The Challenges of Egypt
Egypt is increasingly facing external vulnerabilities. The Russo-Ukrainian war deeply impacts the country’s economy and, down south, the Grand Renaissance Dam (GERD) is causing the Egyptians an existential crisis – it has the capability to disturb Nile River flows. For the North African country, these developments are highly alarming.
The Russian invasion in Ukraine impacts Egypt in multiple ways, most notably its food security. Egypt is the world largest importer of wheat and gets 85% of its wheat from Russia and Ukraine. Both account for a significant part of global wheat exports. With the war, however, the exports of both countries became either halted, affected or highly uncertain, and consequently global prices surged. Steep rises in the prices of wheat were one of the causes of the Egyptian uprising in 2011. It is why the prices of wheat and bread are seen as a priority for the Egyptian government, which subsidizes the product for nearly 2/3 of the population. In the current state, however, subsidization will lead to a substantial increase in budget spending, with the country already having introduced a price cap on bread.
Aside from prices, the physical supply of Egypt is affected as well. Russia and Ukraine are Egypt’s largest suppliers of wheat and due to the uncertainty in the prospects of the war, sticking to those supply chains will pose a severe risk. Although the country has strategic reserves of wheat left, it will need to negotiate new deals with other partners in order to secure its future supplies. Here lies an opportunity for some countries. Currently, Egypt is reaching out to the US, Argentina, and India to negotiate wheat imports.
The war also impacted the fuel market and amplified problems in the tourism sector. The global oil market was severely impacted by the Russo-Ukrainian war. In Egypt, Covid-19 already caused an inflationary trend, which only grew as oil prices surged. The level of inflation is something to worry about for the Egyptian government. As for tourism, both Ukraine and Russia were its biggest markets. The loss of visitors is magnifying problems for a sector that barely managed to recover from the previous impacts of the pandemic.
Closer to home, conflict is looming on the Nile, as tensions between upstream Ethiopia and downstream Sudan and Egypt increase. Last February, Ethiopia started to operate the first turbine of the Grand Renaissance Dam, which took over a decade to construct. Egypt condemned the Ethiopian action and stated that the Nile cannot be managed unilaterally by riparian countries. The project has been the source of rising tensions between countries on the (Blue) Nile.
Last week, opposition became visible once again, when Egypt and Sudan held high-level military talks, and discussed military cooperation, joint training and exchanging experiences. The dam, which puts Ethiopia in control over Egypt’s water, is an imminent threat to Egyptian security. Essentially it creates the possibility to weaponize water. Although Ethiopia claims to use the dam for developmental means only, the potential scenarios are worrying.
Egypt is already experiencing relative water-scarcity. With the current trends of population growth & water usage, water-scarcity will turn from relative to absolute, by 2025. Water management and climate change in large part will determine how that trajectory will look precisely. These projections, however, have not taken into account the potential impact of the GERD. Disturbance in Nile River flows would likely affect average household taps, agricultural produce, employment, the economy and stability.
For a country that largely depends on imports for its food security, the effects of the Ukraine war would be amplified if the GERD affects the country’s water availability. In that sense, the two events are related and share a role in the Egyptian calculus. Both events risk the stability of the Egyptian economy and political landscape. Although that risk is contained by shifting import locations, loans, and an effective policy regime, it is no time for Ethiopia to provoke Egypt. Were Ethiopia to disturb Nile River flows, it is more likely now that Egypt would react in a harsher way.