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Egypt Business Forecast Report Q1 2015

  • November 2014
  • -
  • Business Monitor International
  • -
  • 55 pages

Core Views

2015 will be a relatively positive year for the Egyptian economy, as the currency stabilises and investment returns to the county. The fiscal and net export position will improve significantly on the back of fuel subsidy reform. Subsidy cuts will likely be watered down if public unrest occurs on a significant scale, however, the bulk of reform will remain in place.
Hikes to domestic energy prices will push consumer price inflation back into the double digits by the end of the year. E gypt’s geopolitical importance will ensure that even if an IMF agreement is delayed for longer than expected, further foreign aid commitments will materialise around the turn of the year. Western powers such as the US and EU have an interest in ensuring the North African country does not experience a more pronounced economic and political crisis. However, it will be donations from the GCC which keeps Egypt afloat this year.
We do not expect an IMF deal in 2014, as the economic rationale has waned somewhat since the influx of foreign aid and it is politically unpalatable at present.

Major Forecast Changes

Following an influx in foreign aid in 2013 as well as subsidy reform Egypt will be avoid a pronounced balance of payments crisis in 2015. That said, as the aid inflows are likely to weaken the government’s resolve to push ahead with necessary tax and business environment reforms, we do not expect an IMF agreement to be signed in the near term. Our baseline scenario sees the economy expanding by 3.0% in FY2014/15 and 3.8% in FY2015/16.

Table Of Contents

Egypt Business Forecast Report Q1 2015
Executive Summary 5
Core Views 5
Major Forecast Changes 5
Key Risks To Outlook 5
Chapter 1: Political Outlook 7
SWOT Analysis 7
BMI Political Risk Index 7
Domestic Politics 8
Elections To Result In Fragmented Parliament 8
We expect parliamentary elections in Egypt to be held in December or early Q115 and to result in a very fragmented legislature. With
the Muslim Brotherhood banned, and a focus on individual candidates as opposed to parties, parliament will do little to keep a check
on President Sisi's power. Elections are likely to be met by localised disruptions by supporters of the Muslim Brotherhood and terrorist
groups, however, on the whole, we expect them pose little threat to the regime.
TABLE: Political Overview 8
Long-Term Political Outlook 10
Four Scenarios For The Coming Decade 10
Egypt's transition to a fully fledged democracy is likely to take several years at least, and there is no guarantee that it will achieve this
goal. Although the momentum for democratisation is strong, we cannot preclude a return to authoritarianism in some form. Prolonged
uncertainty and instability would be negative for economic reform, potentially undermining Egypt's appeal as an investment and tourism
destination.
Chapter 2: Economic Outlook 13
SWOT Analysis 13
BMI Economic Risk Index 13
Economic Activity 14
Acceleration In Growth On The Back Of Political Stability 14
The outlook for Egypt's economy is the most positive it has been since the onset of the Arab Spring in January 2011. A combination
of low base effects, relative political stability and commitment to necessary economic reform bode s well across most sectors. Whilst
subsidy reform will weigh on private and government spending, investment activity will pick up substantially. The outlook for exports
is less positive as Egypt will remain a net hydrocarbon s importer. We forecast real GDP growth of 3.0% in FY2014/15 and 3.8% in
FY2015/16.
TABLE: GDP By Expenditure 14
Fiscal Policy 16
Budget Deficit To Narrow On The Back Of Subsidy Reform 16
Egypt's fiscal position is on an increasingly stable trajectory as the government commences subsidy reform which will restrict growth in
expenditures over the coming quarters. In addition, an improving economy will result in higher tax receipts, an area which has potential
for further boosts with reform of income tax likely over the coming year. We forecast Egypt's budget deficit to fall from 12.8% of GDP in
FY2014 to 8.3% in FY2017.
TABLE: Fiscal Policy 17
Balance Of Payments 18
Finally On A Stable Trajectory 18
The outlook for Egypt's external position is the most positive it has been since the onset of the Arab Spring in January 2011. While
Egypt will record a slightly larger current account deficit over the coming two years compared with FY2014 as Gulf assistance dwindles,
the long-term outlook for the country's balance of payments is sustainable due to greater political stability and subsidy reform. We
forecast an improving position across Egypt's external accounts, namely tourism receipts, foreign direct investment inflows and net
goods exports.
TABLE: Current Account 19
Exchange Rate Policy 21
EGP - FDI Inflows To Support Pound 21
TABLE: BMI Currency Forecast 21
Islamic Finance 22
Islamic Banking: Growing To Slow Globally, But Opportunities Remain 22
We maintain our bullish outlook on the global Islamic Banking sector over the coming years, and while growth rates have peaked, there
are significant opportunities in the Gulf and Pakistan. Growth in Central Asia will remain lacklustre due to political intransigence, with the
notable exception of Kazakhstan.
TABLE: Islamic Bonds and Loans Issued 23
Investment Climate 25
MENA FDI: Outperformers And Laggards 25
Political instability in large parts of the Middle East and North Africa will continue to weigh heavily on foreign direct investment inflows
to the region as a whole over the coming years. That said, we see several bright spots for foreign investment and highlight particularly
strong prospects for Morocco, Saudi Arabia and Egypt. By contrast, Iraq and Algeria are set to fall behind.
Chapter 3: 10-Year Forecast 29
The Egyptian Economy To 2023 29
Policy Uncertainty Weighs On Outlook 29
Egypt has a lot to look forward to with its many inherent advantages, including a strategic and cultural position in the world, a large and
growing population and an underdeveloped private sector providing ample room for expansion. However, the highly uncertain political
outlook poses a key downside risk to our long-term growth forecasts.
TABLE: Long-Term Macroeconomic Forecasts 29
Chapter 4: Operational Risk 31
SWOT Analysis 31
Operational Risk Index 31
Operational Risk 32
TABLE: Operational Risk 32
Transport Network 33
TABLE: MENA - Transport Network Risks 34
Economic Openness 37
TABLE: MENA - Economic Openness Risk 38
TABLE: Imports By Product 39
Chapter 5: Key Sectors 41
Infrastructure 41
TABLE: Construction And Infrastructure Industry Data 42
TABLE: Construction And Infrastructure Industry Data 43
Oil and Gas 45
TABLE: Oil Production 46
TABLE: Oil Production 46
TABLE: Gas Production 47
TABLE: Gas Production 47
Other Key Sectors 51
Table: Defence and Security Sector Key Indicators 51
Table: Food and Drink Sector Key Indicators 51
Table: Autos Sector Key Indicators 51
Table: Pharma Sector Key Indicators 52
Table: Telecoms Sector Key Indicators 52
Table: Freight Key Indicators 52
Chapter 6: BMI Global Assumptions 53
Global Outlook 53
Reality Check: Uncertainty Reigns 53
Table: Global Assumptions 53
Table: Developed States, Real GDP GrowtH, % 54
Table: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % 54
Table: Emerging Markets, Real GDP Growth, % 55

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