After COVID-19 found its way into Egypt, several decisions restricting mass movement and commercial activities were enforced. The novel coronavirus prompted cancellation of final exams for most educational levels, a nationwide 11-hour daily curfew, reducing public sector daily force by 50%, and adoption of a wide-spread work-from-home policy across different public and private companies and institutions, among a number of other measures. Sporting and entertainment events, big gatherings, and even serving shisha at cafes have been indefinitely suspended. But not everything in the economy can come to a halt.
“Anything that can be done online, like administrative or creative work, should be done online,” said Tarek Tawfik, Vice President of the Federation of Egyptian Industries. “Production-based industries, however, can’t work from home, because the [economic] damage of shutting down all factories would be a 100 times worse than the damage caused by COVID-19.”
Like hospitals, pharmacies, and grocers, manufacturers are allowed to remain fully operational, while taking necessary precautionary measures, according to Tawfik, in order to meet the unwavering demand for consumer goods.
Having proven their resilience, Tawfik says that Egyptian manufacturers have seen worse times, as supply chains got disrupted and subjected to prolonged curfews in the aftermath of the 2011 revolution. “But things kept going then, and they will keep going now.”
Hit hard, however, is Egypt’s tourism industry. With flights halted around the world, the industry that is valued at more than 10% of Egypt’s economy is witnessing a total shutdown. The Egyptian government announced a stimulus package of EGP 50 billion to support the affected hotels and hospitality facilities last week, but it’s unlikely that such package could support the industry for long.
Tourism is also a major source of consumption for consumer and food products, and the sudden halt in the tourism influx is already negatively impacting manufacturers in those industries. Add that to a sudden ban on exports for certain food and sanitary items, and the struggle becomes more severe.
“The hike in local demand is unlikely to cover the losses of manufacturers who rely on tourists or exports,” says industrial development expert and CEO of Enroot Development Alaa Fahmy. “As with what happened during the 2008 financial crisis, Egypt’s informal sector will fill the gap in the demand and supply for basic products, however probably in an unorganized and unstructured manner.”
According to Fahmy, a 100-million-strong market like Egypt’s will be resilient in the face of the crisis. The informal sector, which amounts to 50% of the economy in most estimates, will likely be able to move faster than the formal one to respond to changes in demand on basic items.
“On the long-term, our economy will be faster to recover than many other economies,” says Fahmy. “We have lesser regulations, and most of our companies are small-sized; they can recover fast and will be able to surge.”
Moreover, Fahmy predicts that once the crisis is over and global supply chains reestablished, there will be a surge in global demand, representing a golden opportunity for countries who will work to position themselves correctly to capitalize on such exporting opportunities. Keeping industries financially stable is a first step, but it will not be solely sufficient in making headway on that front.
“Stimulus packages (i.e. access to finance) are soft interventions,” explains Fahmy. “We need skills, quality infrastructure, and market access in addition to access to finance in order to achieve real progress. Tax breaks and incentives will not work alone; there needs to be a comprehensive market system study to examine the gaps in the market. Then the knowledge obtained through that can be used to guide creation of industrial development programs that provide the knowledge and know-how to push the wheel forward. Financial instruments would only work that way.”
Any potential winners?
As seen on a global scale, tech startups, especially those specializing in entertainment and e-learning, are witnessing an unprecedented boom in demand as many countries enforce movement restrictions on their citizens. Could the Egyptian tech ecosystem take advantage of such an opportunity?
“ICT items will see a hike in global demand, especially communication and digitization items, and we can be quite competitive in this field,” says Fahmy. “Engineering industries are also witnessing a global surge, and we have a significant know-how in this sector in Egypt.”
To strategically position these sectors, Fahmy stressed the importance of setting clear and specific development targets, finding out their needs in terms of talent and infrastructure, which will both add up to a clear development vision for them.
“It’s a long process that would take six months to a year, but we have to work on the developmental aspects as well as the financial ones.”