Egypt will face a number of security, investment and trading challenges in the coming months. In this article we provide a detailed forward-looking assessment of developments in the country.
In 2020, Egypt’s economy is expected to be the fastest growing in the MENA region, with real GDP growth of 5.9%.
The completion of an economic reform program in 2019 has returned macroeconomic stability and opened up the promising energy sector to foreign investment.
However recent protests indicate public discontent with the pace of reforms, increasing the likelihood of sporadic unrest and business disruption in 2020.
In September 2019, protests took place in Cairo, Alexandria, Damietta, and several other Egyptian cities in support of a series of online anti-government videos posted by a whistle-blower, living in exile in Spain.
Mohamed Ali, a former military contractor, alleged corruption and misuse of public funds in the awarding of construction contracts to the Egyptian military.
The government has rejected the accusations, claiming they are intended to undermine confidence in the president and the military.
Around 1,200 people protested peacefully in Cairo, with smaller crowds gathering in other cities.
Security forces responded by restricting access to Tahrir Square — Cairo’s main public square — through vehicle blockades on nearby streets.
The heightened security presence mitigated against the risk of rioting and commercial damage.
Occasional incidents of small-scale civil unrest are likely in 2020, due to the proportion of those (32%) living below the poverty line and high levels of unemployment among young people, which make up approximately 34% of the total unemployment rate.
However, the conclusion of a three-year International Monetary Fund (IMF) program in July 2019 will afford the government greater fiscal flexibility, reducing the likelihood of austerity-driven protests.
For example, in March 2019, Egypt raised the country’s monthly minimum wage by 66%, from 1,200 Egyptian pounds to EGP2,000.
Similarly, in October 2019 the government reinstated food subsidies for 1.8 million people.
Over the last three years, Egypt has implemented economic reforms under the terms of its Extended Credit Facility (ECF) agreement with the IMF. Reforms have restored macroeconomic stability, reduced the current account deficit, and stabilized foreign currency liquidity.
Economic prospects are now favorable. Growth has recovered from around 4% in 2018 to 5.5% in 2019 and is expected to average 6.0% over the next five-year period. International reserves reached US$45 billion in November 2019, equivalent to more than five months of import cover.
Investment will remain a key driver of growth over the medium- to long-term outlook.
Egypt is the largest recipient of FDI in Africa. In fiscal year 2019/2020, foreign investment inflows into Egypt are expected to reach between US$8 billion and US$ 8.5 billion.
Foreign investment, particularly in Egypt’s promising oil and gas sector, will continue to drive this trend.
Egypt has the largest refinery capacity in Africa, with nominal capacity of 840,000 barrels per day.
However, the petrochemicals sector is currently underdeveloped and accounts for 3.0% of Egypt’s GDP and 12.0% of the industrial sector, highlighting the need for long-term foreign investment and expertise.
Egypt signed 12 exploration and production agreements with international oil companies in 2018.
The country continued to pursue an accommodative monetary policy in 2019, which will likely improve credit conditions for private firms.
Public investment is also expected to experience a major boost, with the Egyptian government set to increase capital expenditure by approximately 40% (to EGP140 billion) in fiscal year 2019/20.
A large proportion of public funds will be directed toward power projects.
Core and headline inflation rates have steadily decreased in 2019, which, accompanied by a policy of monetary easing by the Central Bank of Egypt, has combined to create an environment conducive to lower borrowing costs and greater investment opportunity.
Egypt has implemented a range of measures since 2016 to make the business environment attractive to foreign investors.
This includes the introduction of business friendly legislation in 2017, including a new investment law and a bankruptcy law.
The new investment law ensures the right of investors to repatriate funds. Foreign currency shortages following the 2011 revolution made profit repatriation challenging for many firms operating in Egypt.
To support this guarantee, the Central Bank of Egypt has lifted restrictions on deposits and withdrawals of foreign currency.
Contract alteration risks will remain the main challenge to the investment environment in 2020. President Al-Sisi has increased influence over the judiciary following constitutional amendments in April 2019.
This will reduce the likelihood of successful litigation against state-owned enterprises (SOEs) in the year ahead, particularly for investment involved in large infrastructure projects.
In the event arbitration fails, contractual disputes involving SOEs are referred to administrative courts, which issue non-binding rulings, creating an uncertain legal environment for investors with regards to what the government can and cannot do.