Macroeconomic Theory 1

How did the Russian

Invasion of Ukraine affect
Egypt?
From an economic point of view

Malak Hesham AbdelHamied Negm (group 1)

Sama Mohamed Aly El Naggar (group 1)
Aalaa Ahmed Mohamed Nasrallah (group 1)
Omar Sherif Salah El Ghorab (group 2)
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On February 24, 2022, Russia attacked Ukraine, escalating the Russo-Ukrainian War, which
began in 2014 with the Ukrainian Revolution of Dignity. The invasion has caused Europe's
largest refugee crisis since World War II.
This paper is to discuss how these repercussions affect Egypt and Arab countries in general
from an economic point of view.
Topics of discussion:
• Inflation/ oil prices
• Interest rates
• Tourism
• Refugees
First, Inflation:
Generally, war can cause numerous bad impacts, but one of the most destructive impacts it
may cause is inflation. Inflation doesn't only lead to the loss of people's savings and an
increase in uncertainty, but also leads to a loss of confidence in the financial system of the
economy.
The Russian- Ukrainian war has pushed prices all over the world, including in countries that
are directly not related to the issue. Egypt and Arab countries are victims of such inflation
that has occurred over the past couple of weeks. The war has pushed food, energy,
commodity prices, and even housing prices to record levels.
Food prices:
"Egypt will of course be affected by these repercussions (the Russian-Ukrainian war), and the
greatest impact will be on food commodities, especially wheat because most of the wheat
imports are from Russia and Ukraine," said Ashraf Ghorab (Economic expert and vice-
president of the Arab Union for Social Development in the Arab Labor System of the League
of Arab States for Economic Development). These repercussions will be affecting the supply
chain and food prices in Egypt (rise in prices) and all other Arab countries that depend on
Russia or Ukraine as wheat sources, Tunisia and Lebanon are examples.
(https://www.egypttoday.com/Article/3/113219/Experts-how-Russia-Ukraine-conflict-will-
affect-Egypt-global-economy)
Egypt's finance minister Mohamed Maait announced that the state's budget for wheat
purchases would "increase by 15 billion Egyptian pounds", or about 865 million euros.
But why is that the case in Egypt? It's because of the agricultural sector's inability to
supply enough cereal grains, particularly wheat, and oilseeds to satisfy even half the country's
domestic demand. to ensure adequate and affordable supplies of bread and edible fat for its
105 million citizens, Egypt relies on large volumes of heavily subsidized imports (especially
food imports from Russia and Ukraine). To secure those supplies, Egypt has become the
world's largest importer of wheat and one of the highest ten importers of vegetable oil. This
led to increasing the price of wheat by an extra 44% and sunflower oil by 32% virtually
overnight.
Oil prices:
In support of Ukraine, the USA filed a fact sheet announcing the boycotting of Russian
imports of oil, liquified natural gas, and coal. This ban on Russian oil imports is already
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having meaningful consequences on the US economy, causing oil prices to rise rapidly.
(https://www.nytimes.com/2022/03/08/business/economy/russian-oil-ban-economy.html)
The U.S. is Egypt’s second-largest trading partner after China, which indicates that any
sudden change in America's prices would consequently affect Egypt and Arab countries that
highly rely on US imports.
The rise in Egyptian prices is seen significantly, according to CAPMAS data: annual urban
inflation rose to 8.8 percent in March from 7.3 percent in January, the highest level since July
2019, while monthly inflation reached a 16-month high of 1.6 percent.
(https://www.cbe.org.eg/en/Pages/default.aspx)

