High prices & weaker pound cripple Egypt’s economy

In the wake of the revolution that calls for the ousting of Egypt's President Hosni Mubarak regime, several parts of the country are suffering from shortage in foodstuffs while the prices of other goods have witnessed unprecedented hikes.

Bread lines in different Egyptian governorates reflect the crisis the country has been suffering during the first days of political unrest not only due to wheat shortage, but also due to the closure of several bakeries, the Egyptian daily independent al-Masry al-Youm reported.

More protest

A slight improvement was witnessed after bakeries affiliated to the Egyptian army supplied 25,000 loaves, according to army sources.

This improvement was more remarkable in the Mediterranean city of Alexandria, with increasing the wheat share of the most crowded bakeries and reopening 15 of the closed bakeries, said Abdul Aal Derwi, head of the Bakeries Division at the Alexandria Chamber of Commerce.

Egyptian protesters rejected National Democratic Party (NDP) resignation of its top executives on Saturday and described the move as a superficial change.

On Sunday the protesters said that they are vowing for another 'million protest' in Tahrir square which has been blocked by the army.

Clashes and protest for the last 12 days took place in the square, which also witnessed molotov cocktail thrown at anti Egypt's President Hosni Mubarak protesters by the ones who were pro the country's ruler whom he ruled for the last three decades.

Food crisis

During the past two days, Egypt witnessed a remarkable shortage of several foodstuffs as well as unprecedented fluctuation in their prices. After several days of shortage of fruits and vegetables and the subsequent hike in their prices, huge amounts suddenly flooded the market as vendors worried about their goods going bad. This led to remarkable reduction in their prices.

“In the beginning, vendors stored all the stock they have for fear it might be stolen, then they started fearing it will go bad and were forced to release all of it in the market and the prices dropped by a half,” said grocer Mohamed Megahed.

Regardless of the availability of fruits and vegetables, Megahed added, Egyptians started buying less amounts due to the shortage of money after the closure of banks and the delay of salaries.

“Now, you see many people buying half a kilo,” he said.

Prices of fish kept skyrocketing until they reached the double as fisherman stopped working and the amounts of fish became less every day.

“Fish in the market is not enough for consumers and several vendors took advantage of the situation and raised prices to unprecedented levels,” said Adel Ahmed, fish vendor in Alexandria.

Weakened pound

Egypt's central bank said it was not setting an Egyptian pound reference rate for the dollar in the interbank market ahead of the market opening on Sunday.

The Egyptian pound opened weaker against the U.S. dollar on Sunday after a week-long bank closure caused by political protest.

The Egyptian central bank's weighted average for interbank foreign exchange operations on Sunday was 5.9013 pounds to the dollar at 10:30 a.m. (0830 GMT).

The pound was trading at around 5.915 to the dollar compared with 5.855 when banks were last open on Jan. 25, traders said .

Around 400 million Egyptian pounds had traded in the first 45 minutes, compared with 300 to 400 million pounds for a full day before the crisis, one trader said.

"The pound started off down as widely expected, but not with the magnitude one would have thought," said the trader. "I expect, with pressure, the pound weakness could extend until 6 or 6.1 pounds, he added.

Bankers were bracing for chaos in dealing rooms with foreign investors and local businessmen fleeing the Egyptian pound after the street protests paralyzed much of the economy and dried up important sources of foreign exchange.

Meanwhile, Egypt's central bank said it can 'bear' amounts of money leave the country.

OPEC under pressure

OPEC is also under pressure from consumers to boost supply as most of the world’s benchmark crudes surpass $100 a barrel amid political unrest in North Africa and the Middle East.

“Just before the turmoil in Egypt we already had very high prices as a result of strong demand growth expectations for the next year,” Birol, the chief economist of the Paris-based IEA, which has advised energy-consuming nations since 1974, told the London-based Business Guardian.

“The turmoil in Egypt has been a trigger. Brent over $100 is a risk to derail the economic recovery.”

Protests in Egypt that have led to the disruption of shipments going through the Suez Canal which sent North Sea Brent above $100 a barrel for the first time since October 2008 this week, said the paper.

Six of the world’s ten most-used oil price markers, including Nigeria’s Bonny Light, Malaysia’s Tapis, Indonesia’s Minas and Louisiana’s Heavy Sweet and Light Sweet grades, have breached three digits, stoking speculation governments will struggle to contain inflation as economies recover from the recession, the paper added.

Oil prices are high enough to “derail” the global economic recovery, Fatih Birol of the International Energy Agency said this week, also Saudi Arabian Oil Minister Ali al-Naimi said last week prices nearer $75 would be “appropriate.”

Transportation

A transportation crisis followed the unrest with buses unable to go to areas where the protests are taking place in addition to the curfew that on several days started at 3:00 p.m. The few means of transportation that worked before the curfew, especially microbuses, doubled their prices.

Fuel shortage played a major in the transportation crisis as the unrest hindered the transfer of fuel to gas stations and even stations that had a stock of fuel closed for fear of being attacked after the security vacuum created by the withdrawal of police forces from the streets.

The cutting of internet services also played a role in the fuel shortage since many prepaid fuel supply transactions between gas stations and companies are made through the internet, said Hamdi Darwish, a fuel distributors’ agent.

“Even after the internet was back, the problem was not solved because the banks were still closed,” he said.

The Central Bank of Egypt announced that banks are to resume their work as of Sunday for only three hours and a half and ATM machines, several of which robbed by saboteurs, have started working gradually.

(Translated from the Arabic by Sonia Farid)