Exodus from Libya may hit Egypt economy
A vendor wears a wig as he waits for customers to buy merchandise related to the fall of Hosni Mubarak during demonstrations in Tahrir Square in Cairo on Friday. (AP)
Published: Feb 27, 2011 22:39 Updated: Feb 27, 2011 22:39
CAIRO: Egypt’s economy - already beset by strikes, slumping tourism and political uncertainty - is in the process of being dealt another body blow as turmoil in Libya sparks a mass exodus of Egyptian guest workers back home.
Almost 100,000 people, including Tunisians, Egyptians, Libyans and Asians, have fled the violence in Libya over the past week, the UN High Commissioner for Refugees (UNHCR) said on Sunday.
For Egypt, that will likely be the trickle that turns into a flood with estimates of the number of Egyptians living and working in Libya ranging as high as 1.5 million.
Their return home will not only deprive the country of badly needed foreign currency, but will create a new demand for jobs in an economy already suffering double-digit unemployment and slowing growth, said Magda Kandil, executive director and director of research for the Egyptian Center for Economic Studies.
“We’re talking about an economy that has at least 10 percent unemployment - and youth unemployment is at 25 percent. This will add additional pressure on a fragile labor market,” Kandil said.
“No one knows when they will be able to go back to Libya.”
Mass protests have knocked a huge dent in the Egyptian economy, frightening away tourists and causing factories and offices to close for extended periods.
Although Hosni Mubarak stepped down as president a few weeks ago, meeting the opposition’s main demand, the interim government has struggled to return some semblance of normalcy.
On Sunday, Egyptian villagers in the southern governorate of Assiut blocked the main highway for four hours to protest the lack of subsidized bread; and in Manfalout, one of Assuit’s main cities, around 2,000 municipal employees and workers went on strike demanding better living conditions and accusing senior officials of corruption.
About 2.7 million Egyptians work abroad in the Gulf, Europe, the US as well as Libya. The government has long-encouraged the process as a way of keeping a lid on unemployment and as a source of foreign exchange and investment.
The UN International Organization for Migration estimates that in 2009 - a poor year for earnings because of the global economic downturn - the Egyptian expatriates sent home close to $8 billion, a figure equal to five percent of gross domestic product. That money went to paying the household expenses of families left behind in Egypt and for investment, usually in real estate.
Kandil estimated that the exodus to Egypt would cut into foreign receipts by about a fifth. Libya as a source of employment for Egyptians has grown in importance over the years as many Egyptians in the Gulf were displaced by Asians.
Libyan leader Muammar Qadaffi appeared to have a firm hold in Tripoli and appeared to be mounting a campaign to regain control of Zawiyah, some 50km away, as of late on Sunday, the Al-Jazeera television network reported.
“The effect of what is happening there is going to show in the next few weeks because 1.5 million Egyptians work in Libya and they are now returning,” Rania Al-Malki, chief editor of Daily News Egypt, said.
“That’s going to be a huge problem because many of the families depend completely for support on the family member who worked in Libya.”
David Cowan, economist at Citigroup Global Markets in London, said recently that the Egyptian GDP will probably expand no more than 1.5 percent this year, a growth rate he termed “stagnant” because it will just be enough to keep up with the expanding population.
Income generated by Egyptians working abroad was one of the economy’s few bright spots because it isn’t affected by Egypt’s domestic upheavals. Tourism, the country’s biggest earner of hard currency, is still in the doldrums after some 210,000 visitors fled during the last week of January when unrest erupted.
The cancelations and early departures cost Egypt about $178 million and cancelations for February add up to an estimated revenue loss of $825 million. As many as two million Egyptians work in tourism.
Egypt’s current account deficit will grow to $6.4 billion from $4.3 billion in fiscal 2010-11 if tourism receipts fall by half, Deutche Bank estimated last week.
Egypt’s transition government knows that the unrest that toppled Mubarak was sparked in large part by economic distress as Egyptians coped with inflation and unemployment. It has taken measures, such as granting 15 percent pay raises to civil servants, aimed at addressing short-term needs.
Kandil said she expected it would look for similar band-aid solutions for the returning guest workers, such as providing them with government jobs. But, she warned, the government will have to find permanent solutions that contribute to the economy after elections later this year.
“Honestly, even though the government may absorb some of those extra workers, it won’t be very productive labor,” she said.
“The government already employs six million workers and at least a third of them are unnecessary.”