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NYT.COM - 31/01/2011

Egypt’s Economy Is Near Paralysis

31/01/2011

By NICHOLAS KULISH

ALEXANDRIA, Egypt – Egypt’s economy approached paralysis on Monday as foreign commerce, tourism and banking all but halted, placing acute pressure on President Hosni Mubarak to find a way out of the weeklong chaos.

International companies closed plants and sent workers home or out of the country; food staples went undelivered to stores; and banks remained closed during a week when many Egyptians, who are routinely paid monthly, would receive their paychecks.

A major ratings agency cut the country’s bond rating, while shortages led to rising prices. And poorer Egyptians told of cutting back to just two meals a day to cope.

The protests’ crippling effects could give Mr. Mubarak and his new cabinet perhaps only a few weeks to re-establish order before shortages, rising unemployment and a deep crisis set in, economists said.

“It might give impetus to more demonstrations and more riots in the streets,” said Ahmed Galal of the Economic Research Forum in Cairo. “I think the challenge is going to be in the next couple of weeks, and it is going to mount in a week or two.”

Average citizens seemed to agree.

“We can take this for one more week,” said Samih Hammam, 38, a teacher with a wife and three children who should have been paid on Jan. 25 and is still waiting. “After this, it’s going to create more chaos and problems, more violent reactions.”

Entrenched corruption, the depredations of police forces and demands for free elections have all helped drive the protest movement, but for many Egyptians, rising prices and unemployment were the strongest motivations to stand up to the government. Now even many of those with jobs are not being paid, adding an edge of desperation to the rage.

“I’m going to try to eat the cheapest foods, ful and falafel,” said Azza Aladin, 47. Ful is a simple dish of beans. A single mother with six children, Ms. Aladin said she had been forced to cut out a meal a day.

Many Egyptians are paid on the last or the first day of the month, and their wages often come in cash-filled envelopes. With A.T.M.’s empty and banks closed, many bosses just cannot pay.

Muhammad Soudan, 54, had a banner on his car at Monday’s protest in Alexandria that read “I would rather live hungry than die in fear.” It is not an abstract notion here.

Mr. Soudan runs a construction company that employs 35 people. To make payroll with the banks closed, he borrowed money from friends. But his business has larger problems. He is unable to get building materials he needs from abroad, and he expects many of the larger companies he relies on for business to cut back. “If it goes on like this, my company is going to die,” Mr. Soudan said.

The American giants Coca-Cola and General Motors are pulling back or pulling out, as are German companies like Volkswagen and the retailer Metro, as well as the Danish shipping and oil company A. P. Moller-Maersk.

“Tourists are flying away; the capital is going to fly away as well,” said Gehan Saleh, an economist at the Arab Academy for Science and Technology here. With the stock market down roughly 17 percent since Jan. 24, people will move their savings into safe havens, turning nest eggs into dollars or euros, Ms. Saleh said.

Ms. Saleh, a 39-year-old mother of four children, was herself facing an increasingly common problem for Egyptians: getting cash. With the grocery store refusing to take credit cards, she tried the four A.T.M.’s in her neighborhood and found them all empty, leaving her with no money in hand.

Alaa Ezz, secretary general of the Confederation of Egyptian European Business Associations here, said: “It’s not like in Europe; we walk around here with wads of cash in our pockets. Very few people use credit cards or A.T.M. cards. We’re a cash society.”

Large retailers, meanwhile, are worrying about where to go with their huge stockpiles of cash from the panic buying that has cleared the shelves, with no banks to take these small fortunes at a moment when there are no police on the streets.

The bank closings were also affecting international business, Mr. Ezz said, with importers unable to get letters of credit. He said, however, that the subsidized food supply would be ensured by strategic stockpiles and that the government was moving to get curfew exemptions for deliveries of many necessities.

The Suez Canal, a vital transit route for oil to Europe, remained open on Monday. And although international oil companies are closing local offices, evacuating nonessential workers and family dependents and telling their Egyptian employees to stay home, there has been little impact so far on exploration and production activities centered in the Gulf of Suez, the Western Desert and the Nile Delta.

One exception is Statoil, a Norwegian company, which has halted offshore drilling in the El Dabaa area west of the Nile Delta.

Fuel deliveries were not arriving at many gas stations in Alexandria. Lines of cars at those that still had fuel, long on Sunday, were growing even longer on Monday; four lines stretched out of one station and snarled traffic on the coastal road.

Between curfews, checkpoints of armed civilians and fears of looting, transportation has emerged as a major problem. Ahmed Hassan, whose distribution company serves major consumer-goods companies like Procter & Gamble and Coca-Cola, said he was not letting any of his 350 trucks nationwide onto the roads.

“We cannot let our people jeopardize their lives,” Mr. Hassan said. Instead his workers were taking shifts to ensure that all facilities and vehicles were guarded 24 hours a day against looters and thieves.

According to Mr. Hassan, Coca-Cola had inquired about delivering water for its Dasani brand, while Procter & Gamble was concerned about the need for Pampers diapers, but he said it could not be done. “There are misunderstandings, people are getting excited, some of them have guns,” he said. “My first responsibility is to my workers.”

The disruptions have made life harder for Egyptians already struggling to get by. Ahmad Ismail, 25, a real estate agent, supports his parents. He said safety concerns and disruptions to phone and Internet services meant he had not worked since Friday, and like others had not received his paycheck.

“Things are tough, but I’m more concerned about getting this government out of power,” he said. “We can get by on less.”

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