Saturday, January 29, 2011

Egypt: Bad Unemployment, Inflation, Hunger

From "Our Finite World"

There is a good reason why one might expect Egypt to start running into problems with energy and food subsidies. Its own financial situation is declining at the same time that the cost of food imports is soaring.

Starting about 2010 or 2011, Egypt will change from an oil exporting nation to an oil importing nation, if there are imports available on the world market. 

The oil that Egypt exports provides funds for the subsidies that it offers, so reduced exports mean less funds are available for subsidies.

Egypt subsidizes both oil and natural gas sales internally, so it is likely that the government is not getting much revenue related to be portion that is used for internal consumption. 

Egypt was already significantly overspending its revenue in 2009 (the last year available), with revenues of $46.82 billion and expenditures of $64.19 billion. 

Cutbacks in oil production and in Suez Canal transport can be expected to exacerbate unemployment problems. The Egyptian unemployment rate was listed at 9.7% in 2010 by the CIA World Factbook.

As population grows, the amount of land needed for housing and businesses rises, and the amount of land for agriculture falls. So Egypt can produce less of its own food, as time goes on.
Egypt is reported to be the world’s largest importer of wheat. In 2010, the oil minister stated that Egypt imports 40% of its food, and 60% of its wheat.
With oil prices higher now (because world production is close to flat, and as countries come out of recession, they want more), food prices of all types are higher as well. Oil is used directly in the production of grain and indirectly in storage and transit, so its cost becomes important.
One reason is that other Arab countries are also feeling some of the same pressures. Food prices are rising everywhere. Many low income people spend in excess of 50% of their income for food, so a rise in food costs becomes a real issue. People have come to depend on oil and food subsidies. If they are taken away, or not raised sufficiently to compensate for the higher costs of imports, it is a real problem.
The higher food prices contribute to the overall inflation problem that Egypt already had. In 2010, the CIA Factbook estimated the inflation rate to be 12.8%.