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Egypt’s economy braces for new hit from Sudan conflict



The outbreak of clashes between the Sudanese army and the Rapid Support Forces paramilitary group came as bad news for Egypt’s economy, already struggling under severe pressure over the past year.

Egypt fears that a prolonged conflict across the border in Sudan, a major market for its exports, will complicate its economic hardships.

Egypt’s trade exchange with Sudan hit $1.4 billion in 2022, up from $1.2 billion a year earlier, including $929.2 million in Egyptian exports and $504.4 million in imports, according to the state-run Central Agency for Public Mobilization and Statistics.

Sudan also came as the second-largest market for Egyptian exports after Libya in the first quarter of 2023 with $226 million, as shown by figures released last month by Egypt’s Ministry of Industry.


Sherif el-Gabali, head of the Egyptian-Sudanese Business Council, told Al-Monitor over the phone that it is still early to assess the impact of the conflict on the Egypt-Sudan trade exchange. He expects that many Egyptian companies will halt their exports to Sudan for fear of failing to collect their money, in addition to the high security risks resulting from the ongoing fighting there.

“The conflict in Sudan will surely lead to a decline in the volume of Egyptian exports to the Sudanese market,” he said. “Most Sudanese importers used to come with cash in hand to pay for Egyptian exports and transport them to the Sudanese market through the border. But the outbreak of violence in Sudan will make this very difficult to happen.”

“[The current conflict in Sudan] will also disrupt joint economic projects on which Egypt pinned hopes to boost its economic cooperation with Khartoum,” he added.

Egypt, which has emerged as a regional energy power in recent years, has an electric interconnection line with Sudan with a capacity of 80 megawatts (MW), and the two countries were planning to increase its capacity to 300 MW. Both Cairo and Khartoum were also planning to build a 570-kilometer (354-mile) railway to facilitate the movement of goods between the two countries.

Joint investments are also expected to be affected by the ongoing conflict in Sudan. There are nearly 229 Egyptian projects being implemented in Sudan, with up to $10.8 billion in investments, according to Egypt’s State Information Service (SIS). Nearly 315 Sudanese companies also operate in the Egyptian market, with some $97 million in investments, according to SIS.

Egypt has developed strong relations with the Sudanese army following the overthrow of long-serving President Omar al-Bashir in 2019. The two countries joined hands in pressing Ethiopia to reach a binding agreement on the filling and operation of the Grand Ethiopian Renaissance Dam, which Cairo views as an existential threat to its water share from the Nile River.

However, Egypt has largely avoided taking sides during the Sudanese conflict, only appealing to both military rivals to reach a permanent cease-fire to resolve their dispute.

Egypt fears that a prolonged conflict in Sudan will trigger an outflow of refugees from Sudan into the country, which will put further strain on its already fragile economy.

According to the UNHCR, the United Nations refugee agency, at least 56,000 Sudanese refugees have crossed into Egypt since the outbreak of violence last month.

Egypt already hosts around 9 million refugees, including nearly 4 million Sudanese, the International Organization for Migration estimates.

In an interview with Japanese newspaper Asahi Shimbun last week, Egyptian President Abdel Fattah al-Sisi warned that the flow of Sudanese refugees will create economic troubles for Egypt.

“Amid the economic difficulties stemming from the Russian invasion of Ukraine, many Sudanese have fled. So Egypt is also facing problems,” Sisi said. “We are already experiencing high inflation and the prices of daily necessities are surging.”

“If we were to accept even more Sudanese, Egypt will definitely feel the effects,” the Egyptian leader added.

Egypt is already facing multiple economic difficulties, including a shortage in foreign currency and surging inflation. The local currency has lost around 100% of its value since March 2022, trading at nearly 31 Egyptian pounds to the US dollar, causing inflation to soar. Egypt’s annual core inflation peaked in February at 40.3%, before inching down to 39.5% in March. The annual headline inflation rate also surged to 33.9% in March this year, up from 12.1% in March 2022.

On May 5, credit ratings agency Fitch downgraded Egypt’s rating by one notch from B+ to B and attached a negative outlook due to the country’s economic hardships. “The external financing risk has increased given high external financing requirements, constrained external financing conditions and the sensitivity of Egypt’s broader financing plan to investor sentiment,” the agency said.

Last week, the global rating agency Moody’s warned that a prolonged conflict in Sudan could pose a credit-negative risk to neighboring countries, including Egypt.

