipated war-related losses. He has reportedly requested 2.2 billion dollars in grants, one billion dollars in loan guarantees and 1.2 billion dollars in debt relief.

Egypt is hoping for economic aid, but not counting on it. Several steps are being taken to soften the impact of a war on the local economy.

Egypt floated its currency January 29 in an attempt to boost exports and lure foreign investors back to the stagnant market. It announced it would freeze the prices of 15 basic commodities, and ban non-essential imports for three months to support struggling local manufacturers.

But investors are pulling out of the market and businesses are downsizing operations. "People are staying away from the bourse and there is very little volume," says Hussein Abdel Halim, head of research at Sigma Securities Brokerage. "Investors are trying to liquidate and turn their money into foreign currency."

Big caps have been hit hardest, and stocks that rallied following the currency float have lost ground, says Halim. "In dollar terms the market is down 20 per cent since January," he says.

Investors are not the only ones steering clear. Tourists are vacating Egypt’s temples, bazaars and beaches amidst fears of an Arab backlash should war break out. Many say they feel no threat in Egypt, but their friends and families have insisted they cut short their visit. Hotels are reporting cancellations and a substantial drop in new bookings.

"We anticipate a major loss," says Elhamy El-Zayat, chairman of the Egyptian Federation of Tourism Chambers (EFTC). "Occupancy rates have already decreased."

Tourism was Egypt’s biggest foreign revenue earner in 2000, generating 4.3 billion dollars and providing 2.2 million jobs. The industry plummeted in the wake of September 11 and while tourist visits have recovered, revenues have not. Deep discounts and government subsidies are still in place to attract vacationers, who have become increasingly budget conscious.

"After September 11 the decision-making process of tourists changed," says El-Zayat. "They buy trips on short notice, don’t travel long distances and look for bargains."

Egypt is now promoting its Red Sea resorts to European holiday-makers instead of traditional destinations like pyramids and temples which require more planning and costs. Tourism is expected to dry up during a regional conflict, but El-Zayat says this new strategy will be the quickest way to lure tourists back once it is over.

The government has created a new fund for tourism workers made redundant by regional instability. Though not yet activated, the fund aims to pay up to 75 per cent of the salary of these workers. They will also receive a deferment on taxes and fees. Plans are also afoot to reduce the debt burden on tourism establishments by postponing loan payments and reducing bank interest until the industry recovers.

"We’ve been suffering for two years," says souvenir shop owner Gamal Khalil. "There are no tourists and nobody is buying. If there is a war in Iraq it will be the end of us."

But not everyone is pessimistic. Parliamentarian and economics professor Adel Beshai says Egypt’s economy may weather the burden because its informal economy is resilient. "Some people say the informal economy accounts for 20-30 per cent of GDP (gross domestic product), but personally I believe it accounts for up to 70 per cent and it is extremely dynamic."

The informal economy, in which just about everything gets traded but not declared, was a lifeline for Egypt during the mid-seventies when Egypt struggled to pay for two devastating wars with Israel, and again during the tourist slump that followed the 1997 massacre of 58 tourists in the southern city Luxor.

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