Dec 17, 2014

How Sheikh vs Shale will cost Egypt EGP1.9billion

There has been a lot of euphoria on the levels savings on government subsidies due to the fall of oil prices to mid-fifties per barrel. Yet it is important to understand some of the downstream impacts of this oil crash, particularly on the Egyptian economy. These impacts will include reduced investment in the Egyptian Oil field (already not recovered), changes in costs of many manufacturing input costs, a reduction in tourist arrivals, along a few others. First though lets look at tourism.

The current free fall of oil prices has been an outcome of the Sheikh vs Shale cold-war. The Saudis are pushing prices so low to maintain their global market share against the booming US production. The Americans on the other hand are not too worried as this drop in prices has put a lot of economic pressures on countries they don't play nice with. Namely Venezuela, Iran and Russia.

This economic pressure has resulted in major pressures on the Russian economy (interest rates raised three times in a handful of weeks, going from 9.5% to 17%) this has ultimately put Russian ruble in free fall (losing around 50% of its value over the last 48 hours) and the Russian economy in panic. Pretty much there is a run on all stores to convert any and all currency into goods. You can only imagine how will this impact the Russian public's appetite for spending their diminishing disposable income on an all inclusive trip. And that is how we will be impacted. And this is how the Egyptian economy be impacted.

So how much are we going to be impacted? Well here are some guiding figures: In 2013 there were 2.4 million Russian tourists visiting Egypt, representing around 28% of all tourists coming to Egypt. They spent 23.7 million tourist nights and brought into the Egyptian economy around EGP 1.9 billion. Now that we are half way through the 2014/2015 season, it will be very important to look at travel cancellations and airport arrivals in the red sea to assess actual impact.