UAE Pumps $2 Billion into Egypt
The existential threat to Egypt that is harbored in higher food prices is more than a topic for debate. Abu Dhabi just announced that it is backstopping Cairo with some $2 billion in investment, an approach that seems more palatable than a hastily-assembled aid package. The Gulf nation is purchasing shares in Egyptian companies that are held by the government.
Still, the $2 billion cash infusion will not cover the full extent of Egypt’s food subsidy program, which now reaches beyond $3 billion annually, without accounting for soaring price increases over recent weeks. Almost 90% of the population is enrolled in a program that allocates five loaves a bread per day per person. For clarity, a loaf of bread refers to a round flatbread known as eish baladi. It is similar to pita.
Egypt consumes about 21 million metric tons of wheat per year, buying a shortfall of near 12 million metric tons on the international market, according to the US Department of Agriculture. Some 85% of this import requirement in recent years has been purchased from Ukraine and Russia. The volume is far too large to be backfilled on short notice by other nations. With maybe four-to-five months of wheat in reserve, Egyptian officials are fast identifying other sources. The United States is on the short list of potential suppliers, as is France, but it is unclear how much volume can be redirected from these markets just now because of forward-purchasing and reserve-constraint issues. The shortfall is more-or-less equivalent to the entire annual wheat crop in the United Kingdom.
Unconventionally, India appears set to be an important supplier to Egypt. Delhi announced this week that it is asking state-owned railways and port terminals to prepare for an outsized increase in dry bulk shipments. By the numbers, India is typically the world’s second largest wheat producer in absolute volume, producing about twice the volume of the United States and three times the volume of Australia.
Fast-paced economic diplomacy is understandable in this situation. Bread-related riots in Egypt reach back to at least 1977 when then-President Anwar Sadat attempted open-market reform. Decades later, at the time of the Arab Spring, a popular chant was “Bread, freedom, and social justice,” in part as a response to a near 20% increase in food prices because of weather-related Russian supply issues.
Prior to the war in Ukraine, the IMF estimated that economic growth in Egypt would reach 5.6% in 2022, against a world average of 4.4%. Egypt may see greater-than-expected downward revisions when the IMF releases its next comprehensive set of forecasts because of the unexpected, severe drain on fiscal resources.
Our Vantage Point: Supply disruptions in wheat and other cereal grains are set to ricochet into social unrest across emerging markets. Egypt, in particular, is vulnerable, given the size of the economy, the scope of its import requirement, and the extent of its food subsidy program.
