CAIRO: More than 60,000 Egyptians have returned from Libya feeling threatened by a recent wave of protests that have been met with violence — and more are expected to make their way back home.
Similar uprisings in Tunisia, Yemen and elsewhere in the region will likely see more Egyptians working abroad returning home, raising two main concerns for an already sluggish economy: a decrease in remittances and an increase in unemployment.
“Adding numbers together, plus workers returning home from Libya, unemployment in Egypt could surge easily to around 25 percent. That is, one out of every four Egyptians would be looking for jobs in the near term,” Magda Kandil, director of research at the Egyptian Center for Economic Studies (ECES), said.
“We have 1.5 million Egyptians that could be returning home without jobs. It is estimated that unemployment in Egypt is around 10 percent of total labor force that could be around 30 million Egyptians. Hence, the number of unemployed could be around 3 million. It is estimated to be much higher among the youth, around 25 percent,” she added.
Further, around 6 million Egyptians work in the informal market, at least one third of which are unskilled. The interruption of business activity and loss of exports and tourism may have forced many people out of work, both in the formal and informal markets, adding another 5 million to the pool of already unemployed in Egypt before the political unrest.
Egyptians working abroad remit about $12 billion annually to their country, according to UNHCR.
In fiscal year 2009/10, remittances totaled $9.8 billion, accounting for 17 percent of total current account receipts. It is the second largest source of foreign income for Egypt, after tourism, which totaled $11.6 billion or 20 percent of total current account receipts.
According to the Central Bank of Egypt, in 2008/09, the distribution of remittances by sources is as follows: 12.5 percent from Saudi Arabia, 17.7 percent from UAE and 20.4 percent from Kuwait.
While the ECES estimates that 1.5 million Egyptians work in Libya, larger than the number of workers in some Gulf countries, their income is less.
Hence, the estimated remittances from Libya are another 15-20 percent of total remittances, around $1.5-2 billion.
“Obviously, the loss of remittances income will present additional pressure on the exchange rate of the Egyptian pound. Since January 25, Egypt has lost significant amount of foreign receipts in the form of exports, tourism receipts, FDI and capital outflows. The loss of remittances income could present additional loss that increases depreciation pressures on the pound,” said Kandil.
Mohamed Rahmy, analyst at Beltone Financial, said the investment bank is already expecting unemployment levels to come under pressure due to the economic repercussions of the current political situation, the economic slowdown and negative impact on tourism along with a slowdown in corporate activity.
“The returning workers will add to the overall level of unemployment,” he said.
However, Rahmy said that remittances may not be significantly impacted.
According to Rahmy, Egyptian remittances from Libya are less than 1 percent of total remittances in terms of actual funds. Most Egyptian workers there are unskilled and not professionals, and in monetary terms there remittances is not really significant.
While Rahmy feels that the current government has no clear options to deal with these problems, Kandil said that the near term agenda may be extending unemployment benefits to this new segment.
“I am afraid, however, that this is not likely to be sustainable given weak public finances. The additional commitment by the government in the form of subsidies, unemployment benefit, higher wages and salaries and compensations for losses could add to another LE 18 billion, or 25 percent increase in the budget deficit, that could increase the deficit to GDP to around 10 percent,” she said.
“This is likely to increase the cost of borrowing, increasing interest payments which eat around 6 percent of GDP every fiscal year. In addition, the public debt would further increase the debt to almost the size of GDP, as it currently stands around 90 percent,” she added.
For Kandil, the government’s strategy should be to help the private sector provide jobs for returning and unemployed workers. This could be in the form of tax incentives and cheaper credit for SMEs, based on employment strategy.
Further, the government should structure training and coordinating agencies to help identify the bottlenecks in the labor market and match jobs with qualifications.
Rules and regulations in the labor market should be thoroughly revised to increase incentives for formal employment by reducing rigidity in existing labor contracts and availing more flexibility for short-term hiring, based on seasonality and cyclicality.
The government has embarked on public-private partnership programs over five years which should be mobilized to partner with the private sector on projects that could help ease capacity constraints and avail more jobs. Sectoral and industrial policies should also be designed to provide a premium for job creation going forward.