Moody’s said that a probable spillover of the Sudanese conflict to neighboring countries would trigger broader asset-quality concerns for multilateral development banks with a higher concentration of loans in Egypt, Chad, South Sudan and Ethiopia.

Medhat Nafie, economic expert and adviser to the Egyptian supply minister, believes that the Sudanese conflict would disrupt the flow of investments into Egypt.

“The outbreak of any regional conflict would affect the ability of the whole region to attract investments, not to mention Egypt as a gateway to investment in sub-Saharan Africa,” Nafie told Al-Monitor.

He said the influx of refugees from Sudan into Egypt “will add further burdens on Egypt’s state budget and the labor market in the country.”



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China’s economy is raising red flags across markets as rebound disappoints



Financial markets have been raising red flags recently about China’s economy, but analysts said Wall Street is missing the big picture.

Growth in the world’s second largest economy accelerated to 4.5% in the first quarter from 2.9% in the fourth quarter following the relaxation of COVID restrictions late last year.

But more recent data have pointed to slowing growth in retail sales as well as drops in home sales, industrial production and fixed-asset investment.


That disappointed investors hoping for a bigger post-COVID rebound and led Wall Street to trim its growth estimates for the full year. Worries about China’s economy have rippled through markets.

Earlier this month, the yuan fell past a psychologically important level of 7 per dollar for the first time this year. The price of copper, once expected to see sizable gains due to high demand from Chinese factories, hit a four-month low in mid-May.

Meanwhile, shares of luxury brands that are reliant on China’s consumer base, have started tumbling on stagnant activity.

Chinese equity markets were not immune to slowing performance, as the CSI 300 index continued to slip this week. At the end of April, declining hopes for added stimulus brought the Shenzhen and Shanghai indices down by $519 billion in one week alone.

The stalling performance prompted Rockefeller International’s Ruchir Sharma to call the rebound narrative a “charade.”

But for one analyst, the growing pessimism around China’s economy could stem more from unrealistically high expectations and Wall Street’s tendency to prioritize immediate metrics over long-term outlooks.

“I feel sorry for these people in some ways, because every time the Chinese release some data, they have to say something about it,” Nicholas Lardy of the Peterson Institute for International Economics told Insider.

Heightened anticipations may be due to China’s response to the 2008 financial crisis, when Beijing infused the economy with massive stimulus and achieved double-digit growth, Pantheon Macroeconomics’ Duncan Wrigley said.

However, it also led to a huge debt hangover that China has worked to resolve for much of the last decade. So while demand is slowing, limiting debt growth is equally prioritized by party leaders, he said.

The country set a more conservative 5% growth target in March, which both analysts see as achievable. Although the country will avoid full-scale stimulus to reach the goal, it has a number of tools to ensure growth keeps ticking upwards.

Despite its aim to limit debt, China could increase the availability of cheap loans to sectors in need, as well as lift the lending quota for the three main policy banks, while allowing them to invest in local projects, Wrigley said.

If this isn’t enough, he noted that the People’s Bank of China could ease financial conditions later in the year, such as decreasing the reserve requirement ratio for banks.

But youth unemployment remains high, while heightened geopolitical risk may deny China’s access to foreign technology.

And private investment, a major source of growth in China, has nearly collapsed in the past 15 months, Lardy said.

This may have to do with stringent regulation of Chinese business, as President Xi Jinping expands the role of the state in the market, dissuading business owners from investing in their firms, he said.

“That’s the one big negative factor that I worry about more than all the other things that we have talked about. Why is private investment so weak?” he said.



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Quebec proposes making French mandatory for all economic immigration programs




Quebec is proposing that speaking French become mandatory criteria for provincial applicants.

Quebec Premier Francois Legault has proposed major changes to Quebec’s economic immigration criteria.


Speaking on May 25 with the Minister of Immigration, Francisation and Integration, Christine Frechette and the Minister of the French Language, Jean-François Roberge, Legault says the changes will ensure that nearly 100% of new economic immigrants to Quebec will know French before they arrive in the province by 2026. This is meant to promote Francophone economic immigration in Quebec.

“As we have seen for several years, French is in decline in Quebec,” said Legault. “Since 2018, our government has acted to protect our language, more than other successive governments since the adoption of Bill 101 under the Lévesque government. But if we want to reverse the trend, we must go further. By 2026, our goal is to have almost entirely Francophone economic immigration. We all have a duty, as Quebecers, to speak French, to transmit our culture on a daily basis, and to be proud of it.”

