The coronavirus was first detected in Wuhan, China, in late December 2019. The virus spread all over the world, infecting more than 24 million and killing 831,000 people. Economic growth slowed down and trade between countries was hindered due to the pandemic. Governments adopted unprecedented measures to curb the spread of the virus, such as lockdowns and halting international flights. As a result, world trade was affected, including that of Egypt.
The impact of the coronavirus on Egypt’s foreign trade can be examined by analyzing it in the first five months of 2020 in comparison to the same period of 2019. Exports, imports, and the trade deficit will be focused on to examine the effect of the pandemic on Egypt’s foreign trade.
Mixed signs on exports
Egyptian exports were affected during the crisis in irregular terms. At the beginning of the pandemic, before the discovery of positive cases in Egypt, from January to February 2020, Egyptian exports increased in January 2020, recording $2.482 billion, up from $2.448 billion in January 2019, registering an increase of 1.3 percent. Exports continued to increase in February 2020, reaching $2.694 billion, up from $2.609 billion in the same month in 2019 with an increase of 3.25 percent.
As Egypt’s exports were increasing, promising higher growth rates, the coronavirus hit Egypt. Exports decreased, reaching in March 2020 $2.238 billion, recording a decrease of 16.92 percent compared to the month before the spread, and with a decrease of 18 percent compared to the same month in 2019.
Generally, the spread of the pandemic led to a decrease in exports by 4.7 percent during the first quarter of 2020, compared to the same period of the previous year. According to the Foreign Trade Bulletin, issued by the Central Agency for Public Mobilization and Statistics, and after the emergence of the virus in Egypt, exports declined again, recording $1.572 billion in May, down from $2.727 billion in May 2019, with a decrease of 42 percent.
Figure No. (1): Egypt’s exports in the first five months of 2019 and 2020
Source: Foreign Trade Bulletin, the Central Agency for Public Mobilization and Statistics
The decline in exports can be attributed to many reasons. The first is directing a large part of production to the needs of the domestic market instead of exporting. The second is the Ministry of Trade and Industry’s decision to ban the export of a number of products, such as legumes, especially beans and lentils, and medical supplies, such as masks and protective gear. The third is the closure of borders. The fourth is the general limitation of free movement between countries.
The coronavirus crisis affected Egypt’s economy in general, and exports in particular. To contain the repercussions of the crisis, the Egyptian government endeavored to support exports. The Ministry of Trade and Industry contacted the export councils and institutions concerned with the foreign trade sector to start implementing new strategic schemes to raise the annual value of Egyptian exports to about $100 billion. This was done in line with Egypt’s plan for the export sector. The plan includes restructuring bodies such as the Trade Representation Authority and the Egyptian International Trade Point (EITP), the purpose being to open new markets for Egyptian products, seize available opportunities, define the markets that will be focused on and the products they need, and help connect exporters and suppliers.
Under the investment initiative, the Ministry of Trade and Industry coordinated to speed up the completion of the payment process of the first group of export support dues to exporting companies that have signed settlement protocols with the Ministry of Finance and the Ministry of Trade and Industry. These companies do not need to commit to the condition of presenting a certificate of their tax position of dues. A new program for export support is being currently formulated. This program is conducted in cooperation with the benefiting export sectors, and with the support of the prime minister. The program aims to be more effective than the program implemented last year that was faced with multiple challenges.
The new program shall contribute to achieving the government’s goals to increase exports, bearing in mind the different nature of each export sector that reflects on the competitiveness of Egyptian products in international and new markets.
Declining imports, relying on local products
The majority of countries, including Egypt, halted international flights. Since the spread of the pandemic in January 2020 Egyptian imports have decreased as a direct effect. According to the Central Agency for Public Mobilization and Statistics, imports amounted to $5.316 billion in January 2020, down from $6.517 billion in January 2019, recording a decrease of 18.42 percent.
The latest Foreign Trade Bulletin issued by the Central Agency of Public Mobilization and Statistics, five months after the pandemic spread, indicates that imports continued to decline, reaching $4.158 billion in May 2020, down from $6.779 billion in the same month of the previous year, with a decrease of 38.66 percent. Between January and May 2020, Egyptian imports regressed by 21.7 percent.
Figure No. (2): Egyptian imports during the first five months of 2019 and 2020
Source: Foreign Trade Bulletin, the Central Agency for Public Mobilization and Statistics
Egyptian imports decreased because local products were relied on to meet the needs of the domestic market, thanks to the successful strategy implemented by the Ministry of Trade and Industry. This means that the industrial sector possesses the required capabilities to increase production rates and meet the needs of the domestic market. The Egyptian government issued the Law on Prioritizing Local Products in Governmental Contracts to ensure Egyptian products gain a share of government purchases. The law reflected positively on local products and the decrease in import bills led to the preservation of foreign reserves. Eventually, this leads to strengthening the local economy and makes it able to withstand the pandemic crisis.
Drop in the trade deficit
Since the beginning of 2020 the pandemic has led to a decline in the trade deficit when compared to the same period last year. According to the Central Agency for Public Mobilization and Statistics, the trade deficit decreased in January 2020 to $2.834 billion, down from $4.069 billion in January 2019, recording a decline of 30.35 percent.
The trade deficit continued to decline until May 2020, reaching $2.586 billion, down from $4.052 billion in May 2019, with a decrease of 36.17 percent. From January to May 2020 the pandemic positively affected the performance of the Egyptian trade balance, reduced the deficit from $2.834 billion in January to $2.586 billion in May, with a decrease of 8.75 percent.
Figure No. (3): The performance of the trade balance during the first five months of 2019 and 2020
Source: Foreign Trade Bulletin, the Central Agency for Public Mobilization and Statistics
In conclusion, the decline in the trade deficit is a positive indicator. It confirms the Egyptian economy’s ability to turn a crisis into an opportunity. It is also expected to have a positive effect on Egypt’s Central Bank’s foreign reserves, due to the decrease in the import bill. The local production sector must be fully supported to enable it to meet the needs of the domestic market and export to international and African markets. African markets are some of the most promising markets because of the popularity of Egyptian exports. In addition, Egypt concluded a number of trade agreements with African countries, and the government subsidizes the shipping cost to African markets and export expenditures.
