The Global Crisis as an Opportunity to Upgrade Ties With the Arab World
By Dr. Moshe Albo | March, 2022
|Photos: GPO - Kobi Gideon|
The fear of a global economic crisis that could lead to financial destabilization is growing in Cairo and Amman in view of the expanding implications of the war in Ukraine. The Chief Economist of the World Bank has warned that soaring energy and food prices could exacerbate existing food security concerns in the Middle East and Africa, and may fuel growing social unrest that would undermine regional stability.
Socio-economic turmoil has direct implications on Israel's national security in view of its growing strategic ties with Cairo and Amman in recent years. Egypt's and Jordan's stability is one of Jerusalem's strategic interests, and a key component of its regional perception. The exacerbating economic crisis requires an in-depth examination of civic-economic collaboration axes, and the promotion of steps that would help to cope with the crisis, alongside an opportunity to deepen strategic ties between these countries, and expand them beyond the security-military context.
Egypt – Fragile stability
The Egyptian Minister of Planning and Economic Development, Hala el-Said, presented the Egyptian economy's achievements on 22 February, 2022 (two days before the Russian invasion into Ukraine), indicating an improvement trend as well as progress on all metrics. Moreover, the government's policy has successfully stabilized inflation after two difficult years of a global health crisis, and it has succeeded to return to its pre-pandemic rate.
The presidential engine that relied on the defense-military establishment has led the country's comprehensive modernization, and has managed to stabilize the Egyptian economy despite the global COVID-19 crisis. However, the government had relied on extensive external loans to finance its national projects, and has now accumulated a debt of some 137 billion U.S. Dollars (89.49% of its GDP), rendering the Egyptian economy relatively vulnerable to fluctuations in the international market (interest and inflation rates). Furthermore, Egypt's fundamental issues have not been resolved despite significant steps taken by the government in order to address them: demographics, infrastructure, corruption, bureaucracy, ignorance, poverty (29.3% in 2021), and more.
Thus, the onset of the war in Ukraine is detrimental to the Egyptian economy, demonstrating its fragility in view of its fundamental problems and large debt. The main question that Egyptian decisionmakers face pertains to the expected duration of the campaign in Ukraine, and the feasibility of the global economic crisis' expansion, which could further aggravate the trends that can already be seen:
- The rise of the cost of living following the global rise of prices of raw materials, energy, and transport.
- A harsh blow to the tourism sector that relies on tourists from Russia and Ukraine. To date, a drop of more than 35% has been identified in reservations placed by Russians and Ukrainians, requiring the government to look into other tourist-attracting alternatives.
- The rise of energy prices. The price of an oil barrel has doubled because of the war, and if projections will show that prices will continue to soar, budgetary financing will be needed to cover the difference.
- A sharp rise in the rate of inflation makes it more likely that the central bank will raise the interest rate as early as next month. It is the highest rate of inflation in Egypt since June 2019.
- The wheat crisis – Egypt imports more than 80% of its wheat from Russia and Ukraine. The government has announced that there is enough wheat in emergency storage to last until the end of the year, but it is looking into the option of diversifying its import sources to avoid a shortage. The government will probably refrain from raising prices in the near future as Ramadhan is fast approaching.
President Sisi's visit to Riyadh (8 March) aimed to ensure economic aid once the scope of the financial crisis was realized. President Sisi also held a telephone conversation with President Putin in which he underscored the two countries' historical ties, and the strategic partnership that they must preserve. The Egyptian president strove to guarantee Russian commitment to the projects and transactions signed, as well as preserve the strategic ties between the two countries despite the fact that Cairo had voted against Moscow in the UN.
In addition, President Sisi had instructed the government to set the price of unsubsidized bread, closely supervise prices, and ensure that there is no shortage of basic food products as Ramadhan approaches. The Egyptian President called for coordination among all relevant authorities, particularly the army, to ensure that basic food products are supplied at a low price, instructing the government to help the needy before the holiday. He aimed to show the Egyptian public that he was personally engaged in prices and supply to mitigate growing public rage against him as much as possible.
