The Problem with Pirates

Oxford Business Group published an interesting article a few days ago in response to Egypt’s announcement of its intentions to fight pirates as part of any UN-sponsored mission. (Cairo said it opposes unilateral action to combat piracy off Somalia’s coast.) Oxford Business Group, among others, suggests that piracy could become a real problem for Egypt if it deters business away from the Suez Canal. Although Egyptian officials say that piracy has not yet affected business through the canal, OBG reports that Denmark’s AP Moller-Maersk has ordered its slower ships to sail around the Cape of Good Hope to avoid the canal altogether, even though this means an additional two to three weeks. Any loss in revenue from the Suez Canal poses a special problem for Egypt as it sees its other GDP drivers—particularly foreign investment from Europe and the neighboring Gulf states and tourism—begin to slow down in the wake of a possible global recession. Again, according to the OBG report, Egypt earned $2.6 billion in revenue from the canal in the first half of 2008. In 2007, canal revenues accounted for roughly 13 percent of government revenue.

Egypt’s Investment Minister, Mahmoud Mohieldin, predicts at least a full percentage point slowdown in GDP growth this fiscal year for the country, from 7.2 percent last year to 5-6 percent is year. Much of the slowdown in the Egyptian economy is out of Egypt’s hands-just as it rode the boom in the Persian Gulf and a strong Europe (much of Europe’s trade with Asia passes through the Suez Canal and the majority of its tourists come from Europe and the Arab world) so Egypt must ride out the slowdown in its economic partners. Piracy out of Somalia, nonetheless, would seem to be adding insult to injury for a government and economy that was just beginning to factor in sustained growth. Egypt is unlikely to actually take matters into its own hands if the situation deteriorates further, but it might be time for Egypt to rediscover its African identity and exert a little pressure on its neighbor to the south.