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Egypt Business Forecast Report Q4 2014

  • August 2014
  • -
  • Business Monitor International
  • -
  • 47 pages

Core Views
On the whole, 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, although the bulk of reform will remain in place. Hikes to domestic energy prices will push consumer price inflation back into double-digit territory 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 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 that keep Egypt afloat this year.

We do not expect an IMF deal in 2014, as economic rationale has waned somewhat since the influx of foreign aid and is politically unpalatable at present.

Major Forecast Changes
Following an influx of foreign aid in 2013 as well as subsidy reform Egypt will avoid a pronounced balance of payments crisis in 2014 and 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 Q4 2014
Executive Summary 5
Core Views...5
Major Forecast Changes.5
Key Risks To Outlook5
Chapter 1: Political Outlook.. 7
SWOT Analysis 7
BMI Political Risk Ratings.. 7
Domestic Politics. 8
New Cabinet Underlines Focus On Investment
The establishment of a Ministry for Investment indicates the Egypt government's focus on attracting FDI inflows to bolster the economic
recovery. Aside from this move, however, there is little to suggest the new government's policies will differ from the interim government,
with most key personnel retaining their positions in cabinet. We therefore expect the government to press ahead with reforms to the
subsidy system and continue to address the insurgency in the Sinai Peninsula.
Table: Political Overview8
Long-Term Political Outlook... 9
Four Scenarios For The Coming Decade
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.
Table: Key Cabinet Positions9
Chapter 2: Economic Outlook.. 13
SWOT Analysis... 13
BMI Economic Risk Ratings.. 13
Economic Activity .. 14
Investment To Drive Uptick In Growth
Economic growth in Egypt will pick up over the coming quarters on the back of relative political stability. Fixed investment will be the
primary driver of growth as a result of greater clarity on the economic policy front.
Table: GDP By Expenditure..14
Fiscal Policy .. 16
Budget Reforms Bode Well For Fiscal Sustainability
The implementation of fuel subsidy cuts in Egypt bodes well for fiscal sustainability and will result in a further tightening of the
budget deficit. While the potential for measures to be watered down slightly in the coming weeks remains, it is clear that the new Sisi
administration is intent on reforming the country's burdensome subsidy system.
Table: Fiscal Policy17
Balance Of Payments... 18
Outlook Turning Increasingly Positive
The outlook for Egypt's external position is the most positive it has been since the onset of the Arab Spring in January 2011. We
forecast Egypt's current account will come in at a surplus of 0.9% of GDP in 2014, the first surplus recorded since 2008. While we
expect a deficit of 0.5% next year, the long-term outlook for the balance of payments is sustainable.
Table: Current Account.19
Exchange Rate Policy . 20
EGP - Subsidy Reform To Ease Depreciatory Pressures
table: BMI Egypt Currency Forecast Spot Short Term ....21
Regional Banking Sector.. 22
New Markets Emerging, But Impediments Restrain Growth
We maintain our bullish outlook on the global Islamic Banking sector over the coming years. However, we believe that growth rates have
peaked, and highlight there are numerous obstacles to the sector gaining global precedence.
Chapter 3: 10-Year Forecast 25
The Egyptian Economy To 2023 25
Policy Uncertainty Weighs On Outlook
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...25
Chapter 4: Business Environment 27
SWOT Analysis... 27
BMI Business Environment Risk Ratings 27
Business Environment Outlook. 28
Institutions 28
Infrastructure. 30
Market Orientation... 31
Operational Risk. 33
Chapter 5: Key Sectors... 35
Pharmaceuticals and Healthcare... 35
table: Pharmaceutical Sales, Historical Data And Forecasts36
table: Healthcare Expenditure Trends, Historical Data And Forecasts 37
table: Government Healthcare Expenditure Trends, Historical Data And Forecasts... 37
table: Private Healthcare Expenditure Trends, Historical Data And Forecasts... 37
Telecommunications.... 39
Table: Telecoms Sector - Mobile - Historical Data and Forecasts. 40
Table: Telecoms Sector - Wireline - Historical Data and Forecasts.. 41
Other Key Sectors... 43
table: Oil and Gas Sector Key Indicators..43
Table: Defence and Security Sector Key Indicators43
Table: Infrastructure Sector Key Indicators..43
Table: Food and Drink Sector Key Indicators....44
table: Autos Sector Key Indicators..44
table: Freight Key Indicators44
Chapter 6: BMI Global Assumptions. 45
Global Outlook.... 45
US Revision Drags Down Forecast.45
Table: Global Assumptions45
Table: Developed States, Real GDP GrowtH, %..46
Table: Emerging Markets, Real GDP Growth, %.47

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