By Jana al-Masry | 2023-11-01

Russia's war on Ukraine has caused huge economic damage in Egypt, with the hardest hit sector being wheat, as Egypt imports most of the cereal crop from Russia and Ukraine.

Prices have soared from the disruption of supply routes and the rise in global wheat prices caused by the war, exacerbated by the drop in the value of the Egyptian pound (EGP) against the US dollar.

The repercussions of the Russian war on Ukraine have "negatively impacted most countries," Ain Shams University economics professor Shaher Abdullah told Al-Fassel.

But the impact is most acutely felt in the Middle East and North Africa (MENA) and particularly in Egypt, which "is one of the world's biggest importers of wheat," he said.

Ukraine and Russia are Egypt's primary suppliers, accounting for 86% of annual total wheat imports, totaling approximately 11 million tons, he said.

"The insane rise in the price of wheat in global markets exceeded all expectations and directly affected the Egyptian general budget," he added, with the sharp rise in the USD/EGP exchange rate swelling the import bill.

"The current crisis has undercut the purchasing power of Egyptian citizens, as the prices of most basic commodities have risen despite the government's direct intervention," Abdullah said.

The government has sought to ensure that commodities are available in the markets at subsidized prices, he said.

Egyptians consume an annual 20 million tons of wheat, he said, "and the government subsidizes bread so that 62 million citizens benefit from it, at an annual cost of 83 billion EGP ($2.7 billion)."

The government is trying to maintain a strategic reserve that would be sufficient for the country for between five and seven months under emergency circumstances, he added.

"The crisis cost the Egyptian government $12 billion in losses in the wheat portfolio alone, due to calculating the cost of wheat in the budget on the basis of $255/ton, while prices have risen to more than $350/ton at this time," he said.

Measures to contain the crisis

At the outset of the Ukrainian crisis, the Egyptian government began implementing "a package of urgent measures," Ain Shams University economics professor Fakhreddine Awadallah told Al-Fassel.

These included "diversifying the sources of import of basic commodities and wheat, by signing import contracts with Australia, Argentina, Romania, Canada, France and the United States," he said.

"Egypt also wants to continue importing Ukrainian wheat, which has begun to arrive in Romania by railway," Awadallah added.

The Egyptian measures also included expanding domestic wheat production and increasing the price of locally supplied wheat to entice farmers to supply it to the government instead of the private sector, he said.

This aimed to reduce the amount of wheat imported and thereby the import bill.

"The government is expected to procure five million tons from farmers next season after raising the price of an ardeb of wheat (5.44 imperial or 5.619 US bushels) to 1,500 EGP ($48)," he noted.

Increasing domestic production

Work is under way to increase wheat production in "desert areas in the New Delta region, the Toshka project, the Mostaqbal Misr project and the Sharq El Owainat (East Owainat) region," Awadallah said.

According to some estimates, he added, wheat production in Egypt could cover up to 10.8 million tons of the annual consumption volume of 22.6 million tons.

"The government also is arranging new financing agreements to make up for the shortfall in hard currency," he said.

The International Islamic Foundation recently provided Egypt with "$700 million out of $6 billion needed to secure basic commodities over the next five years," he said.

Even so, the "economic damages are expected to grow in the coming period," al-Sharq Center for Regional and Strategic Studies researcher Sami Gheit told Al-Fassel.

This stems from a rise in inflation and the price of hard currencies, and as the purchasing power of Egyptian citizens declines, he explained.

But with a package of urgent measures, such as those taken by the authorities, he said, "the extent of the damage could be mitigated, especially for citizens, by providing them with basic items at subsidized and appropriate prices."