International Business

(IBUS701)
Winter 2022

Dr. Dina Yousri

Assistant Professor of Economics and Statistics

Economics Department , Faculty of ManagementTechnology
German University in Cairo

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Course Instructor

Dr. Dina Yousri

Office: B5. 306
Office Hours: by appointment please send an e-mail:
dina.elsayed@guc.edu.eg

Research Interest:
Macroeconomics, Economic Development, International Trade, Political Economics, Law and Economics,
Environmental Economics and Institutional Economics.

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The Great Lockdown and Russian -Ukrainian War: Are we experiencing the worst
crisis of all time ?

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Modern Time Crisis…..

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 Modern Time Crisis: The World Economy
 From 2000 to 2007, the world economy had a sustained expansion.

 In 2007, US housing prices started declining, leading to a major financial crisis.

 The financial crisis turned into a major economic crisis with falling stock prices.
 In the third quarter of 2008, US output growth turned negative and remained so in
2009.Through the trade and financial channels, the US crisis quickly became a world crisis.

Figure Figure
Output growth rates for the world economy, for advanced economies and for
Stock prices in the United States, the euro area and emerging economies, 2007–2010
emerging and developing economies, 2000–2015

Source: IMF, World Economic Outlook Database, July 2015. NGDP_RPCH.A. Source: Haver Analytics USA (S111ACD), Eurogroup (S023ACD), all emerging markets (S200ACD), all monthly averages.
 What did COVID-19 Do to us?

 Is COVID-19 worst than the great depression and WWII impact?

 Did COVID lead to more economic problems or just uncovered the

deficiencies we have?

Did COVID-19 lead to more …….

 Poverty
 Hunger
 Low Income/Standard Of Living
 Recession
 Inequality
 Inflation
 Unemployment
 Limiting Globalization

Or is Health Crisis of lower impact over Economic Indicators?

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Most of countries now in recession
 If the economy is growing, that generally means more wealth and more new jobs.
 It's measured by looking at the percentage change in gross domestic product, or the value of goods
and services produced, typically over three months or a year.

The IMF described the decline as the worst since the Great Depression of the 1930s.

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Unemployment !

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Hospitality sector has shut its doors worldwide

The hospitality sector has been hit hard, with millions of jobs and many companies bankrupt.
Data from Transparent - an industry-leading intelligence company that covers over 35 million hotel and rental
listings worldwide - has registered a fall in reservations in all the top travel destinations.

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Shopping... at home !

• Retail footfall has seen unprecedented falls as shoppers stayed at home.

• New variants and surges in cases have made problems worse.
• Pedestrian numbers have fallen further from the first lockdown, according to research firm
ShopperTrak,

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HEALTH CRISIS-What did COVID-19 Do to us?

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How did the COVID-19 pandemic impact Egypt?

Like most emerging markets, the COVID-19

pandemic has been an enormous shock for the
Egyptian economy.

The fallout was immediately felt through a sudden

stop in tourism—which, at the onset of the crisis,
accounted for around 12 percent of GDP, 10 percent
of employment, and 4 percent of GDP in foreign
currency earnings.

Precautionary measures to contain the spread of the

virus, including partial lockdowns and restrictions on
capacity in public spaces, resulted in a temporary
decline in domestic activity, while the government’s
budget was stretched as the economic slowdown
reduced tax revenues.

Egypt also experienced significant capital outflows

of more than $15 billion during March-April 2020 as
investors pulled out of emerging markets in a flight to
safety.

Nonetheless, Egypt was one of the few emerging market countries that experienced a positive growth rate in 2020,
claimed to the government’s timely response, the short period of lockdown and Egypt’s relatively diversified economy.

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COVID-19 the greatest CRISIS of all Centuries….

GDP

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 What did COVID-19 Do to us?
Is the government earlier strategies/ reforms helped lessen the
COVID-19 impact?

Structural reforms in Egypt readied its economy for the

impact of the ongoing global pandemic, according to the
country’s minister for international cooperation.

“We entered this crisis with fiscal buffers as well as

foreign reserve buffers, which helped weather the first
shock,” Rania al-Mashat

“If it weren’t for those comprehensive reforms on

the tax side, on the budget, on foreign exchange and so
forth, the situation would have been ... even more
difficult.”