Real Estate: "The war between Russia and Ukraine is greatly affecting the iron and steel
industry in the world, not only Egypt, especially since Russia is one of the top 10 countries in
steel production globally, and Ukraine is among the top 20." Said Rami Saleh, Chief Business
Development Officer at Al-Marakby Steel. It's claimed by real estate stakeholders that as a
result of the increase in oil prices and the impact of this on iron, pallet, cement, bricks, wood,
and other building materials, real estate sector prices will increase by over 10%.
Why is that the case? According to available data, Egypt imported $96.8 million in iron
from Ukraine in 2021, along with $90.2 million in other mineral ores. Furthermore, iron,
along with other elements, accounts for approximately 15% of the overall cost of project
construction. This is a considerate percentage. As a result, an increase in the prices of housing
units that are currently being built will take place.
(https://dailynewsegypt.com/2022/03/14/russian-ukrainian-war-to-take-a-toll-on-egypts-real-
estate-sector-stakeholders/)
To weather the impact of the war on Ukraine, the Egyptian government requested financial
assistance from the IMF (International Monetary and Financial Committee); this will
inevitably entail imposing more severe measures and increasing economic difficulties for the
average Egyptian citizen. To soften the severity of the situation, the government devalued its
Egyptian currency by 14 percent on March 21, moving it from 15.70 pounds to the dollar in
November 2020 to 18.17–18.27 pounds in March.
Are Egyptian prices only worse off with these events?
Egyptian economists claim that the increase in oil prices worldwide that resulted from the
war will open the opportunity for the Egyptian economy to increase its exports. In addition,
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the increase in the traffic of ships transiting the Suez Canal will definitely benefit the
Egyptian GDP.
In another scenario, if Russia stops supplying Europe with Gas, Egypt will be one of its top
choices when it starts looking for alternatives, indicating Egypt's pivotal role in the future.

Second, Interest rates:

What is the definition of an interest rate?
The interest rate is a proportion of the principal the amount borrowed that a lender
charges a borrower. The annual percentage rate (APR) is the term used to describe the
interest rate on a loan (APR), and we are taking Egypt and England as 2 examples.
In an effort to stem a decline in the value of its currency, Russia has more than doubled its
interest rate to 20%. After the trouble sank 30 percent as a result of fresh Western sanctions,
the Bank of Russia raised the rate from 9.5 percent to 10.5 percent. The currency then slipped
back to around a 20% loss. The currency's purchasing power is weakening, and ordinary
Russians' savings could be wiped out. Russia maintained it had the resources to weather the
penalties, despite images from the weekend showing long lines at cash machines. In response
to the sanctions, President Putin issued an order prohibiting citizen from sending money
outside of Russia, including for debt payments. The stock market in Moscow, which suffered
significant losses last week as investors sold, is set to close. "These are significant penalties,
they're problematic, but Russia has the required potential to compensate for the damage
caused by these sanctions," Kremlin spokesperson Dmitry Pskov said ahead of an emergency
meeting with President Vladimir Putin and his economic advisers.
(https://www.bbc.com/news/business-60550992)
Egypt's Central Bank raised its key interest rate for the first time since 2017, claiming
inflationary pressures brought on by the coronavirus pandemic and Russia's war in Ukraine,
which drove up oil prices to new highs. The Egyptian pound fell in value as a result of the
decision, trading at nearly 18 pounds to the dollar, up from an average of 15.6 pounds to the
dollar. Since the government launched an ambitious reform program in 2016 to rebuild the
country's shattered economy, the country has seen price increases. The Egyptian Central
Bank raised the benchmark interest rate by 100 basis points to 9.75 percent, up from 8.75
percent previously. According to the bank, the overnight deposit and lending rates were both
boosted by 100 basis points to 9.25 percent and 10.25 percent, respectively.
(https://www.cbe.org.eg/en/Pages/default.aspx)
After Russia's invasion of Ukraine, international investors withdrew billions of dollars from
Egyptian treasury markets, putting pressure on the currency, Egypt depreciated its pound by
14%.
At a news conference, Egypt's central bank governor, Tarek Amer, said the pound had
"adjusted" as a result of global and local events. Exports would be more competitive, and
foreign currency liquidity would be maintained, thanks to the adjustment. According to
sources close to the negotiations, Egypt has been in talks with the World Bank regarding
possible help, although no formal request has been made. As Russia and Ukraine export
about a third of all wheat and barley around the globe. Ukraine is a significant grain exporter
and the world's leading producer of sunflower oil, which is used in food processing. In Egypt,
where tourism is the main source of foreign money, the two nations are also a big source of
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visitors. (https://www.africanews.com/2022/03/21/russia-ukraine-conflict-forces-egypt-s-
central-bank-raise-interest-rates/)
The Bank of England hiked its interest rates for the third time since December, moving ahead
of other central banks in countering a worldwide wave of inflation that is expected to worsen
as a result of Russia's invasion of Ukraine.
After the fight pushed oil prices to a 13-year high earlier this month, the bank raised its
benchmark rate to 0.75 percent. It comes a day after the Federal Reserve hiked its short-term
interest rate to 0.25 percent to combat the highest inflation since the early 1980s.
(https://abcnews.go.com/Business/wireStory/bank-england-raises-key-interest-rate-combat-
inflation-83500438)

