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.
Egypt’s macroeconomic conditions will continue to improve in 2019 and 2020, aided by fiscal reform and large-scale infrastructure investment. Construction sector growth is set to increase by an annual average of 10.3% in the next two years, the second highest rate in the Middle East and North Africa (MENA) region.
Terrorism risks will remain elevated in the next year, following a vehicle-borne improvised explosive device (IED) attack in central Cairo, which killed 20 people and injured 47 others on August 5, 2019.
This followed two IED attacks targeting tourists in the Giza region in the past 12 months.
In May 2019, an IED detonated and injured 16 people on a tourist bus near the Grand Egyptian Museum.
In December 2018, an IED killed three Vietnamese tourists, an Egyptian tour guide and injured 11 others in the Giza region in 2018.
Terrorist cells are primarily active in North Sinai but may sometimes have capacity to launch attacks against security forces, state, and private economic assets in major cities.
Primary targets are likely to include foreign embassies, restaurants, hotels that are seen to contribute to state revenue, assets owned by army-run businesses, or strategic assets such as gas and power supply infrastructure.
In recent years, the Egyptian government has pursued a large power and infrastructure investment drive, with US$31 billion worth of projects under construction.
This includes the development of 14 new cities, six tunnels connecting Sinai to the Egyptian mainland, and 7,000km of new roads.
Accordingly, the construction industry is set to grow by an annual average of 10.3% in 2019-2020, the second highest rate in the MENA region.
Government capital expenditure rose by 30% year-over-year, in real terms, between July 2018 and May 2019, up from 10.3% in the preceding period.
Egypt’s macroeconomic outlook remains favorable, owing to a large and growing population, significant hydrocarbon resources, and a strategic geographic location.
Real GDP growth is forecast to rise to 5.6% in 2019, up from 5.3% in 2018, comparing favorably to the MENA average of 3% growth over the same period.
Egypt’s budget deficit will continue to narrow to 7.1% of GDP in 2019, driven by increased natural gas production and higher revenues in the hydrocarbons sector.
However, the burden of foreign debt on Egypt’s budget remains significant. Foreign debt servicing reached US$24 billion (54% of foreign reserves) between July 2018 and July 2019.
More than half of those liabilities — US$12.4 billion — service short term debts. The government’s March 2019 plan to restructure public and foreign debt will gradually reduce short-term debt obligations, and reduce debt servicing costs to US$8.8 billion by 2022.
International reserves remain a robust buffer at US$44.9 billion, an increase from US$37 billion and US$24.3 billion in 2018 and 2017, respectively.
Egypt’s bureaucratic and legal environment has improved since it committed to implementing reforms under the International Monetary Fund (IMF) program in 2016.
Reforms implemented throughout 2015-2019 have made it easier to start a business, purchase property, and build new premises by reducing costs and streamlining bureaucratic procedures.
In 2019, Egypt made starting a business easier by removing the requirement to obtain a bank certificate and establishing a one-stop shop.
It also made resolving insolvency easier by introducing the reorganization procedure and granting creditors more participation in proceedings.
The New Investment Law, first outlined in 2017, provides an exemption from stamp duty and notarization fees imposed on facilities and loans agreements for five years, starting from the date of registration with the commercial registry.
The new investment regulations also expedite licensing, as industrial entities now only require approval from one authority, instead of 11 agencies previously.
Increased foreign exchange reserves and foreign direct investment in hydrocarbons reduces the likelihood of government expropriation in the medium term.
Nevertheless, the constitution, amended in April 2019, states that expropriation of any asset requires a court order and the government to provide fair compensation to the owners of private assets.
5 Key Takeaways
- A vehicle-borne improvised explosive device attack killed 20 people and injured 47 others on August 5, 2019.
- The Egyptian government has pursued a large power and infrastructure investment drive, with US$31 billion worth of projects under construction.
- Construction-sector growth is set to increase by an annual average of 10.3% in the next two years, the second highest rate in the MENA region.
- Foreign debt servicing reached US$24 billion (54% of foreign reserves) between July 2018 and July 2019.
- Real GDP growth is forecast to rise to 5.6% in 2019, up from 5.3% in 2018, comparing favorably to the MENA average of 3.0%.
The monthly Risk Outlook is supported by our proprietary country risk rating tool, World Risk Review (WRR) which provides risk ratings across nine insurable perils for 197 countries. The country risk ratings are generated by a proprietary, algorithm-based modelling system incorporating over 200 international sources of data.