The country was on a reform program with

the International Monetary Fund from 2016 to 2019.

Egypt is one of only two countries in the Middle East and

North African region that the IMF expects the economy to
grow in 2020, though at a modest rate of 2%, compared
to last year’s 5.6%.

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Is COVID-19 BAD to everyone??

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Pharmaceutical companies among the winners

Governments around the world have pledged billions of dollars for a Covid-19 vaccine and treatment
options. Shares in some pharmaceutical companies involved in vaccine development have shot up.
Moderna, Novavax and AstraZeneca have seen significant rises. But Pfizer has seen its share price
fall. The partnership with BioNTech, the high cost of production and management of the vaccine, and the
growing number of same-size competitors have reduced the investors' trust in the company to have
bigger revenue in 2021.

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A global recovery that was uninstalled…..

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How war in Ukraine upended the global recovery..
The global economy was staging a post-Covid recovery at the start of 2022, but
the Russian invasion of Ukraine has sent markets spiralling.

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 Russian- Ukrainian War the devastating impact..

“The difficulty here is Ukraine grows enough food to feed 400 million
people on planet Earth,” David Beasley, Executive Director of the United
Nations World Food Programme tells the show. “So when the farmers on
the battlefields aren't planting or aren't harvesting, what impact do you think
that's going to have?”

The conflict between Russia and Ukraine will affect the global economy via
three main channels:
 financial sanctions,
 commodities prices and
 supply-chain disruptions.

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 Russia’s food and energy exports

 Russia accounts for 18% of the world’s wheat exports and 14% of fertilizers.

 It’s also a “major force” in the market for energy and metals.

 The country controls a quarter of the world’s natural gas exports, 18% of coal exports, 14%
of platinum shipments and 11% of crude oil exports.

 Oil prices have more than doubled in the past six months, and if this continues it will cut rates
of economic growth by 20-50% in countries such as South Africa, Turkey, China and
Indonesia, as per the World Bank estimates.

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Which country(s) will suffer the most?

 The war in Ukraine will make it harder for low- and middle-income countries to recover from the economic
impact of COVID-19, the World Bank is warning.

 The biggest risk is possible disruption to the production or transportation of grains and seeds from Russia
and Ukraine. Lower-income countries could see “increased hunger and food insecurity” as a result of this
invasion.

 The conflict is taking a huge toll on the people of Ukraine, as well as on the country’s economy. But there
are also significant consequences for millions of other people around the world.

 Economies with strong trade, financial and migration links to Russia and Ukraine could suffer “the greatest
immediate harm”, the World Bank says.

 Countries with the biggest food dependence and trade links to Russia and Ukraine face potential economic
impacts. These include “a handful of economies” in Europe, the Middle East, Africa and Central Asia that
get 75% of their wheat from Russia and Ukraine.

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 Ukraine contribution to world food supply

 This World Bank chart shows Ukraine’s share of global exports for products including foodstuffs, such as seed oil, corn and wheat. For seed
oil, it accounts for more than 40% of all exports.
 This reflects Ukraine’s status as the world’s biggest exporter of sunflower oil. The biggest markets for sunflower oil include India, China,
Turkey.

 More than 13% of global corn exports and over 5% of wheat exports also come from Ukraine.

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• The world fuel prices have been rising rapidly. In March 2022, a barrel of oil was $118 – 38% higher than in January 2022 and 81%
up on the same time last year. Daily oil prices reached a high of $128 per barrel on 8 March, but had fallen to $104 per barrel by 1
April.
• Europe saw natural gas prices climb 45% between January and March to $41 per million British thermal units (Btu) – a measure of
heat content. In the United States, on the other hand, prices have “remained relatively low,” the WTO says, at around $4.9 per
million Btu.

Prices for natural gas vary across regions!

Higher oil prices may reduce real incomes and import demand worldwide, while higher natural gas prices would
probably have a greater impact in Europe,” the WTO says.