Jordan – Ongoing economic weakness
Jordan is suffering from acute fundamental issues: A high rate of unemployment (25%), particularly among the young and female populations (48% and 25% respectively); limited growth that does not meet the needs of the economy; growing social gaps; a high government debt compared to the gross domestic product that has amounted at the end of 2021 to a staggering 109%, and is expected to grow even further in view of the need to subsidize the prices of energy and food; dependence on imported energy (about 89% of local consumption); poverty (15.7%); some 1.3 million Syrian refugees that are taking their toll on the local economy; and the absence of significant growth engines in Jordan (natural resources – oil or gas, a desert climate, and water shortage). What's more, the COVID-19 pandemic had mostly hit the business and tourism sectors over the past two years, aggravating the economic crisis that has also projected onto the kingdom's political stability.
Jordanian columnist Bassam al Badarin argued in his daily column in Al-Quds Al-Arabi that Jordan would not suffer from food shortage due to the war in Ukraine, and that the risk posed to food security is minor. The government's strategy is to avoid raising the price of bread before Ramadhan, and continue to subsidize basic food products. However, most experts agree that the rise in energy prices is inevitable, and would lead to an overall rise in prices that will likely enrage the general public since the government had promised the public that prices would not be going up. Al Badarin and Al Ghad's economic commentator, Salama el Darawi, describe the complex situation between the government and Jordanian citizens well – if the government will hold off the rise in prices, its deficit and debt will grow, economic reforms fail, and the support provided by international institutions be compromised; however, an overall rise in prices that reflects global rises would lead to public outrage and political destabilization, while delivering a harsh blow to the middle class.
The question of the duration of the crisis between Russia and the West and United States, and its implications on the global economy and energy market are of crucial significance to the Jordanian economy and government's stability. In the context of an ongoing economic recession and global energy crisis, Jordan's ability to juggle between its citizens' and government's needs will be considerably reduced, particularly in light of the last two tough years of COVID-19 crisis. Yet Jordan has grappled with some difficult economic crises over the past decade, developing the ability to cope, maintain its stability, and find creative solutions. External support forms a key component in the Hashemite Kingdom's ability to get through the current crisis, and both the United States and Israel play a major role in anchoring the assistance needed to stabilize it.
It is Israel's national security interest that Egypt and Jordan remain stable and avoid getting dragged into yet another internal upheaval that would project onto the strategic ties forged between them, as well as onto border security issues. The economic crisis faced by the regional system presents an opportunity to tighten and broaden civic-economic ties, and boost trust in the relations between these countries.
Thus, the scope of trade between them should be expanded by: mapping the economic needs and possible collaboration spheres – energy, water, tourism, agriculture, transportation, commerce, security, and so on; reducing barriers and red tape; appointing project coordinators in the relevant government ministries; and enhancing routine bilateral dialogue on senior and working levels on the issues that need to be advanced.
The agreements signed this past year with Jordan are a step in the right direction, but they also demonstrate untapped potential. The existing treaties signed with Jordan focus on the Hashemite Kingdom's fundamental needs – energy and water: The agreement doubling the water quotas provided to Jordan (October 2021), the electricity for water agreement in collaboration with the UAE (November 2021), the transfer of gas from Leviathan to the Jordanian electricity corporation (NEPCO), and the transfer of gas to Egypt via Jordan. Israel must examine avenues of expanding economic collaborations into additional sectors, such as commerce, business, and tourism, increasing the scope of trade.
Israeli Minister of Economy, Orna Babivai, has set a clear vision and goals for promoting the economic partnership with Egypt during her visit to the Nitzana Terminal last October, and following her meeting with Egyptian Intelligence Minister, Abbas Kamel: "An opportunity has presented itself; under the current circumstances, Israel's and Egypt's economic interests are aligned. We understand that the economic bridge is a lever to many other aspects, there is potential, and now we need to see how to realize it".
The scope of trade between Israel and Egypt is small, and does not realize existing potential fully. Israel should expand its economic activity to include import and export of additional goods (cement, iron, glass, chemicals and so on), encourage Israeli tourism to southern Sinai and the Egyptian mainland, particularly now that the threat of terror has diminished, reduce bureaucratic and historical security barriers, and promote collaboration on a wide range of civic-economic issues.
There is genuine objection to any normalization with Israel among both the Jordanian and Egyptian public, as well as large parts of the corresponding state and political establishments. However, the global economic crisis presents an opportunity to broaden civic-economic ties by direct coordination with the state security echelon, as well as open new domains for collaboration between these countries.
Authored by Dr. Moshe Albo, a senior researcher at the Institute for Policy and Strategy (IPS), Reichman University.
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