Washington Report on Middle East Affairs, June/July 2022, pp. 38-39
By Dr. Mohammad Salami
THE IMPACT of the Russian invasion of Ukraine has spread beyond Europe. In fact, its economic and political challenges are affecting every country in the world, including Egypt.
Along with less bread on the table in Lebanon, Yemen and elsewhere in the Arab world, where millions already struggle to survive, Egypt is facing major challenges to its food security, tourism industry and its need for political neutrality.
Egypt is at a crossroads in the choice between Russia and Western-backed Ukraine, and it has seen its best choice as neutrality and the pursuit of a middle ground. Egyptian President Abdel Fattah el-Sisi has deep economic and political ties with Moscow and does not want this partnership to be damaged.
A view of a bread bakery on May 7, 2022 in Cairo Governorate, Egypt. In April, the Egyptian government announced fixed prices for unsubsidized bread for the next three months in an effort to fight the increase since the Russian invasion of Ukraine. Egypt is the world’s largest importer of wheat and depends on Russia and Ukraine for 80 percent of its wheat supply. (FADEL DAWOD/GETTY IMAGES)
El-Sisi has had the support of Russian President Vladimir Putin since Egypt’s coup in 2013. On the other hand, he owes much to the West for its financial support, so he is trying to be neutral. Instead of condemning one side, Egyptian statements stress ending tensions and urging dialogue instead of war. El-Sisi followed that principle in a March 9 phone call with Putin.
For Egypt, neutrality is key to securing its national interests but Westerners do not welcome this position. The G-7 and the European Union ambassadors issued a joint statement on March 1, urging Egypt to join them in supporting Ukraine. The move prompted Egypt to vote in favor of a U.N. General Assembly resolution condemning Russia’s invasion of Ukraine, a day later.
However, so far Egypt has avoided complying with the sanctions imposed on Moscow, calling them a double whammy for civilians on every side of the war. Egypt is walking gingerly along a narrow path in between the West and Russia that may cause problems for Cairo. It is unclear how Egypt will continue its subtle neutrality policy between the two sides if the crisis escalates.
ECONOMIC EFFECTS ON EGYPT
However, food insecurity is the most important economic impact of the Ukraine crisis on Egypt. Ukraine and Russia supply a quarter of the world’s wheat and about 60 percent of the world’s sunflower oil. This is very important for Egypt because Cairo is known as the largest importer of wheat in the world because bread is the most important element of the calorie supply in the country’s food system.
Egypt imports 60 percent of its wheat. Of that, Russia supplies nearly 70 percent of Egypt’s wheat imports while Ukraine supplies more than 10 percent of its imports. With the start of the war, the prices of wheat and other food products increased and caused a huge impact on Egypt, where about a third of the population lives below the poverty line. The crisis in Ukraine increased the cost of a package of bread without subsidies by a quarter, and the price of flour increased by 15 percent. Recent price increases could also nearly double annual state spending on wheat imports to $5.7 billion from about $3 billion, an amount the government could find hard to recoup as the cost of subsidized bread has not changed since the 1980s—although the size of a loaf has shrunk.
In Egypt, bread is considered more than a food element and, in fact, it has become a political issue. The per capita consumption of bread is about 130 kilograms (287 pounds) per year, roughly twice the global average. At least 70 percent of Egyptians depend on food subsidies and of the state’s $5.5 billion budget for food subsidies, 57 percent is dedicated to bread. The grim austerity measures that were ushered in during the reform program on the back of the 2016 International Monetary Fund (IMF) loan stripped subsidies away from most products, but not bread.
The last time an Egyptian government attempted to tamper with the bread subsidy was in 1977, under President Anwar Sadat. Two days of rioting convinced the government to rescind the austerity measures. The main slogan of the people in January 2011 during the Arab Spring, which led to the fall of former Egyptian President Hosni Mubarak, was “bread, freedom and social justice.” Despite the pending budget and supply pressures, the government does not dare violate the price and supply of bread.
In addition, Egypt’s tourism sector is badly affected by the Russian war in Ukraine because Egypt is considered a main destination for millions of Russians and Ukrainians. In 2018, 13 million people visited the country and tourism contributed around 12 percent to the gross domestic product. Tourism also provided around 2.9 million jobs. Tourists from both Russia and Ukraine account for a third of all foreign tourists in peak years. Some 700,000 Russian tourists visited Egypt in 2021, and 125,000 others did so in the first two weeks of 2022. In 2019, 1.6 million Ukrainian tourists visited Egypt, which was an increase of 32 percent from the year before. Given the ongoing war on Ukraine and the global sanctions against Russia, Egypt’s tourist sector is expected to struggle in the coming months, which will add more challenges to Egypt’s reeling economy.
WALKING A POLITICAL TIGHTROPE
Egypt has deep political and economic relations with both sides in the Ukraine crisis, and a policy of neutrality is the most difficult strategy for the future. As the crisis continues, human rights groups and Egypt’s Western allies expect Cairo to condemn war crimes like the one in Mariupol, Ukraine.
Cairo is at the height of its relationship with Moscow, with both sides signing a comprehensive partnership agreement in 2018. In addition, Russia supplies weapons to the Egyptian army. Between 2016 and 2020, Russia supplied about 41 percent of Egypt’s weapons. Moscow is also building the Egyptian nuclear power plant, which is scheduled to begin in July 2022 with a $25 billion loan from Russia.
Russia’s investments in Egypt by 2021 reached $8 billion and bilateral trade between the two countries is $3.3 billion. Egypt has similar relations with the West. The EU is Egypt’s largest economic partner and accounts for 30 percent of foreign trade. Last year, Egypt’s trade value with the EU and the UK was $26.4 billion, and its investment volume was $16 billion. The U.S.-Egypt trade volume also was $9.1 billion in 2021, and Washington has invested $21.8 billion in Egypt.
Any strong stance by Egypt in the Ukraine crisis in favor of one of the parties involved could damage multiple channels. Cairo is currently silent and has chosen a middle position while monitoring the outcome of the war. Cairo may be forced to choose one of the warring parties as future events unfold.
Mohammad Salami has a Ph.D. in International Relations. He writes as an analyst and columnist in various media outlets. His area of expertise is Middle East issues, especially Iran, Saudi Arabia, Syria, Lebanon, Yemen and the GCC countries.