Terrorism risks remain elevated in Egypt

31 October 2018

President Abdel Fattah el-Sisi began his second-term in March 2018, and will continue to prioritise economic restructuring under the guidance of an International Monetary Fund (IMF) programme. This will support renewed investor confidence in Egypt, although terrorism risks remain elevated.


Terrorism risks in Egypt will remain elevated in the 12-month outlook, although a government counter-terrorism campaign launched in February 2018 may moderate the threat if sustained throughout 2019. The Sinai Province of the Islamic State group will seek to launch attacks outside of its Sinai Peninsula stronghold, particularly in urban areas in the Greater Cairo and Nile Delta regions.

While the number of attacks by Sinai Province of the Islamic State decreased in 2017 by 20%, the number of deaths increased by 87%. The group will prioritise attacks on religious minorities and the security forces, and will likely deploy firearms and improvised explosive devices. Tourist resorts in South Sinai will continue to be aspirational targets, although most resorts now have substantial security measures in place.

Protests are likely in the medium-term outlook, although these are unlikely to become sustained and co-ordinated. Protests are most likely in response to government economic policies that reduce benefits or subsidies and are likely to be concentrated in urban centres. However, the government has little tolerance for dissent and renewed the state of emergency in April 2018, giving the security forces significant powers of detention. This will ensure that most protests are dispersed quickly. The security forces are likely to respond to protests by Islamist groups in a hard-line fashion, deploying batons and tear gas, elevating the risk of death, injury and collateral property damage.


Egypt’s economy continues to stabilise under a government programme of macroeconomic restructuring and is expected to gain strength in the medium-term outlook. Real GDP growth is forecasted at 5.4% in FY 2018/19. Access to hard currency has improved, with foreign currency reserves reaching USD 44.3 billion by July 2018. Cuts to fuel, electricity and water subsidies, announced in June-July 2018, will support a primary budget balance of 3.0% in FY2018/2019.

However, debt servicing costs are expected to remain elevated, ensuring that the overall budget will continue to be in deficit. The deficit is forecasted at 8.6% of GDP in FY2018/19, down from 9.8% in FY2017/18. Public debt will also remain persistently high, as the country finances its deficits through borrowing. However, debt will fall as the fiscal deficit shrinks and the economy grows. Public debt-to- GDP is expected to fall to 79.9% by the end of 2018, down from an estimated 94% in December 2017.

The natural gas sector will also drive growth. The Zohr gas field came online in December 2017, with an initial production rate of 350million cubic feet per day, and is expected to reach 1.5 billion cubic feet per day by the end of 2018. This will allow Egypt to achieve a natural gas surplus by 2019, supporting exports and foreign investment, as the country looks to become a regional energy hub.

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The Egyptian government recognises the critical role that foreign investment will play in creating a sustainable economic recovery. As a result, it is unlikely to undertake actions that deter foreign companies from operating in the country, mitigating expropriation risks. The government has also taken steps to enhance conditions for foreign investors, including an amendment to the Investment Law in May 2017 that provides incentives such as a 50% tax discount for investments in certain areas.

Egypt’s construction sector is expected to be a particular bright-spot, given a growing population and the government’s desire to shore up popular support. The construction industry is expected to be a regional outperformer, with year-on-year real growth forecasted at 10.83% in 2019. Egypt already has a robust public-private partnership framework, supported by the PPP Central Unit, which guarantees transparency in tenders. However, challenging investment conditions in Egypt may contribute to project delays. The government and military have an extensive role in the economy, and energy price rises make it harder for private firms to compete with military companies for contracts. For example, in February 2017, China State Construction Engineering Corporation withdrew from the project to construct a new administrative capital east of Cairo over price disagreements.

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In this month's Risk Outlook, we also provide a detailed forward looking assessment of developments within the security, trading and investment environments for Iraq, Egypt, Qatar and United Arab Emirates all of which have been the subject of recent enquiries from JLT's client base.

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For further information, please contact Eleanor Smith, Senior Political Risk Analyst on +44 (0)121 626 7837 or email eleanor_smith@jltgroup.com.