Discover if You Are Eligible for Canadian Immigration

Knowledge of oral French will be required for adults. This is meant to ensure that those who wish to settle in Quebec will be able to communicate in French throughout day-to-day interactions at work and in their communities.

The changes are part of a new permanent immigration program for skilled workers in Quebec. The province says the Skilled Worker Selection Program will “take into account the diverse needs of Quebec.”

Candidates in the program will be evaluated in four categories that have not yet been made clear, but the province says that three of the categories will require that the principal applicant and their accompanying spouse have knowledge of French.

There will also be revisions to existing programs. For example, the work experience requirement will be removed from the Quebec Experience Program for graduate students from a French-language study program.

Family reunification measures include making it mandatory for the guarantor to submit a plan for reception and integration that will support the learning of French for the person they are hosting.

Immigration is a shared responsibility between the federal and provincial governments. Quebec’s agreement is unique from other provinces in that it can select all its economic immigrants. Quebec does not have the authority to select family class sponsorship applicants or those who arrive in Canada as refugees or other humanitarian classes.

For 2023, Quebec has targeted that 65% of newcomers admitted to the province will be economic class.

Increasing immigration numbers in Quebec

The province is also considering raising the number of permanent selection admissions from 50,000 to 60,000 per year by 2027. This is in stark contrast to Legault’s recent comments that there was “no question” of Quebec accepting any rise in the number of newcomers and publicly rejecting the federal Immigration Levels Plan, which has a target of 500,000 permanent residents admitted to Canada each year by the end of 2025.

These changes also follow Quebec’s Immigration Levels Plan for 2023, where it was announced that the province would move away from plans that forecast only the coming year and begin introducing multi-year plans for immigration by 2024.

Why the changes?

Quebec is unique in Canada as it is the only province where French is the official language. The province is fiercely protective of its language, saying it is vital to protecting Quebec’s unique culture and status.

Legault is the leader of the Coalition Avenir Québec (CAQ) and is currently in his second term as Quebec’s premier, having been reelected last October. One of the main pillars of the CAQ party is to protect the French language in Quebec.

Immigration was one of the key issues in the recent election. Throughout his campaign, Legault said that Quebec would allow only 50,000 immigrants per year into the province as it would be difficult to accommodate and integrate more than that into Quebec society. He said that accepting more than that would be “a bit suicidal.”

Regardless, Quebec, like the rest of Canada, is experiencing a labour shortage as the population ages and the birth rate remains low. A report released last March by the Canadian Federation of Independent Business shows that the province could face an annual shortfall of up to nearly 18,000 immigrants, who would be able to fill Quebec’s labour needs.



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Lira hits record low, but stocks rise after Erdogan win in Turkey



The Turkish leader won the presidency for a third time after a run-off vote on Sunday.

The Turkish lira has plunged to record lows after the re-election of President Recep Tayyip Erdogan, a sign that currency markets are not confident in the country’s economic future after the longtime leader’s re-election.

The Turkish currency weakened to 20.01 to the dollar on Monday after the high-stakes run-off a day earlier.

But Turkish stocks, on the other hand, rose as Erdogan entered a third decade in power with the benchmark BIST-100 index up 3.5 percent and the banking index rising more than 1 percent.


The lira fell to a record low as the country battles a cost of living crisis and depleted foreign reserves.

On the campaign trail, Erdogan pledged to slash inflation to single digits and boost economic growth, a message he reiterated in his victory speech late on Sunday. But analysts said his economic policies are unorthodox and predicted they will lead to more pain for Turks.

“In our view, Erdogan’s biggest challenge is Turkey’s economy,” Roger Mark, an analyst at the Ninety One investment management firm told the Reuters news agency. “His victory comes against a backdrop of perilous economic imbalances with his heterodox economic model proving increasingly unsustainable”.

Hasnain Malik, head of equity research at Tellimer, an emerging markets research firm, told the agency: “An Erdogan win offers no comfort for any foreign investor.”

“Only the most optimistic would hope that Erdogan now feels sufficiently secure politically to revert to orthodox economic policy,” he said.

Interest rate cuts sought by Erdogan sparked a devaluation of the Turkish lira in late 2021 and sent inflation to a 24-year peak of 85.5 percent last year. The president had argued that higher interest rates cause inflation while central banks around the world were raising rates to reduce price rises.

Turkey’s struggling economy, also reeling after the country’s devastating double earthquakes in February, was a major thorn in Erdogan’s prospect for re-election.

The leader has defended his economic policies, reassuring Turks that investment, production, exports and an eventual current account surplus will drive up Turkey’s gross domestic product.



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