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 US and EU are imposing tough sanctions on Russia

On February 28th the US unveiled a sanctions package targeting the Central Bank of Russia (CBR). The EU has
followed suit.
 These sanctions will prevent the CBR from accessing about half of the US$643bn that it holds in foreign-
exchange reserves by blocking its ability to convert assets held in US dollars and euros into rubles. The
measure also prevents Russia from tapping its emergency sovereign wealth fund, the National Wealth Fund
(NWF). In addition, the US and the EU have announced that some Russian banks will be cut off from
SWIFT, the global payments system.

“The US and the EU had previously adopted a cautious approach to sanctioning Russia. Trade ties between
Russia and the EU made European policymakers reluctant to impose stringent measures on Russia.

Measures to restrict Russia’s energy exports are still off the table, reflecting fears in European capitals that
sanctions of that nature would send EU economies into recession. The US Treasury has planned carve-outs from
sanctions for Russian energy exports, and Russian banks involved in the energy trade will not be excluded from
SWIFT. The economic impact of EU and US sanctions will therefore be small outside Russia, although Western
companies that are highly exposed to Russia will still be affected”.

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Supply chains will be disrupted
 Financial sanctions will have an impact on supply chains and trade, as companies will struggle to find
financial channels through which to conduct trade with Russia. In addition, the possible destruction of some
transport infrastructure (notably ports in Ukraine) will compound existing supply-chain issues.

Disruption to supply chains will come from three sources:

 difficulties affecting land-based routes;
 restrictions on air links; and
 the cancellation of sea freight routes from Ukraine

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Global growth will take a hit

The economic impact of the conflict will be felt mostly in Ukraine and Russia, which will both experience sharp
recessions this year. Those eastern European countries that are most exposed to trade with Russia, such as
Lithuania and Latvia, will also take a hit from the conflict. Elsewhere in Europe, the EU will suffer from an
energy, supply-chain and trade shock.

“In view of this situation, EIU will be revising down the growth forecast for Europe in 2022, to about 2% from
the previous projection of 3.9%. Growth in the euro zone is now expected to stand at 3.7% this year, from
EIU’s previous forecast of 4%. Downward revisions to Europe’s growth outlook will also prompt a revision of
the global growth forecast by 0.5 percentage points to about 3.4%, from 3.9% previously”.

Agathe Demarais, Global Forecasting Director, EIU

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Global inflation will jump above 6% this year

 Higher commodities prices will fuel global inflation this year and possibly in 2023. EIU was already
forecasting global inflation of nearly 6% this year, but now that mark is expected to be exceeded, given the
huge spikes in commodities prices. The rise in inflation will offset the positive impact of higher commodities
prices for producers.

 Higher prices will also raise tricky questions for central banks. They had embarked on a course of monetary
tightening to curb inflation but may now be concerned about the impact of the Russia-Ukraine conflict on the
post-coronavirus recovery.

 The war against Ukraine has been accompanied by a sharp rise in inflation under the pressure of food, energy
and major commodity prices. Inflation had already been rising throughout 2021 as a result of increased
demand caused by the economic recovery and the continued disruption of many value chains, but the war has
accelerated it. And this movement has been more pronounced in emerging and developing countries. Inflation
affects most the poorest and weakest and contributes to increasing inequalities worldwide.

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 Russia’s invasion of Ukraine puts the global economy at risk!

War on Ukraine has major consequences in the EU itself….

Given the close economic ties with both Ukraine and Russia. It also brings with it in the EU a flow of refugees that is
unprecedented since the Second World War.

The shock waves are reaching more and more countries and sectors.

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Government Economic Intervention

This rise in inflation is leading to significant increases in interest rates by central banks and a
tightening of monetary conditions. And here again, this movement is even more marked in emerging
and developing countries. This in a context where the external debt of these countries had again
increased in recent years because of the pandemic.

“Emerging and developing countries have less fiscal room to combat crises and cushion the
impact on their citizens than developed ones. This was already the case before, but it is even
more the case today.”

 In this worrying context, we have also observed in recent weeks a rapid fall in share prices on
financial markets and a spectacular loss of value on cryptocurrencies triggering a new financial
crisis..

 This risk is already beginning to materialize with a sharp rise of the exchange rate of U.S. currency;
a movement that feeds inflation in countries whose currency is depreciating.

