Egypt

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Area: 1,001,450 sq. km

Population: 88,434,000 (2014, est.)

Capital: Cairo

GDP: USD 268.4bn (2014, est.)

Exports: USD 27.15bn (2014, est.)

Imports: USD 55.26bn (2014, est.)

Currency: Egyptian Pound (EGP)

Exchange rate: 1 USD = 7.82 EGP (01/2016)

 

Introduction:

Egyptians continue to struggle economically and politically with the fallout of nearly three years of political turmoil that saw the also of both the Mubarak and Morsi government on the back of violent protests by youth and politician groups. With the transnational government of Hazim Beblawi in office since July 3rd, 2013, security and economic stabilization are high priorities on the agenda. Substantial influence and aid money from Saudi Arabia, Kuwait and the United Arab Emirates (UAE) allowed the government to pursue a spending oriented fiscal policy hoping to jumpstart economy, the stiff using social intention caused inter alia by increasing levels of poverty.

Nevertheless, confronted with them an ailing tourism industry, an overstretched national budget and slowly improving investor confidence, the national economy continues to perform below its potential. On the political front, the country remains deeply divided, as the security apparatus is rounding up the Muslim Brotherhood, which was declared a terrorist organisation in December 2013. At the same time, security forces are trying to regain control over long-neglected Northern Sinai.

Yet, the country deserves to remain high on the agenda of anybody doing business in the region. The sheer size of its population, its perfect geographical location and long established trade relations call for stepping up exploration activities and deserve a constant monitoring of business opportunities, particularly now that major investment projects – e.g. to improve public infrastructure – have been announced by the government.

 

Economic and Social Conditions:

Still, the fundamentals of the trip as an investment destination remain unchanged: a massive and growing consumer market of mostly young, partially skilled labour with that a lot of and realise potential, strategic geographic location – including the control over vital trade route through the Suez Canal – ample tourist treasures, as well as all in gas and other mineral resources. On top of that, consumption rates are high FDI tend to deliver quick returns. Moreover, much of the public infrastructure needs refurbishment and upgrade.

Egypt has a diversified and astonishingly robust market economy with the state still playing a significant role. Industrialisation is quite advanced compared to other peer countries in the region. Variety of industries is not only supplying the local market but manages to compete in regional markets as well as in Europe. This position comes on the back of low-cost labour and significant energy subsidies, which in turn put the country both socially and from a fiscal point of view under serious pressure. However, with the exception of hydrocarbons and related products, Egypt continues to depend on imports, especially stable and industrial goods.

Egypt’s agriculture, arguably one of the most efficient in the world, is facing problems as agricultural land is being lost to urbanisation and windblown sands, alongside increasing soil salination in pollution; only 2.92% of Egypt’s surface is arable land, of which only 0.5% beers permanent corpse. The service sector continues to grow at good speed and provides an increasing number of jobs. However, the picture painted in the official statistics remain somewhat blurred, given that a huge and tremendously important part of the economic activity of the country – the informal sector – goes unnoticed and statistics. Tourism, one of the major foreign currency earners, saw a sharp decline in 2011 and only light improvements in 2012 and has yet to recover from the fallout of the July 2013 events, which will prevent the number of tourists from rising beyond 10 million visitors in 2013.

And rapidly growing population (with 85 million inhabitants the largest in the Arab world), limited arable land, and dependence on the Nile all together continues the overtaxed resources and stress society. This is compounded by conflicts with the other countries in the Nile Basin Initiate requesting a fairer share of Nile water. As negotiations are on going with Ethiopia and the Renaissance Dam project, this subject to remains of significant geopolitical importance and sparks emotional reactions in the country.

In order to match the population growth, 700,000 jobs in the private sector must be created annually. The aggressively pursued economic reforms to attract foreign investment and facilitate GDP growth since 2004 were partially successful. Between 2003 and 2009, he chipped experience growth rates and the range of 6-7%, followed by 4.7% in 2009 and 5.3% in 2010. Growth receded sharply to a year 1.8% in 2011 and remained at low-level is of about 2% until the end of 2013. Tourism, manufacturing, construction were among the hardest hit sectors of the Egyptian economy. Despite the relatively high levels of economic growth in the years before the revolution, living conditions for the average Egyptian remained poor and contributed to public discontent. Though no recent GINI-index data is available, wealth seems to be distributed unequally. Throughout the last five years, poverty in eejit has inched up to encompass 27% of the population in 2012/2013 as compared to 21.6% in 2008/2009.

The ailing state of the once-growing economy of the Arab world’s most populous nation poses a threat to its ability. To counter this threat, the interim government decided in November 2013 to set up a stimulus package with the volume of USD 4.2bn, or 1.5% of the GDP. This initiative will see spending on infrastructure and health and the settlement of government payment arrears, which accumulated to unprecedented levels and the petroleum, gas and construction sectors. A second stimulus package worth another US dollar 4.36bn, scheduled for January 2014, would include funding for a recently decided increase in the government minimum wage to USD 172 per month. Given the sustainable public sector budgets, much of this will be funded through generous aid from Saudi Arabia, Kuwait and the United Arab Emirates, who made more then us dollar 12 billion in cash and kind available in late 2013.

Following this inflow of largely unconditional funding, Cairo decided to discontinue negotiations with the IMF about a heavily frontloaded, yet conditional stand-by loan of USD 4.8bn. Nevertheless, with expenditures of roughly USD 100bn, the state budget is projected to run at 10% deficit in the financial year 2013/2014. This would already peed down from close to 14% at the end of the financial year 2012/2013 but still raises concerns about the underlying budget assumptions. With about 60% of government spending ear marked for subsidies and interest payments, not much remains to actively steer the economy. There are doubts that he Egypt can maintain its closely subsidy system and its deficit spending in the medium term. The subsidies cover such essentials as breads, cooking oil and gas. Removing the subsidies raises fears of social unrest.

Foreign currency reserves, which had dropped from USD 35bn in 2008 to USD 13.5bn in mid -2013, have been stabilising at around USD 17bn to 18bn, close to the threshold of 3 ½ months of import cover. The dwindling foreign reserves had raised fears of a decline in the Egyptian Pound that would further inflate the price of imports and food and other vital goods. Even with the Egyptian Pound now standing at around €1 = 9.45 L.E., urban consumer price growth remains at 12 to 13% year on year and will continue to do so, as the Central Bank monetising government borrowing and supply-side stickiness Desert reality more than ever before. However, Standard & Poor’s upgraded Egypt’s sovereign bonds in November 2013 to B-/B for the first time since 2011. Fitch followed by announcing a positive outlook for sovereign debt. Although they remain a below-investment grade, the government has no difficulties in tapping the local banking sector for funds. This positive outlook is mirrored by a BoP that records a rather strong return of capital transfers to Egypt.

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