Friday, June 3, 2011

Is a Middle East food crisis around the corner?

By now we're pretty much used to the crisis du jour out of the Middle East: Israel, oil, Islamism, corruption, tyranny, human rights, etc.  Now a piece in the Asia Times says we are facing another one: food.
I've been warning for months that Egypt, Syria, Tunisia and other Arab oil-importing countries face a total economic meltdown [citations omitted]. Now the International Monetary Fund (IMF) has confirmed my warnings.


The numbers thrown out by the IMF are stupefying. "In the current baseline scenario," wrote the IMF on May 27, "the external financing needs of the region's oil importers is projected to exceed $160 billion during 2011-13." That's almost three years' worth of Egypt's total annual imports as of 2010. As of 2010, the combined current account deficit (that is, external financing needs) of Egypt, Syria, Yemen, Morocco and Tunisia was about $15 billion a year.

What the IMF says, in effect, is that the oil-poor Arab economies - especially Egypt - are not only broke, but dysfunctional, incapable of earning more than a small fraction of their import bill. The disappearance of tourism is an important part of the problem, but shortages of fuel and other essentials have had cascading effects throughout these economies.

"In the next 18 months," the IMF added, "a greater part of these financing needs will need to be met from the international community because of more cautious market sentiments during the uncertain transition."

Translation: private investors aren't stupid enough to throw money down a Middle Eastern rat-hole, and now that the revolutionary government has decided to make a horrible example of deposed president Hosni Mubarak, anyone who made any money under his regime is cutting and running. At its May 29 auction of treasury bills, Egypt paid about 12% for short-term money, to its own captive banking system. Its budget deficit in the next fiscal year, the government says, will exceed $30 billion.

And the IMF's $160 billion number is only "external financing"; that is, maintaining imports into a busted economy. It doesn't do a thing to repair busted economies that import half their caloric intake, as do the oil-poor Arab nations.

Egypt's economy is in free fall. Its biggest foreign exchange earner was a tourist industry that won't come back for a decade, if ever. The IMF's $160 billion doesn't take into account the costs of teaching two-fifths of the Egyptian population to read, or raising crop yields to more than a fifth of American levels, or training university graduates to do more than stamp identity cards and shuffle papers. As the international organization made clear, this is what Egypt and its neighbors require merely to pay for essential imports.
The most stupefying part here for the classical historian in me is that Egypt is importing food.  For thousands of years Egypt was not only self-sufficient in growing food, but a large food exporter.  Once Octavius Caesar took over Egypt and became Caesar Augustus, Egypt literally fed the entire Roman Empire. Granted, two thousand years have passed, but still ... what happened?

I'll get to that, but first some more sunshine and good cheer:
[T]he proposed aid package for the misnomered Arab Spring has already become a punching bag for opposition budget-cutters. "Should we be borrowing money from China to turn around and give it to the Muslim Brotherhood?" Sarah Palin asked on May 27.

"Now, given that Egypt has a history of corruption when it comes to utilizing American aid, it is doubtful that the money will really help needy Egyptian people. Couple that with the fact that the Muslim Brotherhood is organized to have a real shot at taking control of Egypt’s government, and one has to ask why we would send money (that we don't have) into unknown Egyptian hands," the former Republican vice-presidential candidate added.

Whether any amount of foreign aid will stabilize Egypt's economic position is questionable, even if the industrial nations and the Arab Gulf states opened their purses, which is doubtful.

From Arab-language online media, it appears that Egypt's economic troubles have metastasized. Last month, rice disappeared from public storehouses amid press reports that official food distribution organizations were selling the grain by the container on the overseas market. Last week, diesel fuel was the scarce commodity, with 24-hour queues forming around gasoline stations. Foreign tankers were waiting at Port Said on the Suez Canal to pump diesel oil from storage facilities, as government officials sold the scarce commodity for cash.

This is the sort of general breakdown I observed in 1992 in Russia, following the collapse of the communist government. As an adviser to finance minister Yegor Gaidar, I heard stories of Russian officials selling unregistered trainloads of raw materials on foreign markets and depositing the proceeds in Swiss banking accounts. Anything of value that could find a buyer overseas was sold. I didn't last long as an adviser; looting and pillaging wasn't my area of competence. Russia, it should be recalled, is largely self-sufficient in food and is among the world's largest oil producers, while Egypt imports half its food. Russia had enormous resources on which to draw. Egypt, Syria and Tunisia have nothing.

For 60 years, the Egyptian army and associated crony capitalists ran the economy as a private preserve. Although the army remains in nominal charge, the public humiliation of Mubarak serves notice on the previous masters of Egypt's little universe that they are as vulnerable as their former patron. Everyone who can get out will and will take with them whatever they can.

Syria is also vulnerable to hunger, the UN's Food and Agriculture Organization (FAO) warned May 23. "Continuing unrest in Syria will not only affect economic growth but could disrupt food distribution channels leading to severe localized shortages in main markets," according to the FAO. ''Syria hosts one of the largest urban refugee populations in the world, including nearly one million Iraqis who have become more vulnerable because of rising food and fuel prices."

Nearly 700,000 Libyan refugees have reached Libya and Egypt, fleeing their country's civil war. At least 30,000 Tunisian refugees (and likely many more) have overwhelmed camps in Italy, and perhaps a tenth of that number have drowned in the attempt to reach Europe. A large but unknown number of Syrian refugees have fled to Lebanon and Turkey.

I would take this report with a grain of salt because I have heard predictions of food crises in the Middle East for several years now, and they never seem to materialize.  Tunisia and Morocco are actually among the richer nations in the Arab world, in part because of their stability, however flawed it may be.  I don't necessarily see this scenario playing out as darkly for them.  Syria is in a proto-civil war right now and it's hard to tell what will emerge from it.  Yemen is Yemen and it seems will always be Yemen, which means, despite its strategic position at the junction of the Red and Arabian seas, it will always be a mess and no one will care about it.

That leaves Egypt as the big problem.  And it is a dangerously big problem, one with its roots far in the past, before even the Muslim Brotherhood, however bad they may be.

Egypt's self-sufficiency in foodstuffs ended in part under British suzerainty, when the British changed the agricultural priorities of the Nile River basin from food to cotton, which is a bit harder on the soil.  The Brits' action here is somewhat understandable because of the disruption in cotton shipments from the US during the Civil War, but that didn't do the Egyptians any good.

But the real disaster for the Egyptians was not colonialism, but was instead totally home grown -- Gamal Abd al-Nasser.

Egypt had always been a good agricultural area because the Nile would flood annually, replenishing the soil with a new, fertile layer.  Nasser changed that by damming the Nile with the construction of the Aswan High Dam in southern Egypt.  The result was partly insult -- the damaging or forced relocation of several monuments from Pharonic Egypt and wiping out several Nile cataracts -- but mostly grievous injury.

Because of the Aswan High Dam, the Nile stopped flooding; its level remained constant.  Good if you're building riverfront condos but bad if you're a farmer.  The level of salt in the soil rose, the water table was affected, and growing crops became much more difficult.

The Egyptians now seem to realize what a disaster the Aswan High Dam is, but they can't do anything about it.  The Nile floodplain is now populated, especially in and around Cairo, and they need the electrical power provided by the dam's hydroelectric generators.

Short story long: Egypt, despite its massive population growth over the centuries, would likely be able to feed itself and might even be a food exporter if not for the Aswan High Dam.

So, if you want to point the finger of blame at someone (or someones) for Egypt's problems right now, might want to take a good look at Gamal Abd Al-Nasser.

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