“New Sudan Conflict Expected to Further Impact Egypt’s Economy”

The recent clashes between the Sudanese army and the militia group Rapid Support Force are causing concern for Egypt’s struggling economy, which is already under severe pressure. The fear is that a prolonged cross-border conflict in Sudan will have a negative impact on Egypt’s main market. According to the state-run Central Agency for Popular Mobilization, trade between Egypt and Sudan is expected to reach $1.4 billion in 2022, with Egyptian exports of $929.2 million and imports of $500 million. Sudan has become the second largest market for Egyptian exports after Libya.

The head of the Egyptian Ministry of Industry, Sheriff El-Ghabari, said that the Sudan conflict will lead to a reduction in the volume of Sudan’s exports. He expects many Egyptian companies to stop exporting to Sudan, fearing the high security risk of continued fighting and the inability to recover funds. The conflict will also disrupt the joint economic project, which was intended to strengthen economic cooperation between Egypt and Khartoum. Joint investments are also expected to be affected by the ongoing conflict.

Egypt has maintained strong ties with the Sudanese military since the overthrow of long-serving President Omar al-Bashir in 2019. Both countries joined forces to pressure Ethiopia to reach a binding agreement on the filling and operation of the Grand Ethiopian Renaissance Dam, which Egypt sees as an existential threat to water withdrawals from the Nile. However, Egypt has largely avoided taking sides during the Sudan conflict, concerned that a prolonged conflict will lead to an outflow of refugees from Sudan, which would further strain an already fragile economy.

Egypt already faces multiple economic difficulties, including foreign exchange shortages and rapid inflation, leading to high prices of commodities. The local currency has lost almost 100% of its value since March 2022, trading close to 31 Egyptian pounds to the US dollar, with inflation soaring. Egypt’s annual core inflation peaked at 40.3% in February, but tapered off to 39.5% in March. Annual headline inflation also surged from 12.1% in March 2022 to 33.9% in March this year.

In addition, the influx of refugees from Sudan into Egypt will put an additional strain on the state budget and the domestic labor market. These economic difficulties have led credit rating agencies like Fitch and Moody’s to downgrade Egypt’s financial rating and warn of the potential risks of external funding amid investor sentiment. The Sudan conflict could also drag on and raise broader asset quality concerns for multilateral development banks, which have concentrated lending to Egypt, Chad, and South Sudan.

In conclusion, the eruption of clashes in Sudan is having a negative impact on Egypt’s economy. With the potential for a prolonged conflict, joint economic projects, trade, and investments are expected to be disrupted. The influx of refugees from Sudan could also strain Egypt’s state budget and the domestic labor market amid already existing economic difficulties.

Leave a Reply