The Suez Canal is located at the junction of Europe, Asia and Africa, connecting the Red Sea and the Mediterranean. The canal's revenues are also one of the main sources of Egypt's national fiscal revenue and foreign exchange reserves. Since December 2023, the crisis in the Bab el-Mandeb Strait caused by Yemen's Houthi armed attacks has been escalating, and major international shipping companies have suspended the Red Sea-Suez Canal route or detoured to the Cape of Good Hope in Africa. As a result, the Suez Canal's revenue has plummeted by about half this year, which is undoubtedly worse for the already difficult Egyptian economy. 、
Suez Canal revenues plummeted.
Since last November, the Houthis have frequently attacked passing merchant ships in the Gulf of Aden and the Red Sea. A number of major shipping lines suspended the Red Sea route in favor of a bypass to the Cape of Good Hope at the southern tip of Africa.
On Monday (February 19), local time, Egypt's ** Sisi said that the Suez Canal's revenue has decreased by 40% to 50% so far this year due to the continued attacks on ships by the Houthis in Yemen.
Egypt was one of the biggest victims of the Red Sea crisis, the canal opened in 1869, and the canal royalties were one of the main sources of national revenue and foreign exchange reserves. In fiscal 2022-23, Suez Canal revenues reached a record $9.4 billion. Right now, the country is in the midst of a severe financial crisis. As a major food importer, Egypt spends a lot of foreign exchange on food every year to feed its population of more than 100 million.
Tensions have led a number of international shipping companies to announce the suspension of the Red Sea route in favor of a bypass to the southern tip of Africa, and the Suez Canal has seen a significant drop in vessel traffic. The data showed that the number of container ships passing through the Suez Canal each week fell by 67% year-on-year, oil tanker traffic fell by 18%, bulk cargo ships carrying grain and coal transit fell by 6%, and gas transportation came to a standstill.
"The Suez Canal has reduced by 40 to 50 percent in revenues that used to bring nearly $10 billion a year to Egypt, and Egypt must continue to pay businesses and partners," Sisi said at a conference. "The total number of ships passing through the Suez Canal has fallen by 42% over the past two months, according to data released at the United Nations ** and the Development Conference at the end of the month.
Yu Guoqing, a researcher at the Institute of West Asian and African Studies of the Chinese Academy of Social Sciences, said that the Suez Canal is very important to Egypt, on the one hand, the Suez Canal is an important part of fiscal revenue, and the annual income is very stable, and has been steadily rising in recent years; On the other hand, the Suez Canal is also a project that Egypt can carry out strategic influence, for example, to regulate relations with some countries.
Egypt's economy is struggling.
The roof leak happened to rain overnight. The external debt of up to $189.7 billion and the 42.2 billion that needs to be repaid this yearThe $600 million quota has already taken Egypt's breath, and the loss of canal revenues is undoubtedly worse. In addition, several other ** foreign exchange earnings in Egypt have also suffered setbacks to varying degrees.
In terms of remittances, Egypt's remittance income in fiscal 2023 fell by 30% to only $22 billion due to the disparity between the official exchange rate and the market exchange rate, a large number of Egyptian diasporas abandoned remittances at overvalued official exchange rates. Abnormal exchange rate balances have also undermined confidence in foreign direct investment.
In addition, Egypt's tourism revenue reached a record 136 in 2023300 million US dollars, but under the sudden impact of the Palestinian-Israeli conflict and the changes in the Red Sea, Egyptian inbound tourism has been greatly affected, and many tourists have chosen to cancel their trips. Yu Guoqing said that the accumulation of high debt, the plummeting tourism revenue, and the flow of refugees that may be further expanded due to the deterioration of the Palestinian-Israeli situation are all "sword of Damocles" hanging over Egypt's head, and Egypt's economic prospects are hardly optimistic.
The International Monetary Organization's latest World Economic Outlook report, released on January 30, revises Egypt's economic growth. Among them, the growth forecast for fiscal year 2023-2024 is expected from 36% to 3%, and full-year 2024 growth forecast has also been lowered from 5% to 47%。Recently, Moody's, an international credit rating agency, also downgraded Egypt's sovereign debt rating outlook to "negative" from "stable".
Meanwhile, Egypt's currency, the Egyptian pound, extended its halving decline in 2022. As the currency continues to depreciate, the main commodities on the Egyptian market are continuously. At the beginning of February, the exchange rate of the US dollar on the black market exceeded 70 Egyptian pounds, compared to 31 Egyptian pounds for official banks, and the difference between the two reached 130%.
Shipping costs are substantial**.
In fact, the Suez Canal has not always been under the control of Egypt. According to the ancient Greek philosopher Aristotle, at the latest in the mid-19th century BC, Senuthret III of the Twelfth Dynasty of Egypt tried to build a canal connecting the Red Sea with the Nile, known as the "Pharaonic Canal". In the mid-19th century, France and Egypt** jointly established the International Suez Canal Company, and officially started construction in 1859. In 10 years, at the cost of human and financial resources, the Suez Canal was officially opened to navigation in November 1869.
The dispute began, and according to the "preferential agreement" between France and Egypt, the actual control of the Suez Canal and the huge profits were controlled by France, which made Britain jealous. In order to seize this lifeline, Britain became the majority shareholder by purchasing the International Suez Canal Company**, and in 1882 sent troops to occupy Egypt, completely claiming it for itself.
It was only four years before the Suez Canal was nationalized by Egypt. However, after the outbreak of war in the Middle East, the Suez Canal became the front line of the confrontation between Egypt and Israel, and was closed for eight years until it was reopened in 1975. Since then, oil exports have risen in the Persian Gulf, and the Suez Canal has taken on a greater role.
Since then, the Suez Canal-Red Sea has been one of the world's busiest shipping lanes, with around 13% of the world's seakeeping** and 10% of seaborne oil shipments passing through the Suez Canal. A detour through Africa takes 25% more time than a direct passage through the Suez Canal. Paolo Gentiloni, the European commissioner in charge of economic affairs, recently said that due to the rerouting of shipping through the Red Sea, the shipping time between Asia and the EU has increased by 10 to 15 days, and the transportation cost has increased by about 400%.
Saad al-Kabi, Qatar's Minister of State for Energy Affairs and President and CEO of QatarEnergy, said that in order to avoid security risks in the Red Sea region, some of QatarEnergy's LNG carriers have had to circumnavigate the Cape of Good Hope in Africa, and transportation costs and delivery times have increased significantly, which will have a serious impact on the global economy if the situation continues.
Bai Ming, a member of the Academic Degrees Committee and researcher of the Research Institute of the Ministry of Commerce, analyzed that looking back on history, whether it is the Suez Canal being cut off many times, or the global shipping is on the verge of systemic collapse after the outbreak of the new crown epidemic, most of them are caused by "hard interference", such as war, the closure of the passage by the country concerned, the sinking and grounding of ships, and the adjustment of port policies. The sharp decline in the volume of navigation in the Suez Canal caused by the current Red Sea crisis was caused by an unprecedented crisis of risk expectations.
Yu Guoqing said frankly that Egypt's response to emergencies is still obviously insufficient, which may affect its credibility in the world, including the freight market and insurance market. Rabieh, chairman of the Suez Canal Authority, said earlier this month that while Egypt had introduced measures such as discounted tolls to attract merchant ships, they were not enough to offset the safety concerns of shipping companies.
Beijing Business Daily reporter Fang Binnan Zhao Tianshu.