 This context has led the IMF to significantly lower its economic forecasts compared to last January,
particularly for emerging countries, aggravating the loss of growth suffered by these countries due
to the pandemic.

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Russia’s war in Ukraine has created “immense human suffering”, but it is also damaging global
trade, the World Trade Organization (WTO) is warning.

 The WTO has downgraded its forecasts for goods imports and exports, and is calling on
governments and partners to help facilitate trade.

 In its Trade Forecast 2022-2023, the WTO says prospects for the global economy have
“darkened” since the war started on 24 February. WTO economists have now downgraded
their expectations for 2022 growth of merchandise trade volumes – the import and export of
goods – from 4.7% to 3%.

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International Trade

Because of uncertainty over the course of the Ukraine conflict and lack of hard data on its economic impact,
WTO economists have used simulations to make “reasonable assumptions” about trade. In chart 1, they
explain that growth of world merchandise trade volumes in 2022 “could be as low as 0.5% or as high as 5.5%”.

Different margins of error are shown

in the chart as colored bands.

In a crisis, the WTO says more trade is needed – not less – so everyone can get essential supplies. It is calling
on governments and partner organizations to work together to facilitate trade.

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Breakdown of goods imports and exports by region
“Europe is now expected to underperform on the import side,” the WTO says – along with Africa and the Commonwealth of
Independent States (CIS). oil prices are expected to boost export revenues. This will likely increase import volumes too, as
Middle East countries are able to import more.

The WTO said global trade in commercial services would also be affected by the Ukraine conflict. This includes the transport
sector, which covers container shipping and passenger air transport.

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 “Uncertainty is prevailing and no one can tell what will happen
tomorrow."

 Egypt, the world’s largest wheat importer, was currently buying the product on world markets at $435 a
tonne, up from $270 before the war. Russia and Ukraine accounted for the majority of Egypt’s wheat
imports — a total of about 13 million tonnes last year — forcing it to seek alternative sources.

 More than 70 million Egyptians rely on cheap bread provided by the state under a subsidy card system
catering for low and middle-income Egyptians. “It’s a crisis added to another crisis,” said Mr Madbouli,
referring to the economic woes caused by the coronavirus pandemic from which Egypt was
recovering when the war broke out in February.

Egypt reacted swiftly to the fallout from the war by devaluing its currency by 14 per cent against the US dollar,
banning the export of vital foodstuffs and adopting a costly stimulus package to support the economy.

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EGYPT Trade status
OVERVIEW
In 2020, Egypt was the number 30 economy in the world in terms of GDP (current US$), the number 57 in total exports,
the number 41 in total imports, the number 126 economy in terms of GDP per capita (current US$).

Exports
The top exports of Egypt are Refined Petroleum ($3.4B), Gold ($3.29B), Crude Petroleum ($2.74B), Nitrogenous
Fertilizers ($1.17B), and Citrus ($946M), exporting mostly to United Arab Emirates ($3.21B), United
States ($2.38B), Saudi Arabia ($2.08B), Turkey ($1.96B), and Italy ($1.95B).

Imports
The top imports of Egypt are Wheat ($5.2B), Crude Petroleum ($3.42B), Cars ($2.91B), Broadcasting Equipment ($2B),
and Refined Petroleum ($1.87B),

importing mostly from China ($13.3B), Russia ($5.14B), United States ($4.82B), Germany ($3.75B), and United Arab
Emirates ($3.69B).

Imports of goods and services as percent of GDP

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Summary

War in Ukraine is causing food and fuel crises..

 "Smaller supplies and higher prices for food mean that the world's poor could be
forced to do without,” said WTO Director-General Ngozi Okonjo-Iweala.

 Sharply rising commodity prices have been the most immediate economic impact of
the Ukraine conflict.

 The war also threatens supplies of essential goods from Russia and Ukraine, including
food, energy and fertilizers.

 The halting of grain shipments through Black Sea ports could have “potentially dire
consequences” for food security in poor countries.

 New COVID-19 lockdowns in China are also disrupting trade by sea. This could lead
to new shortages of raw materials and higher inflation.

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