Egypt’s role will remain pivotal in what comes next for the entire Middle East. President Sisi has the trust of western and Gulf leaders. He also commands the grudging respect of Israel and that is paramount to his unique position to be the man who steers his neighbours to some kind of middle ground. Ceasefire talks will continue to pop up and break down in Cairo but we do see a shift in the tone of statements coming out of them. Domestically, Egypt is ticking over leaving Sisi time to seal a deal but interestingly it has also left him some free time to start flexing his muscles elsewhere too.
Gaza.Ceasefire talks between Israel and Hamas convened in Cairo in August but once again broke down with no agreement being reached. The push and pull for control of the Philadelphi Corridor continues. In the most recent talks Egypt rejected Israel’s proposal of building eight watchtowers on Egypt’s border with Gaza in the corridor. The Corridor will remain a major sticking point in ceasefire negotiations as Egypt claims Israeli plans are in breach of the Camp David Treaty. Egypt has also denied claims by Israel that Hamas are operating tunnels into Egypt using the corridor. The corridor is 14 km long and approximately 100 metres wide running from the Mediterranean to where Gaza’s south east border meets Egypt’s Sinai. As August ended Israeli forces conducted four raids in the West Bank cities of Jenin, Nablus, Tubas and Tulkarem. Sisi met with a US Congress delegation led by Senator Joni Ernst when they visited Cairo. During the talks, he stressed that these attacks and any further escalation by Israel in Gaza “significantly heightens the risk of complicating the regional situation.” The US Government, via the U.S. Agency for International Development (USAID) has announced a funding agreement with Egypt valued at USD130 million. If we were cynical, we would say it was a bribe to keep Cairo on side. Despite this Sisi will remain committed to getting the best possible deal for all parties involved. He, along with the negotiating teams from Qatar and the US deeply understand the importance of finding a middle ground where Gaza can begin to release their hostages and Israel can suspend attacks. US representatives keep repeating that an end to the fighting is in sight and they may be right. Recent satellite images of Gaza appear to show Israel is constructing its own brand-new corridor through the territory to the sea. Its completion will likely factor into Israel’s willingness to negotiate/ compromise.
Somalia. Egypt and Somalia have signed a military cooperation and defence pact. President Hassan Sheikh Mohamud met with Sisi and the pair sealed the deal during Mohamud’s visit to Cairo. Egyptian troops will be deployed to Somalia in January 2025 when a current African Union peacekeeping mission to the country ends, although Egyptian military equipment is already being dispatched. The agreement has been hailed by many citing increased security and stability in the Horn of Africa, but not everyone is happy. Ethiopia is upset. Back in January of this year, Ethiopia’s Prime Minister Abiy Ahmed signed a highly controversial agreement with the self-described Republic of Somaliland. In it, Somaliland agreed to lease a 20km piece of its Red Sea coastline, the port of Berbera, to its landlocked neighbour allowing Addis Adaba to build a naval base. Ethiopia lost sea access in the early 1990’s when Eritrea seceded. Somalia has strongly rejected the MOU claiming it is illegal and a violation of its sovereignty. Egypt and the Arab League agree with them stating that Somalia should have full control of its entire territory. Somaliland announced a split from Somalia 30 years ago but is not recognised by Mogadishu or the United Nations as an independent nation. Ethiopia has been a major ally of Somalia in its fight against Al Qaeda-linked and Islamic State-linked militants but diplomatic relations have been strained in recent months. Ethiopia and Egypt have been butting heads for years over the construction and filling of the Grand Ethiopian Renaissance Dam. Sisi’s new alliance with Mohamud will heighten tensions but it may be enough to put pressure on Ethiopia to return to the negotiating table with Egypt and Sudan to discuss and agree Nile River water rights. Security on the Horn will have been a priority for Sisi but reducing his nation’s risk of water poverty will have been a bigger one.
Numbers. We are finally beginning to see some signs of economic rebound in Egypt. Core inflation slowed to 25.2% in July and currently sits at 24.38% at time of writing but it is not all good news. Headline inflation continues to stay stubbornly high in some areas. While we have registered a decrease in some areas, most notably poultry (down 11.2%), fruit and vegetable prices by contrast rose by 18.9%. The Central Bank of Egypt (CBE) has maintained interest rates at 27.25% but we anticipate that will come down in September or October by around 2.25% if inflation figures continue to slide. CBE’s target for inflation is 7% so there is still a long way to go to, but progress is now being seen to have been made.