Third, tourism:
The tourism sector in Egypt is one of the most important sources of hard currency and
national income, allowing it to contribute significantly to the gross domestic product and
combat unemployment by employing a large portion of the Egyptian workers.
Ukrainian tourism had a major role in the tourism in Egypt and it is the preferred destination
for Ukrainians especially for the cities of the Red Sea, Marsa Alam, and South Sinai.
Since the war started in Ukraine, holiday bookings from Russia and Ukraine stopped, they are
both afraid they will not be able to return home in case they go abroad. (https://e-
visa.co.uk/egypt/news/tourism-hit-ukraine-war)
The impact of Russia’s Invasion of Ukraine has had a massive impact on the tourism sector
in Egypt. Tourists from Russia and Ukraine are the main visitors to the Red Sea, which relies
on a huge number of visitors from the two countries, the number of visitors was predicted by
the Egyptian government 300,000-400,000 Russian tourists per month and 1.46 million
Ukrainians visited Egypt during 2021. One-third of tourism stops
In 2019, 13.1 million tourists visited Egypt, bringing in $13.03 billion in revenue. However,
when the coronavirus pandemic struck in 2020, tourism revenues plummeted by 70% to $4
billion, with 3.5 million visitors.
So as a result of the Russian invasion, there has been a reported 30% decline in travel
bookings from Russians and Ukrainians coming to the Red sea and Ukrainian airlines
informed the Egyptian Tourism Federation that they will permanently suspend flights to
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Egypt without giving a date, so Egypt's Tourism and Antiquities Ministry announced that any
Ukrainian tourists stranded in the country could stay until it was safe to return.
The Ministry of Tourism has requested Egypt to provide free lodging to the 16,000
Ukrainians stranded there till they can return home. While Ali Mansour, a member of the
Egyptian Chamber of Tourism Establishments' board of directors, warned that it would cost
hotels LE 50,000 to LE 100,000 in daily losses. (https://www.al-
monitor.com/originals/2022/02/egyptian-tourism-sector-braces-impact-ukraine-crisis)
Egypt is seeking other nations to compensate for the absence of Russian and Ukrainian
tourists. Travelers from the United Kingdom and Germany are also drawn to the country.
Travelers from the United Kingdom and Germany are subject to the same rules as Russians
and Ukrainians. The Egyptian administration wants to build ties with these two nations in the
long run, in order to enhance the number of visitors who visit Egypt. (https://e-
visa.co.uk/egypt/news/tourism-hit-ukraine-war)
According to the available data: If the epidemic does not spread, the number of tourists is
predicted to rise to almost 7 million by 2022, bringing in roughly $7.2 billion in revenue for
Egypt, As 2022 in Egypt will witness mega projects in tourist and archaeological sector such
as the opening of the Grand Egyptian Museum (GEM), the Mohamed Ali Pasha Palace in
Shubra, and the Capitals Museum in the City of Arts and Culture in the New Administrative
Capital, as well as the completion of the ‘Galala Project’, Al-Alamein City, and the 200th
anniversary of the deciphering of the Rosetta Stone.
(https://dailynewsegypt.com/2022/02/11/egyptian-tourism-aspires-for-prominence-in-2022/)

