Economists weigh in on what Joe Biden's victory means for Egypt's economy

There are 1,300 American companies operating in Egypt and the value of US-Egyptian trade was estimated at 8.6bln in 2019

  
Image used for illustrative purpose. Cairo Skyline along Nile River. The bridge, the Nile river & the Corniche Street in central Cairo.

Image used for illustrative purpose. Cairo Skyline along Nile River. The bridge, the Nile river & the Corniche Street in central Cairo.

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As the countdown to the inauguration of US President-elect Joseph Biden begins, economists in Egypt are assessing the significance of the rise of a Democrat to the White House on the Egypt's economy. 

“Over the last four decades the government and the private sector in Egypt were collaborating with businesses in the US regardless of who was in the White House, whether a republican or a democrat,” said Sherif Kamel, President of the American Chamber of Commerce in Egypt.

Egypt and the US have developed strong diplomatic as well as economic ties since the late 1970s, following Egypt’s signature of a peace treaty with Israel and its embracement of liberal economic policies. According to Kamel, the US is the third largest investor in Egypt and it is the largest recipient of US investments. There are 1,300 American companies operating in Egypt and the value of US-Egyptian trade was estimated at 8.6 billion in 2019.

“I see the room and potential for our bilateral relations to grow in the next period,” he said.

Kamel explained that Egypt is well-positioned to benefit from US investments that are expected to land in the region in the years to come, pointing out to the Prosper Africa Initiative, which was launched last year by the US government to encourage American investors to explore business opportunities in the Africa.

“We have a diversified economy and a growing market. These two are priceless platforms for investments to come. Money always looks for opportunities,” added Kamel.

A stable credit rating and a promising economic outlook will allow Egypt to attract more FDIs, added Kamel mentioning the latest IMF economic outlook, which singled out Egypt as the only economy in the Middle East to expand, though modestly, in 2020 despite the global pandemic. Also, global credit rating agencies have affirmed Egypt’s B-credit rating several times throughout the year.

Biden Vs Trump

Besides potential FDIs, some observers hold that the arrival of a more predictable American president, like Biden, can benefit Egypt’s economy indirectly.

“Donald Trump had crossed all the lines. He was only listening to his own voice and had ignored all international treaties that the US was party to,” said Ahmed Ghoneim, an Economics professor at the Cairo University.

Trump waged a trade war against China contending that the US-Chinese trade relations bore unfairness, contributing to a protracted trade deficit in the US.

“Biden will ease the tension with China, and hence the trade frictions will be less, which will impact the whole world trade environment and hence trickle down to Egypt,” said Ghoneim.

Ghoneim went on explaining that Trump’s anti-China policies had indirectly affected Egypt in the last few years. By imposing tariffs on Chinese products, the US has forced China to dump its stocks in other markets, including Europe and the Middle East at lower prices - a pattern that had inflicted harm on several Egyptian industries including steel, aluminum and paper.

According to Amr Hussein Elalfy, Secretary-General of CFA society Egypt, a more stable global economic order may also help capital markets flourish.

Egypt has recently emerged as one of the world’s top emerging markets. Since it embarked on its IMF-dictated economic restructuring program in 2016, it has gained a wider access to the global capital market.

“By easing the trade war with China, investors will be encouraged to look more into emerging markets. Hence, Egypt can benefit from more foreign portfolio investments,” he said. 

Egypt’s President Abdel Fattah el-Sissi was among the first Arab leaders to congratulate Biden on his win, expressing his desire to “strengthen” US-Egyptian strategic relations. Despite the diplomatic rhetoric, relations between el-Sissi’s government and the US democrats have been strained since 2013, when former US President Barack Obama disapproved of the military overthrow of ex-Islamist President Mohamed Morsi, whose short-lived rule was divisive and provoked nationwide protests. 

Biden is expected to invoke the same political agenda by stressing Egypt’s need to observe democratic values and human right, according to Ghoneim, who believes that political strain may not necessarily translate into worsened economic relations.

“I don’t expect [US-Egypt economic relations] to improve but I don’t expect them to deteriorate either,” he said. “These direct relations revolve around two issues:  The Qualified Industrial Zone (QIZ) agreement and the US economic aid.”

“The QIZ will stay on regardless of anything, because it benefits Israel politically and benefits us economically,” he explained.

In 2004, Egypt signed the QIZ agreement with Israel and the US. This trade agreement allows duty-free entry into the US for products manufactured in designated geographic areas in Egypt with Israeli components.

“I doubt that (Biden) will raise the amount of US aid or encourage American companies to invest in Egypt. I doubt that he will have the appetite for it,” said Ghoneim downplaying the significance of the US economic assistance anyway as it has been brought down to the minimum over the last two decades.

(Reporting by Noha El Hennawy; editing by Seban Scaria)

(seban.scaria@refinitiv.com)

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