International Business: The Stable Egyptian Economy

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According to several economic experts, the fact that the Egyptian economy is performing better than just “staying afloat” represents nothing short of an economic miracle. Several factors have coalesced to provide Egypt with the economic cushion the country requires during turbulent times.

The Egyptian Economy

The interest rates the Egyptian government pays to attract bond investors have fallen since the onset of the coup. In a Bloomberg Businessweek interview, emerging-markets economist William Jackson attributes relative investor calm – somewhat counter intuitively – to the Egyptian military’s current role in government operations. Jackson says investors believe strongly that the Egyptian military plans to keep all vital industries vibrant and, more importantly, keep the Suez Canal open for business. The Suez Canal provides the gateway for oil imports and exports not only in the Arabian Peninsula, but also worldwide. Closing the canal for just a few days can prompt panic selling on oil future exchanges. The Egyptian military has secured Suez Canal ports and the waterway that ensures international business transactions. Moreover, Jackson believes the Egyptians that operate businesses welcome military intervention to prevent the outbreak of civil war.

Foreign Aid and International Business

The hard currency generated by continued oil revenue has allowed Egypt to absorb a few economic blows. Because of the violence, tourism has virtually disappeared in the country. Tours through the historic Pyramids and religious centers have cancelled their planned excursions. Pilgrimages by citizens from neighboring countries have dramatically declined as well. Egypt’s large textile industry has experienced a reduction in domestic orders, although foreign demand remains high.

Despite the economic problems that somewhat counterbalance strong oil revenues, Egypt has done more than “stay afloat” because of the financial support of Kuwait and Saudi Arabia. Saudi Arabia has coordinated support with Kuwait and the United Arab Emirates to pledge over $12 billion dollars in foreign aid. As of September 2013, the military-backed Egyptian government has received nearly half of the pledge money. Cash infusions such as the pledged donations from Saudi Arabia, Kuwait, and the United Arab Emirates stabilize the Egyptian currency, allowing the country to withstand a precipitous trade balance decline.

International Business Specialization

20 years ago, the Egyptian coup may have created a catastrophic meltdown of the country’s economy. Any disruption in oil shipments or other commerce along the Suez Canal would have caused an economic rippling effect felt in the United States. The crisis averted in Egypt represents, for the time being, a major success of the international economy.

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