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The countries of North Africa are, in their different ways, bracing themselves for the impact of a deepening global recession. Oil exporters such as Algeria and Libya are expecting diminished revenues due to falling prices, while the more diversified economies of Egypt, Tunisia and Morocco fear they are likely to face shrinking export markets, fewer tourist arrivals and less foreign investment.
Officials in Egypt and Morocco have been at pains to send reassuring messages about the health of local financial systems, saying that domestic banks are safe and have no risky foreign exposure.
So far, no state or private bank in either country has admitted to losing significant funds in failed western institutions.
However, the Egyptian and the Moroccan governments have made clear that an international slowdown will pose a threat and that growth expectations have to be scaled down.
In Egypt, where the economy has grown by an average of 7 per cent over the past three years, officials say the figure for this year will be about 6 per cent. The government and banks, they say, will have to take special measures to boost local investment and guarantee export finance.
"We were cruising at 7.2 [per cent] and when we slow down we will be somewhere around 6 per cent," says Yousuf Boutros Ghali, the Egyptian Finance Minister. "It is too soon to say because it will depend on what happens abroad, but between 6 and 7 [per cent growth] is a safe bet."
Tourism
Morocco has also reduced its expected growth by one percentage point to 5.8 per cent.
"There is no impact on our financial system," says Abdul Latif Jouahri, the governor of the Moroccan central bank. "But the recession could affect tourism, exports and foreign investment. So far, the impact is slight but we need to be cautious."
Morocco is aiming to attract 10m tourists a year by 2010 and a slowdown in its traditional European market may mean it will not reach its target.
Jouahri argues that the crisis may provide the country with opportunities such as increased demand in Europe for its cheaper agricultural workers.
Remittances from Europe-based workers are a big support for the Moroccan economy. It is equally likely that low-skilled workers may be the first to be laid off in the event of downturn. He sees a silver lining in falling oil and cereal prices that he expects will exert downward pressure on inflation.
Ghali also considers that there is cause for optimism in the expected decline in global inflation.
Skyrocketing international commodity prices at the beginning of the year sent Egypt's subsidy bill soaring to about $16.5 billion. Fuel subsidies account for most of this, though Egypt is also the world's largest importer of wheat. Cheap bread, heavily subsidised by the government, is available to all citizens and is seen as crucial to the stability of the political system in a country where 40 per cent of the population is recognised as poor.
"Inflation is no longer at the forefront of our policy targets," Ghali says. "Today ... growth is what we should be worrying about."
Inflation
Concern over the impact of inflation, which reached 23.6 per cent in August, has been contributing to losses on the Egyptian bourse since May when the government announced measures aimed at raising additional revenue to pay for a salary increase for public servants.
In recent weeks, the international crisis accelerated the downward trend causing the Cairo and Alexandria Stock Exchange to fall 35 per cent since the beginning of September.
The slowdown also poses a risk to tourism, one of the drivers of the Egyptian economy.
"Europe will slow down, but I am worried about eastern Europe and Russia," says Simon Kitchen, economist at EFG-Hermes, the Egypt-based private investment bank. "In the last five years a lot of tourism came from these countries which are not looking so good now. Also for the Suez Canal a lot of the growth in traffic has come from exports from Asia into Europe and eastern Europe."
Canal receipts are likely to be affected as global trade declines, Egyptian officials say. Revenue from the waterway is expected to hit a record $6.1 billion this fiscal year, an increase of 18 per cent on the year before. But EFG-Hermes expects growth in 2008-09 to be closer to 10 per cent.
While foreign investment is likely to decrease, Egyptian ministers say the government has decided to pump some $3 billion into infrastructure projects over the next three years. Ghali is adamant the increased spending will not affect the deficit that he says he will be able to maintain at its current level of 6.9 per cent.
Ministers say the Egyptian government is aware that if it does not shift into higher gear it risks losing the gains of its economic reform programme.
"We are very clear we will need to design for every sector a set of incentives ... of remedies with the banking system," says Rachid Mohammad Rachid, the minister of trade and industry.
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