Can the BRICS Help De-Dollarize Egypt's External Trade?

In January 1st, 2024, the Arab Republic of Egypt officially became a member of BRICS–Cairo was invited back in August 2023, and there was no opposition to the invitation from the Egyptian side. To the contrary, President Sisi and the government as well as many echelons of society considered it a boon for our country. As we've written here, Ankara joining the BRICS has also contributed to a more realistic Turkish foreign policy and contributed to the improvement of Turkish-Egyptian relations.

BRICS as a currency swap trade exchange lifeline for a USD/EUR starved economy

Total exchange between Egypt and the members of BRICS–new and old–amounted to over 33% of all Egyptian external trade, valued at $46 billion in 2023 dollars. Thus, joining the multipolar economic alliance could streamline such activities and only bring good benefits.

Photo credit above: Cairo skyline with the pyramids

Uploaded to iStock by oversnap Nov 2017 iStock photo ID: 1072247032

One of the most looked-forward to policies in BRICS for Egypt is the settlement of trade using local currencies, due to the chronic shortage of foreign exchange both dollars and euros. Egypt's primary sources of dollars and euros have been tourism, natural gas exports, and the Suez Canal. But the Egyptian economy has not been doing too well even before October 2023 brought a renewed war and humanitarian crisis on our Gaza border. Meanwhile, civil war drags on in Sudan and the east-west split on our western border in Libya remains unresolved. The Red Sea Blockade by the Houthis has, according to Egyptian estimations cost our economy $6 billion in Canal Zone lost shipping revenue and related losses. Any changes that could reduce the stress on the economy would be gladly agreed to by the Egyptian government.

EGP-AED swaps facilitate Egyptian-Emirati trade

One week before the renewed Israel-Palestinian war broke out with the Hamas attack of October 7th, on September 28, 2023, the Egyptian Central Bank signed a currency swap agreement with the Central Bank of the United Arab Emirates. The UAE is, alongside fellow GCC power Saudi Arabia, Egypt's closest ally. The currency swap deal allowed for an exchange of 5 billion dirhams and 42 billion EGP, which helped in increasing the volume of Egyptian-Emirati trade, facilitating transactions without the usage of dollars. The agreement covered trades up to $1.3 billion in value, so we are not talking about just consumer goods shipped via the UAE's duty-free ports but heavy machinery and capital equipment.

China's Maritime Silk Road investments in the Suez Canal Zone and EGP-RMB swaps

Just one day before that, on September 27, 2023, the Egyptian Central Bank Governor met his Chinese counterpart in Beijing for discussions about further currency swaps and better economic integration. Since 2016 Egypt and China have struck agreements to issue bonds, currency swaps, and swap lines between the EGP and the Yuan–with the Chinese Ambassador in 2023 informing the media that some trade deals between Egypt and China already are being transacted purely in local currencies. Such deals are beneficial to those Egyptian and Chinese businessmen who work in the import/export businesses, since it enabled them to source their needed currency independently. Chinese companies in Egypt can also facilitate their investments using the Yuan in 2024. China has been a major investor in Canal Zone industrial projects and logistics as part of its Maritime Silk Road initiative.

Saudi Riyal-Egyptian Pound swaps for trans-Red Sea shipping

Besides China, Saudi Arabia and Egypt are also discussing the usage of local currencies to settle transactions between the two neighbors, but the EGP-Riyal deal has not yet finalized. Red-hot inflation in the EGP which is a hassle for even Red Sea crossing shipments of a few days from Suez to Jeddah the Saudis' main Red Sea port and the second busiest container port in the Arab world (after Jebel Ali in the Emirates) has been a major obstacle to this deal.

Joining BRICS is simply one of the many measures the Egyptian government has been trying to enact and involve themselves in. Considering the severe economic crisis, alongside a high international debt burden, the devaluation of the EGP, and chronic state budget deficits, have all fueled the inflation that has been increasing for years with no end in sight.

BRICS New Development Bank (NBD) as an IMF alternative for Egyptian infrastructure credit

The Prime Minister of Egypt, for example, is of opinion that the NDB (New Development Bank) would be a good institution to take loans to develop infrastructure projects, while the Minister of Finance stated that joining BRICS would provide new opportunities for trade.

However, opinions are not the same thing as facts. BRICS is not a centralized organization and is thus a weak institution, despite President Sisi's warm conversations with Putin, Xi and Modi at the recent summit in Kazan, Russia. While BRICS would certainly help in regards to the import and export business, more bold economic measures are necessary. BRICS is not a panacea for all of the woes facing our economy, but it is a major step that should be taken. How to deal with and renegotiate Egypt's foreign debts is another big issue.

