Repercussions Of Sudan War On Egyptian Economy

Executive summary

-The United Nations warned of the deterioration of the situation in Sudan, where the conflict entered its fourth month between the army led by Lieutenant General Abdel Fattah al-Burhan and the Rapid Support Forces led by Lieutenant General Muhammad Hamdan Dagalo, known as “Hamidati”, with a death toll of more than 3 thousand dead and more than 2.8 million displaced persons and refugees inside and outside the country, amid international movements to evacuate foreign nationals from the country.

-Sudan was on the right path towards a political transition in the country after the signing of the framework agreement between the civil and military components, but an armed conflict broke out between the Sudanese army and the Rapid Support Forces.

-This war portends a major humanitarian crisis with the continuation of the fighting and the insistence of the two sides to violate all attempts to truce and calm, accusing each other, and an increase in the number of dead and wounded, and a complete collapse in the health system, and a crisis of mass displacement from the scourge of the ongoing war, and the crisis of water and electricity cuts and the scarcity of food, fuel and medicine

-Sudan has a lot of good things, as it is one of the richest countries in natural resources such as gold, silver, natural gas, zinc, iron and chromite. It is the third largest African country – after South Africa and Ghana – in terms of gold resources known in the brown continent.

-It is surrounded by a number of economically or commercially closed countries, on which it depends, especially through Port Sudan, to provide its needs from abroad, and thus Sudan constitutes a crossing point for the trade of those closed countries with the outside world, such as Chad, South Sudan, Central Africa, Ethiopia and other countries, as well as the fact that the consolidation of the relations of different countries with Khartoum allows it to expand its geopolitical and commercial extension in the Red Sea.

-The paper concluded that the continuation of this war will complicate Sudan’s relations with international and regional financial institutions, especially with the disruption of facilities capable of producing food, and food import facilities. The priority of government spending will be military and security, as well as the difficulty of raising foreign exchange, and increasing unemployment rates among young people.

-It can also push the gross domestic product to decline in value and growth rates, which has a negative impact on regional and international financial institutions, such as the Trade and Development Bank, the Export-Import Bank, the Islamic Corporation for the Development of the Private Sector, the African Development Bank, and the Islamic Development Bank.

The most important findings of the paper :

– Sudan accounts for about 13.5% of the volume of trade exchange between Egypt and Africa.

– Sudan ranks first for Egyptian exports to the Nile Basin countries worth 826.8 million dollars in 2021, and Sudan also ranked first for imports from the Nile Basin countries worth 336.7 million dollars.

– The volume of trade exchange between Egypt and Sudan recorded 1,434 billion dollars in 2022 compared to 1,212 billion dollars in 2021, while Egyptian exports to Sudan amounted to 929 million dollars in 2022, and Sudanese imports to Egypt amounted to about 504.5 dollars in 2022.

– Sudan is a major supplier of livestock and live meat, which is one of Egypt’s strategic commodities, as Sudan supplies Egypt with about 10% of its meat needs.

– Moody’s credit rating agency reported that the extension of clashes in Sudan for a prolonged period poses an increased risk and will have a negative credit impact on neighboring countries, including Egypt.

– The volume of Egyptian investment in Sudan is estimated at 2.7 billion dollars.

The economic situation in Sudan deteriorated during 2022 as a result of the political crisis that the country witnessed after the army’s actions on October 25, 2021, as public revenues reached $2.9 billion in 2022, representing 9.7% of Sudan’s GDP, which amounted to $30.5 billion with a growth rate of 0.6% by the end of 2021.

Total exports amounted to $4.3 billion in 2022, while total imports amounted to $11 billion, with a large deficit in the trade balance that exceeded $6.7 billion, after exports recorded $5 billion, and imports amounted to $9.9 billion, with a deficit of $4.8 billion in 2021, according to the statistical summary of foreign trade issued by the Central Bank of Sudan in December 2022. In addition to the decline in foreign investment and the decrease in remittances of Sudanese working abroad, which represent about 60% of the total sources of foreign exchange, according to official data, which caused a decrease in the state’s foreign exchange revenues.

-The authorities tended to compensate for this shortfall by increasing taxes, which caused the economy to stagnate, prices rose, and the purchasing power of citizens declined. All hopes were attached to a quick arrival of an agreement on the return of the transitional path, the resumption of economic reforms, and the return to dealing with the international community again. But it dissipated with the outbreak of the war on April 15, which renewed fears of the Sudanese economy slipping towards a comprehensive collapse.

-Foreign countries evacuated their nationals for fear of the expansion of the war, which paralyzed economic activity, as it raises the dangers of commercial dealings with Sudan, and causes the migration of capital, and citizens suffer from extremely complex conditions after the World Food Program suspended its programs because of it. The country is likely to witness a wave of security chaos that makes the flow of goods to markets extremely difficult, which increases fears of famine in a country that was at risk of famine before the war broke out.

