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Egypt Business Forecast Report Q2 2014

  • February 2014
  • -
  • Business Monitor International
  • -
  • 51 pages

Core Views

One the whole, 2014 will be a relatively positive year for the Egyptian economy, as the currency stabilises and investment returns to the county. Sporadic outbursts in public unrest and ongoing ‘policy drift’ will undermine a more pronounced economic recovery. Egypt will have little choice but to make more pronounced reforms to its domestic energy subsidy system. That said, we do not expect any major reforms ahead of parliamentary elections, which we expect to take place in June 2014.
Hikes to domestic energy prices will push consumer price inflation back into the double digits by the end of the year. Egypt’s geopolitical importance will ensure that even if an IMF agreement is delayed for longer than expected, further foreign aid commitments will materialise over early 2014. 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 keep Egypt afloat this year.
We do not expect an IMF deal before H214, as the economic rationale has waned somewhat since the influx of foreign aid and an agreement is politically unpalatable at present.

Major Forecast Changes

Following an influx in foreign aid in July and October 2013, it appears as though Egypt will be spared a more pronounced balance of payments crisis until mid-2014. That said, as the aid inflows are likely to weaken the government’s resolve to push ahead with necessary subsidy and tax reforms, we do not expect an IMF agreement to be signed in the near term. We are forecasting real GDP growth of 2.7% and 4.2% in FY2013/14 and FY2014/15 respectively.

Key Risks To Outlook

A failure to secure external financing (whether through the IMF or bilateral aid) raises the risks of a disorderly devaluation of the Egyptian pound.
Egypt may become stuck in a protracted democratic transition, in which case long-term growth would fall well below potential.

Table Of Contents

Egypt Business Forecast Report Q2 2014
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 Ratings 7
Domestic Politics 8
Referendum A Vote Of Confidence For Interim Government 8
The results of Egypt's constitutional referendum point to broad support for the interim government and the army. Looking ahead, we
expect defence minister General Abdel Fattah el-Sisi will announce his candidacy for presidential elections in the coming weeks.
Egypt - Political Outlook 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
Chapter 2: Economic Outlook 15
SWOT Analysis 15
BMI Economic Risk Ratings 15
Economic Activity I 16
Turnaround In Economic Growth 16
We are forecasting an acceleration in Egyptian real GDP growth over the coming quarters, with our baseline scenario seeing the
economy expand 2.7% in FY2014 and 4.2% in FY2015 (fiscal year running from July-June), up from 1.9% in FY2013. Much of this
growth is predicated on our expectation for continued improvements in political stability as well as the impact of low base effects.
Full Resumption Of US Aid To Occur in Q214 18
The United States' decision to resume assistance to Egypt was not unexpected in our view. We expect the rest of the cancelled aid to
flow back to Cairo following elections in Q214.
Fiscal Policy 19
Subsidy Reform: Economics To Outweigh The Politics 19
We believe the Egyptian government will undertake subsidy reform in the coming quarters given the unsustainable nature of its
current fiscal position. Whilst reform will likely be slow to begin with, we believe reform can be undertaken without a significant popular
Balance Of Payments 21
Outlook Turning Increasingly Positive 21
Egypt's balance of payments position is moving in the right direction for the first time in several years. We see minimal likelihood of
balance of payments crisis in the country in 2014 following financial assistance given by the Gulf States.
Monetary Policy 24
Inflation Has Peaked 24
We believe Egypt's headline CPI has reached a peak and expect moderate disinflation over the coming months. This view is primarily
on the back of our agribusiness team's belief that food prices are nearing their top and that the Egyptian pound recent depreciation has
Regional: Islamic Banking 25
Islamic Banking: New Markets To Emerge 25
We expect 2014 to be a key year for the global Islamic finance industry as several new markets come to the fore. It has been our longheld
view that rather than becoming an integrated global financial system, Islamic banking will see the creation of regional hubs. Even
with this slightly fragmented outlook, we still expect significant growth for the sector.
TABLE: Islamic Bonds and Loans (2013) 26
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.
table : Long -Term Macroeconomic Forecasts 29
Chapter 4: Business Environment 31
SWOT Analysis 31
BMI Business Environment Risk Ratings 31
Business Environment Outlook 32
Institutions 32
Infrastructure 34
Market Orientation 36
TABLE: Top Export Destinations , 2001-2009 (US$MN) 37
Operational Risk 38
Autos 39
Chapter 5: Key Sectors 39
table: Autos Sales, 2010-2017 40
table: Autos Production, 2010-2017 40
Food and Drink 41
table: Autos Trade, 2010-2017 41
table : Food Consumption Indicators -Historical Data and Forecasts , 2010-2017 42
table : Alcoholic Drin ks Value /Volume Sales , Production and Trade -Historical Data and Forecasts , 2010-2017 43
table : Mass Grocery Retail Sales -Historical Data and Forecasts , 2010-2017 46
Other Key Sectors 47
table : Defence and Security Sector Key Indicators 47
table: Infrastructure Sector Key Indicators 47
Table : Freight Sector Key Indicators 47
table : Pharma Sector Key Indicators 47
table: Oil and Gas Sector Key Indicators 48
table : Telecoms Sector Key Indicators 48
Chapter 6: BMI Global Assumptions 49
Global Outlook 49
Fairly Benign Prognosis... With Risks 49
Table : Global Assumptions 49
Table : Developed States , Real GDP Growt H, % 50
Table : Emerging Mar kets , Real GDP Growth , % 51

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