Egypt's trade outlook sours

As protests in Egypt continue to unfold, the business outlook for the North African nation has been palpably changed for the worse, economists said Monday.

Ratings agency Moody's cut the country's sovereign debt rating Monday and warned further reductions were possible. The country's debt was already in the speculative range — below investment grade — so the cut from Ba1 to Ba2 was more symbolic than substantive.

"Egypt suffers from deep-seated political and socio-economic challenges," said Tristan Cooper, Moody's head analyst for Middle East Sovereigns. Rival agency Fitch already lowered its rating on Egyptian debt last week.

The downgrades will do little to ease borrowing costs for Egypt, which have already climbed since the unrest began. 

Embattled Egyptian president Hosni Mubarak ordered his new cabinet to stabilize inflation and create jobs, Egyptian state television reported over the weekend. That may appease protesters but spending on those issues is likely to worsen the state's fiscal position. Egypt's budget deficit in the fiscal year to June 2010 was 8.1 per cent of gross domestic product.

The Egyptian stock market's benchmark index fell about 17 per cent in the span of two days before the weekend, and remained closed Monday.

'The end-game in the political crisis in Egypt remains uncertain' —Investment bank Citigroup

Unemployment is unofficially estimated at over 25 per cent — even higher among youth — food price inflation has been at about 17 per cent per year and the rampant poverty and inequity in income distribution have all served as catalysts for the popular uprising.

Citing the growing unrest, Moody's also revised its outlook to negative, again matching Fitch's move late last week.

Analysts are jittery about a spillover effect in much the same way they had voiced worries when Tunisia's protests weeks earlier led to the ousting of that country's president.

"The end-game in the political crisis in Egypt remains uncertain," investment giant Citigroup said in a research note. "The position of (Mubarak) is looking increasingly tenuous, although it is far from clear how any transfer to a new political order will proceed, and over what timeline."

U.S. television network CNBC reported Monday that a third of the world's oil supply travels through the Suez Canal, and tolls from tankers using the passage are Egypt's third-largest source of revenue. Any prolonged change to the canal's operation is likely to have significant global and domestic financial repercussions.

The instability is problematic for the many multinational firms with operations in the country. TSX-listed Canadian energy company Sea Dragon Energy Inc. said Monday the protests have so far had very little effect on its field operations in the country.

In an update aimed at reassuring shareholders, the Calgary-based concern said the protests are centred in major cities and "therefore have little or no impact on the company's field operations in Kom Ombo and northwest Gemsa" in the desert.

"Production from both concessions is continuing uninterrupted," it said.

London-based consumer products giant Unilever said its offices in Cairo have been closed since Jan. 28. General Motors' plant in the 6th of October City near Cairo has not been producing vehicles also since that date, and production was not expected to restart at least until after Friday, according to an employee at the plant who declined to be identified because he was not authorized to speak to the media.

Trade, tourism take hit

Foreign companies were also beginning to pull their foreign staff from the country, though oil companies such as BP PLC said their production remained unaffected.

French cement company Lafarge said Monday that it is repatriating about 100 employees and their families from Egypt. "This decision was taken as a measure of prudence and in the interest of the families," Lafarge said in a statement.

Tourism is expected to take a big hit. Foreigners are struggling to flee the country, tour and cruise companies are seeing cancellations and a growing list of Western and Arab nations are sending in flights to evacuate their nationals. The tourism sector is vital for Egypt — and is among one of the four top sources of foreign revenue for the country, responsible for more than 10 per cent of GDP.

The first of two flights Ottawa has arranged to take Canadians out left Monday. 

Two-way Canadian trade between Canada and Egypt was worth roughly $750 million last year, according to official data from the Department of Foreign Affairs and International Trade. That figure has more than tripled over the last decade, and Egypt is now Canada's third most important Middle Eastern trading partner.

Canada's main exports to Egypt consist of railway equipment, iron and steel, machinery and vegetables, while Egypt exported $114 million worth of fertilizers, textile floor coverings, fuel and oil, and woven apparel to Canada in 2009.