Second: Egyptian-Sudanese Economic Relations

-Economic relations between Egypt and Sudan have witnessed great development and growth over the past years, but there is no doubt that the ongoing conflict in Sudan will affect the economic activity between the two countries, especially with regard to the rate of trade exchange.

-Sudan accounts for about 13.5% of the volume of trade exchange between Egypt and the African continent, especially after the opening of the Qastal-Akit land port in 2015, which is considered the most important gateway for Egypt to Africa as it contributes to a major shift in the trade exchange movement between Egypt on the one hand and Sudan and the African continent on the other.

– Sudan ranks first for Egyptian exports to the Nile Basin countries worth 826.8 million dollars in 2021, out of a total export value of 1.6 billion dollars, or 51.7%.. it also ranked first for imports from the Nile Basin countries worth 336.7 million dollars in 2021, out of a total of 662.1 million dollars, or 50.9%, according to the annual bulletin entitled “trade exchange between Egypt and the Nile Basin countries in 2021” issued by the central agency for public mobilization and statistics in November 2022.

-It should be noted that Sudan is a major supplier of livestock and live cows, which is one of Egypt’s strategic commodities, as Sudan provides Egypt with about 10% of its meat needs.

-Egypt and Sudan have strong and solid historical relations, they are united by a common destiny, and the relationship between the two countries is complementary, not competitive, and is considered an indispensable ally due to its strategic importance to Egypt. Their common borders are estimated at 1276 km, and they share a global waterway, the Red Sea, as well as common ties, whether historical or cultural.

Third: Repercussions of Sudan  war on Egypt

The continuation of the conflict in Sudan affects the security and stability of the entire region. Sudan’s instability is a matter of concern, especially to neighboring countries and the Horn of Africa, where the number of affected countries is estimated to be about 17 countries that depend in one way or another on Sudan’s political, security and economic stability.

While the Egyptian government seeks to reduce the consequences of the Ukrainian war and provide social protection for the citizen, the Sudanese crisis has added a new burden to it, especially since more than 145,000 Sudanese refugees have fled to Egypt since the start of the armed conflict, according to estimates by the United Nations High Commissioner for Refugees, which had stated in August 2022 that the number of Sudanese refugees in Egypt is estimated at between 58,000 and 60,000 people. This is in addition to what was revealed by the United Nations International Organization for Migration (IMO) that the number of Sudanese immigrants in Egypt has reached 4 million.

There is no doubt that important economic sectors will be affected by this conflict, and its impact may even extend to the citizen through a new rise in the prices of some commodities, including meat for example, as it is expected that the imported quantities of Sudanese meat will decline, which was part of attempts to address the high price of meat in the Egyptian local market.

It is expected that a number of sectors will be affected, such as construction materials, electrical appliances, processed food, clothing, and some agricultural products, which depend in part of their work on exporting products to Sudan in dollars. While the economic effects are not clear at present, it is certain that the continuation of the conflict in Sudan will have great and dangerous consequences in the coming period.

Egypt is economically affected by the crisis in Sudan in several ways, as follows:

1-Commerce

Trade exchange rates between Egypt and Sudan increased by 18.2% in 2022 to reach $1.434 billion, according to estimates by the Central Agency for Public Mobilization and Statistics. Sudan accounts for 13.2% of the value of commerce exchange between Egypt and the countries of the African continent.

These numbers were on the way to escalation and growth in light of the two countries’ desire to expand the volume of trade exchange between them, through the establishment of various projects, including an electrical interconnection project and the establishment of a railway between the two countries.

The current war came to impede these aspirations, and cast a shadow over the economic situation, which is still suffering from the consequences of the Russian-Ukrainian war, and its negative effects on global supply chains.

2-Workers Remittances

The number of Egyptians residing in Sudan is estimated at 150,400 thousand Egyptians until the end of 2020, and it is expected that the remittances of Egyptians working in Sudan will decline significantly due to the return of most of them to Egypt again due to the ongoing conflict in Sudan.

However, on the other hand, the remittances of Sudanese working in Egypt will continue to be transferred to Sudan, and in the event of the end of the existing conflict, there is an opportunity for Egypt to increase its exports at various levels to Sudan in light of the suffering of the Sudanese economy.

3-Food sector in Egypt

Egypt was supposed to benefit from the agricultural lands that it had begun to cultivate inside the Sudanese state, with its abundance of water and fertile lands, which would have achieved self-sufficiency in the Egyptian food sector. Rather, Egypt was aiming to export large quantities abroad.