Egyptian-(Soviet and post-Soviet) Russian relations from the 1960s to the present

There is certainly a strong historical connection between the BRICS and Egypt, since under Gamal Abdel Nasser Moscow and Cairo enjoyed good ties when Russia was part of the USSR and the Soviets helped build the Aswan Dam. Politically speaking, Egypt seeking more capital and credit from the BRICS may entail a significant geopolitical shift. Originally, Egypt could have joined BRICS much earlier than 2024 – in fact, as early as 2011, when President Mubarak was invited to join BRICS. However, he refused, citing that he did not wish to endanger relations he had with Western Europe and America. But considering Egypt’s historical role as a middle player and diplomatic broker in the Middle East, this may not prove as much as an issue as Mubarak thought back then.

Peace in the Black Sea grain exporting region would be beneficial for Egypt

The incoming second Trump Administration is likely to remain friendly with President Sisi as during Trump's first term, since Egypt remains indispensable to ending the war in Gaza and negotiating to end the Houthi blockade. Washington's practical military options of bombing the Houthis and continuing to risk U.S. warships to Houthi drones and missiles of increasing sophistication have dwindled, and Trump will not want U.S. casualties in or around Yemen right after assuming office on January 20, 2025. Trump's stated goal of negotiating a partial partition of the Ukraine to end the conflict between NATO-backed Kiev and Moscow would be beneficial to Egyptian interests, since Egypt is a major importer of both Russian and Ukrainian wheat from the Black Sea basin.

The Ukrainians briefly were able to export some of their grain in 2023 into 2024, but due to the ongoing drone warfare, that trade via the Bosporus has been curtailed. After Ukrainian drones struck Russian cities and oil refineries, the Russians retaliated by striking both Ukraine's few working power plants that were still online and several ships at the port of Odessa that Moscow claims were being used to import NATO weapons. Thus, the war has contributed to food price inflation in Egypt as wheat prices reflect the ongoing disruption of Black Sea grain shipment.

Joining BRICS, as stated earlier, can certainly help with the economic situation, but without serious internal reforms, it may not prove to be of much help in the end.

Some painful statistics about the inflationary debt crisis in Egypt

Now, I would like to talk about the economic woes of the Egyptian economy, which many Western tourists who see only the resorts in Giza, Hurghada or Sharm El Sheikh may not understand:

The Egyptian economy is entering 2025 facing severe challenges. While it was never really the best example of a model economy in the first place due to the over reliance on tourism since the 1980s and high degree of State ownership, the high inflation, currency downfall, and dollar-denominated debt servicing burden has caused a major economic crisis over the last two years, which is unlikely to be solved in the near future. The Egyptian pound has lost 50% of its value since 2023, the exchange rate fluctuates anywhere between 40 to 49 EGP a week, and the black currency market was quite active in 2023. Although in 2024, police crackdowns and sting operations made the black market less popular, the price of foodstuffs, gasoline and diesel, and other vital imports such as pharmaceuticals have skyrocketed. We've seen increases of double or triple the original cost every few months. Thus, the import costs are quite high, already exacerbating a politically sensitive situation.

Specifically about the inflation, the annual rate is over 40% to 50% as of November, one of the highest in the world, which in many ways is worse than that of Turkey, which has a slightly smaller population and can grow more of its own food. Egypt has over 112 million people and the population is growing by over 1.7% per year. Foodstuffs inflation has surpassed 60% in 2024, to keep this in perspective, 30% of the Egyptian population lives under what is internationally recognized as the poverty line. With increasing import costs from the Houthi blockade and other global conflicts-exacerbated inflation and Egypt's reliance on imported foodstuffs, such an increase was simply inevitable.

The public debt is around $165 billion, with $5 billion being private and the rest being foreign debt. Over half of all government revenues goes towards simply servicing the debt, clearly an unsustainable situation without a major re-negotiation with creditors.

The Debt to GDP ratio is around 90%, and to maintain that, Egypt usually takes out loans from the International Monetary Fund (IMF) to help balance out financial obligations. GCC foreign aid supports some food imports. Another important figure to note – Egyptian GDP is expected to only increase by 3% in 2024, this means accounting for inflation and population growth, per capita GDP has slowed by half compared to 2021.

There is an unemployment crisis, the job market is stagnant, and the youth are disenfranchised, coupled with the fact that Egypt is one of the largest wheat importers, relying on international shipping and countries that are involved in the Ukraine War, the economy, to put it bluntly, has been extremely stressed. Alas, foreign direct investment (FDI) is declining year by year, and, of course, the tourism sector has not exactly recovered from memories of Daesh terrorism, ongoing wars on Egypt's borders, and the region-wide struggles of the Middle East over the past 13 years.