Fourth, refugees:

Most humanitarian crises are created due to wars, and while Russia’s invasion of Ukraine has
impacted many things, it has certainly caused a lot of damage to the people living in Ukraine.
Aside from the 6.5 million people that were displaced inside the war-torn country itself, there
are more than 5.3 million people who left Ukraine and went to live as refugees in neighboring
countries such as Poland, Romania, Russia, Hungary, Moldova, Slovakia and Belarus. While
the developed countries were certainly affected by the sudden arrival of refugees – 507,849
Ukrainian refugees in Hungary and 363,940 Ukrainian refugees in Slovakia – the impact of
the Russian invasion of Ukraine and the refugee crisis it created was surely higher on the
developing countries such as Poland, Romania, Moldova, and Belarus.
(https://www.bbc.com/news/world-60555472)
Because of its great proximity to Ukraine, Poland is considered to be the developing country
that has welcomed the most Ukrainian refugees. Since the start of the war on February 24th,
the one million refugees that the polish authorities had expected became 1.8 million refugees,
therefore increasing the population of Poland by 4.8%. country risk service manager at the
Economic Intelligence unit Alessandro Cugnasca anticipated Poland’s inability to cope with
the refugee crisis without the help of the European union. “The government will not be able
to cope with the crisis without extensive assistance from the EU. This includes both financial
assistance and resettlements of refugees” (Cugnasca,2022)
Aside from the negative impact of the refugee crisis in Poland, there are also some positive
impacts of the refugee crisis caused by the Russian invasion of Ukraine. The migration of that
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many Ukrainian refugees to Poland could make Poland a recipient of long-term skilled
workers. “Importing millions of young Ukrainian workers who can join your workforce and
contribute makes sense from an economic point of view” (Bosoni, 2022) he was referring to
the high education level of migrants, mostly women, and children, from Ukraine
(https://www.cnbc.com/2022/03/16/russia-ukraine-war-refugees-flee-to-poland-with-
economic-political-impact.html?&qsearchterm=poland%20and%20ukrainian%20refugees).
As of 27 April, Poland has taken in more than 2,968,716 Ukrainian refugees as a result of the
Russian invasion of Ukraine. (https://www.bbc.com/news/world-60555472)
Another developing country that has been deeply affected by the refugee crisis caused by
Russia’s invasion of Ukraine is Moldova. The former Soviet republic and one of Europe’s
poorest nations have been put in a precarious position because of the ongoing war next door.
According to Moldovan Minister of Foreign Affairs Nicu Popescu, Moldovia does not have
enough resources to deal with the situation and the fallout of the war. “We are the most
fragile neighbor of Ukraine because we are the country that is most affected and we are the
country that has the fewest resources to deal with the situation and the fallout from the war”
(Popescu, 2022) (https://www.cnbc.com/2022/04/24/tiny-landlocked-moldova-struggles-to-
deal-with-the-fallout-of-russias-war-on-
ukraine.html?&qsearchterm=ukraine%20refugee%20situation)
Another developing country that needs to be taken into consideration when discussing the
humanitarian crisis due to the Russian invasion of Ukraine is Egypt. While there might not be
many refugees fleeing Ukraine to come and stay in Egypt, however, there are over 16,000
tourists stuck in Egypt, mainly in Sharm el-sheikh, Hurghada, and Marsa Alam according to
the charge d'affaires at the Ukrainian Embassy in Egypt, Ruslan Nechai. The Egyptian
Ministry of Tourism asked in the first days of the Russian invasion the Hotel Establishments
Chamber to extend the stay of Ukrainian and Russian tourists who are staying in Egyptian
hotels and resorts and provide them with all necessary services free of charge until they are
able to return to their countries. Some Egyptian mobile operators, such as Vodafone and
Orange, have also offered free international calls and messages to and from Ukraine.
Egypt did not explicitly condemn the Russian invasion of Ukraine which has prompted the
ambassadors of the G7 and the European Union in Cairo to issue a joint statement on March
1 calling on the Egyptian government to stand by Ukraine and condemn the Russian
aggression against it.
One day later, on March 2, Egypt and 140 other countries voted in favor of a UN General
Assembly resolution calling on Russia to immediately stop using force against Ukraine.
Refugees are mainly considered a problem or a crisis because the countries that these
refugees go to are not prepared for the sudden increase in their population, these countries
suffer from a lack of resources which means that their resources are not enough to
accommodate all the refugees’ needs such as their right to have a home, work at a good
environment, find a decent job and much more. That’s why the impact of the Russian
invasion of Ukraine on refugees is one of the most important channels of the impact of
Russia’s invasion of Ukraine. (https://www.al-monitor.com/originals/2022/03/ukrainians-
egypt-share-dreadful-moments-russian-invasion)
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References:

1- AfricaNews. (2022, March 21). Russia Ukraine conflict forces Egypt's central bank raise

interest rates. AfricaNews. https://www.africanews.com/2022/03/21/russia-ukraine-

conflict-forces-egypt-s-central-bank-raise-interest-rates/

2- Al-Aees, S. (2022, March 14). Russian-Ukrainian war to take a toll on Egypt’s real estate

sector: Stakeholders. Daily News Egypt.

https://dailynewsegypt.com/2022/03/14/russian-ukrainian-war-to-take-a-toll-on-

egypts-real-estate-sector-stakeholders/

3-BBC News. (2022, May 5). How many Ukrainians have fled their homes and where have

they gone? BBC News. https://www.bbc.com/news/world-60555472

4- Central Bank of Egypt. https://www.cbe.org.eg/en/Pages/default.aspx

5-Gilchrist, K. (2022, March 16). Three million migrants have now fled Ukraine —with the

majority going to Poland. That could have major repercussions. CNBC.

https://www.cnbc.com/2022/03/16/russia-ukraine-war-refugees-flee-to-poland-with-

economic-political-impact.html?&qsearchterm=poland%20and%20ukrainian%20refugees

6- Gomaa, A. (2022, February 25). Egyptian tourism sector braces for impact from Ukraine

crisis. Al-Monitor. https://www.al-monitor.com/originals/2022/02/egyptian-tourism-

sector-braces-impact-ukraine-crisis

7- Hotten, R. (2022, February 28). Ukraine conflict: Russia doubles interest rate after rouble

slumps. BBC News. https://www.bbc.com/news/business-60550992

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8-Kirka, D. (2022, March 17). Bank of England raises rates as Ukraine war boosts inflation.

ABC News. https://abcnews.go.com/Business/wireStory/bank-england-raises-key-

interest-rate-combat-inflation-83500438

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https://e-visa.co.uk/egypt/news/tourism-hit-ukraine-war

10-Macias, A. (2022, April 24). Tiny, landlocked Moldova struggles to deal with the fallout

of Russia’s war on Ukraine. CNBC. https://www.cnbc.com/2022/04/24/tiny-

landlocked-moldova-struggles-to-deal-with-the-fallout-of-russias-war-on-

ukraine.html?&qsearchterm=ukraine%20refugee%20situation

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Egypt, global economy? Egypt Today.

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will-affect-Egypt-global-economy

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invasion. Al-Monitor. https://www.al-monitor.com/originals/2022/03/ukrainians-

egypt-share-dreadful-moments-russian-invasion

13- Samir, N. (2022, February 11). Egyptian tourism aspires for prominence in 2022..

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2022/

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https://www.nytimes.com/2022/03/08/business/economy/russian-oil-ban-

economy.html