amwalalghad :: How Donald Trump's economic policies could hurt Egypt

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How Donald Trump's economic policies could hurt Egypt

Published Wednesday, 15 February 2017 14:05 | Written by Ahmed Fouad

The World Bank Group's global growth forecast for 2017 has something for everyone — from doubt, to caution, to cautious optimism. And while not mentioning US President Donald Trump by name, the report makes it clear his policies could change things substantially for much of the world, including Egypt, for better or for worse.

On Jan. 10, the bank slightly downgraded its 2017 global growth forecast from the 2.8% predicted in June 2016 to 2.7%. Yet the predicted growth is still an improvement over last year's 2.3% and is equal to 2015's.

According to the World Bank, the new US administration and Britain's pending exit from the European Union are responsible for much of the suspense.

“Lingering uncertainty about the course of US economic policy could have a significantly negative effect on global growth prospects,” the report said. The same uncertainty could be why the bank trimmed Egypt’s real gross domestic product growth to 4% this year from 4.3% in 2016.

It also said, however, that "significant fiscal stimulus in major economies — in particular, the United States — could support a more rapid recovery in global activity in the near term than currently projected, and thus represents a substantial upside risk to the outlook."

Especially concerning for Egypt, which is already suffering an economic crisis, is the potential effect of Trump’s decision on Jan. 23 to withdraw from the Trans-Pacific Partnership (TPP). The TPP is a trade deal aimed at fostering economic ties among 12 countries: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, the United States, Singapore and Vietnam. The agreement is expected to reduce custom tariffs among member states, or cancel them in some cases. It's also designed to boost investment flow among these countries.

The TPP was signed but has been awaiting ratification by the signatories. To be brought into force, each member state needs to approve relevant legislation.

Egypt, although not a TPP member, does not seem safe from the potential repercussions of the US pullout. The Suez Canal — one of the main sources of foreign-exchange flows into the Egyptian treasury — is one of the fundamental trade corridors between North American TPP members on the one hand, and Australia, New Zealand and the Asian TPP members (Brunei, Malaysia, Singapore, Vietnam and Japan) on the other.

Medhat Nafi, who heads risk management at Egypt’s Stock Exchange, told Al-Monitor, “Of course the Suez Canal would benefit from the growth in trade between Asia, Australia and North American countries under the Trans-Pacific Partnership. Cutting or lifting custom tariffs would encourage export, import and investment, which are key drivers to the Suez Canal, whose main income so far is based on transit fees on cargo imported and exported between these countries.”

On the impact of the US withdrawal he said, “The US is the biggest market among TPP member states, and its withdrawal may mean a slip in the trade growth sought by the TPP. This would lead to a dip in potential trade-movement upsurges between the TPP member states through the Suez Canal. But this does not preclude the expected positive trade outcomes for the Suez Canal" once the deal is implemented. He added, "But in this case I think the Panama Canal might be the biggest beneficiary."

The 2015 statistics issued in February 2016 by Trade Map, a web-based, trade-flow analysis tool, showed that US exports accounted for 89% of the North American total to Australia, New Zealand and the Asian TPP countries. They also showed that US exports to those countries reached $139.2 billion. In turn, the US is the most important export market for Australia, New Zealand and Asian TPP member states, accounting for 91% of their total exports to North America. These countries’ export values to the US in 2015 reached $301.7 billion.

Trade Map statistics also show that the United States accounted for almost 91% of total 2015 exports and imports ($441 billion) between North America and those seven countries — Brunei, Malaysia, New Zealand, Singapore, Vietnam, Japan and Australia. That also means that, as a result of the US withdrawal from the TPP, the Suez Canal could lose its biggest opportunity for trade growth and would benefit only from 9% of the trade among those countries.

Yet this is not the worst-case scenario for the Suez Canal. Australian Trade Minister Steven Ciobo said in statements Jan. 24 that his country has consulted with TPP member states to find an alternative to the United States after its withdrawal. Also in press statements that day, Australian Prime Minister Malcolm Turnbull said it's possible China might join the TPP. If China or any other East Asian country were to join the TPP as an alternative to the United States, trade movement between the East and West would be significantly affected, which would constitute a loss for the Suez Canal.

Ahmad Darwish, head of the General Authority for the Suez Canal Economic Zone, did not respond to Al-Monitor's request for comment.

The Suez Canal saw a 3.3% decline in its total revenues in 2016 compared with 2015; experts have different views on the cause. Some believe it was the result of ships sailing through the Cape of Good Hope rather than the Suez Canal, because the overall decline in global oil prices made that cheaper than paying canal tolls. Other experts say the revenue drop was due to decreasing global trade rates.

Faraj Abdel Fattah, a professor of economics at Cairo University, told Al-Monitor, “The presence of the US as a party to the agreement was supposed to be beneficial to the Suez Canal, as it should have led to a breakthrough in trade exchange, since it has the biggest share of trade movement among TPP countries. However, Trump’s general policies, namely the expanded policies in fighting terrorism and supporting Egypt to this effect, could have a major impact on the stability of Egypt and the world’s economy, especially after the major losses as a result of terrorist attacks. Therefore, we should not jump to conclusions that Trump’s policies would negatively affect the economy of Egypt and the world.”

About the Writer:

Ahmed Fouad is an Egyptian journalist working as newsroom assistant manager for Al-Shorouk. He specializes in coverage of Islamists and analysis of the political situation in Egypt, especially after June 30, 2013.

Source: Al Monitor