VZCZCXYZ0000
RR RUEHWEB

DE RUEHEG #0089/01 0200910
ZNR UUUUU ZZH
R 200910Z JAN 09
FM AMEMBASSY CAIRO
TO RUEHC/SECSTATE WASHDC 1388
INFO RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS CAIRO 000089 
 
SIPDIS 
 
E.O. 12958:  N/A 
TAGS: ECON EFIN EINV PGOV PREL EG
SUBJECT: Global Financial Slowdown Hits Egypt 
 
REF   A) CAIRO 77  B) 2008 CAIRO 25101. 
 
 
¶1. SUMMARY: During the fourth 
quarter of 2008, Egypt experienced a substantial downturn in its 
three main sources of revenue and foreign exchange: tourism, worker 
remittances and Suez Canal fees.  Though the extent of the slowdown 
is yet unknown, the GOE suggests that Egypt could see a $5-6 billion 
decrease in revenue in 2009.  End Summary. 
 
¶2. Each of the top three sources of Egyptian revenue saw a sharp 
decrease in revenue during the last quarter of 2008.  In an 
interview on January 14, Minister of Economic Development Osman 
Mohammed Osman estimated that Egypt could lose between $5-6 billion 
in foreign revenue in the 2009 year due to the global economic 
slowdown. In FY2007/2008 (July-June), tourism and worker remittances 
generated $10.9 billion and $8.56 billion, respectively. The Suez 
Canal, Egypt's third largest revenue producer, generated $5.2 
billion during the same period, a steady increase over previous 
years. 
 
¶3. Tourism is Egypt's largest source of revenue and directly or 
indirectly contributes to 11.3% of GDP. All tourism indicators have 
shown steady growth in recent years.  Egypt's industry began to feel 
the impact of the global economic slowdown in the final quarter of 
2008, after a good showing the rest of the year.  The tourism 
industry grew by 25% in 2008, according to the Minister of Tourism, 
but the final quarter saw a decline of 17.8%.  Hotel bookings were 
down 30% in 2008 compared to 2007 (ref A).  More recently, the Gaza 
incursion has led to cancellations at Red Sea and Upper Egypt 
resorts from European and Israeli tourists.  The GOE has attempted 
to implement some incentives, such as exempting hotels tourism 
promotion fees and reducing landing fees for charter flights, but we 
are not sure this will have a strong impact on the stagnant or 
downward trend we anticipate in 2009.  Anecdotally, the manager of a 
major Cairo hotel told us occupancy is running at about 50%, whereas 
normally it would be more like 65-70%.  Beltone Financial is more 
optimistic, however, projecting that tourism revenues in FY2008-09 
will be roughly consistent with FY2007-08's $10.8 billion. 
 
¶4. Remittances from Egyptians working abroad sustain millions of 
Egyptian families.  The country is the sixth largest recipient of 
remittances among middle income countries.  The Central Bank and the 
World Bank estimates that Egyptian expatriate workers sent home 
$8.56 billion in FY2007/2008, six percent of GDP.  The U.S. was the 
largest single source of remittances, sending $2.8 billion in 
remittances in FY2007/2008, according to the Central Bank. Like 
tourism and Suez Canal revenues, remittances have been growing 
steady in recent years as the Gulf and Middle East economies 
generally, have been performing well.  According to the Information 
and Decision Support Center (IDSC), the Egyptian Cabinet's think 
tank and polling unit, approximately 840,000 Egyptians work in 
Persian Gulf countries in construction, real estate, financial 
services and the medical sector. Economic analysts believe that the 
plummeting price of oil and the bursting of the real estate bubble 
in the Gulf could cause hundreds of thousands of Egyptian workers in 
the United Arab Emirates and other Gulf nations to lose their jobs. 
Sources differ about the overall impact on remittances in the coming 
year but several leading Egyptian economists speculated in the press 
that remittances could drop at least 40%. 
 
¶5. Revenue from Suez Canal transit fees accounted for $5.2 billion 
in FY2007/2008, 3.4% of GDP. However, the monthly numbers began to 
fall late in the year and December's revenues were $391.8 million, 
compared with $419.8 million in November, ending a seven year steady 
increase.  On an annual basis, revenues still rose by 1.7%. Canal 
operations have been doubly hit by the combination of global 
economic slowdown and the rising threat of piracy in the Gulf of 
Aden (ref B). Suez Canal Authority (SCA) Chairman Ahmed Fadel told 
the press on January 12 that he expects a 7% decrease in overall 
traffic through the Canal in 2009 compared to 2008.  Beltone 
Financial predicts the Canal will generate $4.9 billion in 
FY2008/2008, a slight drop from the $5.2 billion in the previous 
fiscal year.  Fadel said that the SCA was holding transit fees 
steady at 2008 levels, but that he would consider price cuts if the 
economic downturn continued unabated. SCA is reportedly considering 
incentives and additional services to attract more traffic. 
 
¶6. COMMENT:  In recent years, Egypt's economy has become more 
diverse and better integrated into the global economy.  Egypt has 
seen several years of strong growth, including 8% GDP growth in 
FY2007/8. Though the banking sector remains liquid and relatively 
unscathed from the crisis, the country is beginning to see the 
indirect impacts from the global slowdown.  Lower global commodity 
prices may ease some of the stress on Egypt's fiscal spending, but 
lower export revenues, decreased tourist flow, reduced income from 
worker remittances and the Suez Canal are likely to reduce overall 
growth (estimates are in the 4-5% range, compared with the 7-8% in 
the last three years).  The expected drop in revenue will likely 
limit the GOE's ability to mitigate the domestic impact of the 
financial crisis and impair planned infrastructure development and 
other economic priorities.  The GOE is already planning on 15 
billion pounds (US$ 2.7b) in spending to stimulate the economy. 
Finance Minister Boutros Ghali remains a deficit hawk, and does not 
want to lose gains in recent years in curbing the deficit. 
 
¶7.  COMMENT CONT'D:  In addition to the impact on revenues, if there 
are significant layoffs of Egyptian workers in the Gulf, the GOE 
faces the possibility of those workers returning to Egypt to look 
for work, adding to the ranks of the unemployed.  Unskilled workers 
are plentiful in Egypt and are not likely to find employment, 
putting additional stress on an already inadequate social safety 
net.  Over the past two-three years, during the economic boom, many 
companies complained they were unable to find or retain skilled 
workers, so skilled workers returning from the Gulf may be able to 
find jobs at these firms as the economic crisis eases. 
SCOBEY