It is expected that food security in Egypt will be affected by the current situation in Sudan due to the shortage of both meat and grains. It is worth noting that Sudan ranks first at the Arab and African level and sixth at the world level in livestock, and produces important crops, primarily: wheat, cotton, beans, corn, and sesame.

4-Egyptian investments and employment

Egypt has already started constructing a railway extending from within the Aswan Governorate to the Sudanese state for easy access between
The two countries in order to expand the volume of trade exchange in various sectors.

It will also facilitate the coming and the going for Egyptian and Sudanese workers between the two countries.

The joint projects between the two countries will also be affected. We have many Egyptian governmental or private sector companies that invest in Sudan in agriculture, industry, electricity, land reclamation, construction, service fields, and others.
The investment volume is estimated at about $2.7 billion. The Egyptian El Sewedy Electric Cables Company is one of the most prominent Egyptian companies operating in Sudan. And with the continuation of the fighting, it will stop completely, which will have negative repercussions on the economies of the two countries.

With the return of Egyptian workers from Sudan and the displacement of thousands of Sudanese to Egypt due to suffering from war conditions, the Egyptian state bears a great economic burden..This is in addition to the Egyptian students studying in Sudan, legalizing their conditions, and setting up mechanisms for their admission, whether in schools or universities, as well as the Sudanese, whose absorption mechanisms are determined according to the determinants set by the state, which also strain its budget.

5- The banking sector and regional credit institutions

Moody’s credit rating agency reported that the continuation of the clashes in Sudan will have a negative credit impact on neighboring countries.

Moody’s added that if the clashes in Sudan develop into a long civil war, the destruction of infrastructure and the deterioration of social conditions, this will lead to long-term economic consequences and a decline in the quality of the assets of multilateral banks in Sudan, in addition to an increase in non-performing loans and liquidity.

6-At the level of regional financial institutions

1- “Afrixim Bank” has about $930 million in loans in Sudan, and it has insurance on only $220 million of them. As a result of the war, banks and multilateral financing institutions will be affected and their ability to finance projects in the region as a whole. These developments are also reflected on banks and financial institutions operating in Sudan and neighboring countries.

2- African Export-Import Bank: 31% of its loans are directed to Sudan.

3- The Islamic Corporation for the Development of the Private Sector: 3.1% of its assets are concentrated in Khartoum.

Fourth: The Egyptian role towards the crisis in Sudan

Egypt is exerting unremitting efforts to achieve calm, defuse the crisis and advance the path of a peaceful solution in Sudan, without the support of a particular party. Egypt’s position is clear and firm towards the crisis in Sudan as it is an internal matter that should not be interfered with so as not to lead to an exacerbation of the conflict.

By hosting a conference of Sudan’s neighboring countries recently, Cairo affirmed its unlimited support for Sudan and its endeavor to formulate a common vision for neighboring countries, develop effective mechanisms to settle the crisis peacefully, and take steps to stop bloodshed and preserve the Sudanese state and its capabilities.

The Egyptian political leadership envisioned a way out for Sudan from its current impasse:

– Call on the warring parties to stop the escalation and start without delay in serious negotiations aimed at reaching an immediate and sustainable ceasefire.

-Launching an inclusive dialogue for the political parties, with the participation of political and civil forces and representatives of women and youth, aiming to start a comprehensive political process.

-Formation of a communication mechanism emanating from this conference to develop an executive action plan to reach a comprehensive solution to the Sudanese crisis.

Among the recommendations of the Conference of Sudan’s Neighboring Countries is the emphasis on the importance of dealing with the current crisis and its humanitarian consequences in a serious and comprehensive manner, given that the continuation of the crisis will result in an increase in the displaced and more people fleeing the conflict to neighboring countries, especially Egypt.

Egypt also participated in the international ministerial meeting held by the African Union Commission and signed the statement issued by it. It is also coordinating with a number of international organizations and governments to discuss ways out of this crisis.

The Ministry of Foreign Affairs also issued instructions to facilitate entry procedures for Sudanese and obtain a visa for those between the ages of 16 to 50 years, and to allow the passage of children under 16 years, as well as women and men over 50 years of age, provided they have a passport.

Conclusion

While the world is preoccupied with attempts to find a political solution to the current war in Sudan, signs of significant economic repercussions are looming on the horizon for Egypt and neighboring countries if the war continues for a long time, which is what Moody’s credit rating agency warned about, expecting a negative credit impact on neighboring countries.

The war has multiple political, security, humanitarian and economic repercussions, which require rational policies to deal with it. The Egyptian state has recently demonstrated its ability to deal with crises with wisdom and political balance, and with measures that contribute to limiting their effects on the economy and the citizen. This is the policy it still pursues despite the many burdens.