Wheat. Egypt appears to be attempting to shore up its wheat stocks and take advantage of a recent drop in price for the commodity. In August it issued its largest ever tender for the grain, seeking 3.8 million tonnes. So far only 7% of that has been secured. The nation is one of the largest global importers of wheat and relies on it for subsidised bread production. Currently, wheat is trading at around USD200 per tonne, its lowest price in four years, but as fears of escalating tensions in the region and beyond loom large many anticipate costs will increase. Current government data says enough wheat is in strategic reserve to cover six months’ consumption.
Subsidies. Egypt’s Prime Minister Madbouly is considering a major change to the national food subsidy programme. He has floated the idea of a transition from supplying actual products, including bread, to his nation’s poorest people and switching instead to direct cash allowances. Newly appointed Supply Minister Sherif Farouk will be actively involved the decision-making process which, if approved by Parliament could be rolled out as early as next year. It should be recalled that one of the terms for release of a recent IMF loan to Egypt was to reduce subsidy costs and to remove anyone deemed ineligible. A flip to cash will make that easier as recipients will be forced to reregister to claim allowing authorities to assess each case. However, the implementation of a change will be tremendous. Currently, more than 60 million have access to the system.
Electricity.The frequent and sustained power cuts that have plagued Egypt in recent months are becoming less bothersome as power production capacity appears to have been boosted somewhat. The lights still go out from time to time but as summer temperatures begin to ease so too will the pressure of air conditioning draining an already overloaded system. So, what better time to introduce a price hike? The government has increased domestic electricity tariffs by as much as 40% depending on consumption bracket. Commercial prices also rose by between 23.5% and 46%, dependent on consumption rates. The industrial sector costs have increased by between 21% and 31%. By our calculations this will save the government around USD615 million over the 2024/25 financial year as at points the country was paying more to generate power than it was charging for using it. For the government and economists this all makes perfect sense financially and will free up funds for deployment elsewhere but as more and more Egyptians sink further and further into extreme poverty these hikes will hurt hard. Anticipate that the next sector to come up for review will be fuel. We see petrol and diesel prices increasing before the end of this year. Whether the downward trend of inflation after both hikes have trickled down can be maintained remains to be seen. Late payment penalties have also been introduced; previously customers had up to 90 days to pay before supply was suspended. Now, from 1st September, a late fee of 7% of the total sum owing will be applied after 30 days. As yet, it is unclear if this late fee will roll over, nor what time period will be allowed before supply is suspended.
Suez.Traffic through the Suez Canal is still down compared with previous years but it is at last showing some signs of increasing. A total of 67 bulk tankers navigated through the canal in August marking a 131% surge since May, when only 29 similar vessels made the journey. Oil tankers however are still mainly choosing longer alternate routes as Houthi attacks on vessels continue. Most recently a Greek registered oil tanker, carrying one million barrels of crude, has been left stranded after being attacked on multiple occasions by rebels. The risk of attack will continue to deter shipping companies from taking the straight shot through the Suez to the Mediterranean, as will the rising insurance costs linked to the route.
Taba.Three Arab Israeli tourists and two hotel staff members were injured when a fight broke out in a Hilton hotel in the border town of Taba on 30th August. The tourists allegedly refused to pay their bill. One Egyptian victim later died from stabbing injuries sustained. Although not our usual security section content this highlights the tensions and strong anti-Israel sentiment gaining traction in the country. The Taba border has remained open to Israeli tourists since Israel’s campaign in Gaza began. We do not anticipate that will change but heightened security measures should be anticipated.
Recent foreign investments and loans have freed Sisi and his government from scrambling to keep the wolf from the door economically, and the funds could not have come at a better time. The world is looking to the Middle East and many fear a full-on breakdown of stability and security which would create huge waves regionally. These would ripple out causing untold damage to international trade, relations, and economics but from where we sit the Tsunami sirens will remain silent. Sisi will see to that. There is no other leader who can command as much authority in this current regional crisis. It is this strong man stance that Sisi is so famous for. He will receive the backing and support of the West to bring some kind of peace. He will receive the thanks of Palestinians for his unswerving support. He will receive a silent but subtle thanks from Israel for not pulling the pin on the grenade that regional relations are often stubbornly sitting on. There is still risk, of course, but for now it is not any greater than it was last month. Sisi will keep calm and carry on.