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Egypt Country Risk Report Q4 2016

  • August 2016
  • -
  • Business Monitor International
  • -
  • 37 pages

Core Views


2016 and 2017 will see moderate growth in the Egyptian economy,following five years of stagnation and volatility.The fiscal and net export position will improve significantly on theback of fuel subsidy reform. Subsidy cuts are likely to be watereddown if public unrest occurs on a significant scale. However, thebulk of reform will remain in place.Hikes to domestic energy prices will push consumer price inflationback into the double digits by the end of the year.Egypt’s geopolitical importance will ensure that even if an IMFagreement is delayed for longer than expected, further foreign aidcommitments will materialise at the turn of the year. Western powerssuch as the US and EU have an interest in ensuring the NorthAfrican country does not experience a more pronounced economicand political crisis. However, it will be donations from the GCC whichkeeps Egypt afloat this year.We are below consensus on Egyptian growth for FY2017 (2.6% to3.6%)

Table Of Contents

Egypt Country Risk Report Q4 2016
Executive Summary.. 5
Core Views...5
Key Risks.5
Chapter 1: Economic Outlook.. 7
SWOT Analysis... 7
BMI Economic Risk Index.. 7
Economic Growth Outlook 8
Very Gradual Economic Recovery.8
Egypt's economic growth will pick up marginally over the coming quarters, however, a beleaguered tourism sector and only marginal
growth in fixed investment will mean growth is far below potential and will do little to have a notable impact on unemployment.
GDP By Expenditure Outlook 9
TABLE: COMPONENTS OF GDP (% OF TOTAL)9
TABLE: PRIVATE CONSUMPTION FORECASTS9
TABLE: GOVERNMENT CONSUMPTION FORECASTS...10
TABLE: FIXED INVESTMENT FORECASTS..10
TABLE: NET EXPORTS FORECASTS10
Monetary Policy 11
Rapid Gains In Inflation Still Not Over.11
Headline inflation in Egypt has risen significantly over the past few months and we see further gains ahead as rising commodity prices,
subsidy cuts and another devaluation in the currency push inflation to 17.0% by year end.
Monetary Policy Framework 12
TABLE: MONETARY POLICY FORECASTS..12
Fiscal Policy And Public Debt Outlook . 12
Government Budget Forecasts Too Optimistic..12
Egypt will see only a slight reduction in the persistently high fiscal deficit s over the coming years with the government projections for a
faster reduction being far too optimistic. We forecast the fiscal deficit to reach 10.9% of GDP in FY2017 ensuring continued pressure on
diminishing reserves.
External Trade And Investment Outlook ... 13
EGP: Much Further To Fall...13
The Egyptian pound will depreciate by another 10% around the turn of the year as the Central Bank's willingness and ability to support
the unit wanes significantly. Furthermore, the proposed IMF deal is dependent on a weaker, more competitive currency.
TABLE: BMI CURRENCY FORECAST13
Chapter 2: 10-Year Forecast... 15
The Egyptian Economy To 2025. 15
One Of MENA's Outperformers15
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.15
Chapter 3: Political Outlook... 17
SWOT Analysis. 17
BMI Political Risk Index... 17
Domestic Politics. 18
Egypt-Turkey Relations To Remain Dire.18
Relations between Egypt and Turkey will remain tense over the coming years even as the latter tries to re-engage with former
adversaries. The failed military coup in Turkey will further weaken ties given that it was likely supported in Cairo, and as a result of
Ankara's insular reaction in its aftermath.
TABLE: POLITICAL OVERVIEW.18
Long-Term Political Outlook... 19
Four Scenarios For The Coming Decade19
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 4: Operational Risk... 23
SWOT Analysis. 23
Operational Risk Index 23
Operational Risk... 24
TABLE: OPERATIONAL RISK.24
Market Size And Utilities.. 25
TABLE: MIDDLE EAST AND NORTH AFRICA - MARKET SIZE AND UTILITIES RISK 25
Labour Costs 28
TABLE: LABOUR REGULATIONS GOVERNING FLEXIBILITY OF WORKFORCE... 29
Chapter 5: BMI Global Macro Outlook... 33
Global Macro Outlook.. 33
Brexit To Hit Global Growth.33
TABLE: GLOBAL ASSUMPTIONS..33
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %34
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %...35
TABLE: MACROECONOMIC DATA and FORECASTS.. 37

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