AUGUST 2010 |www.opp.org.uk WORDS | Geoff Hadwick


THE EGYPT REPORT Economic overview | 41 Developer profi le Growing fast in the sun


The overseas property sector continues to like the idea of Egypt - a country that is growing fast in all sorts of ways, offering huge development potential. But what are the risks, and where do you go to get high quality reliable data on its true economic and fi nancial performance? UBS has a new Egypt report out this month.


he plus points are many and various: Egypt has a large and fast-growing population of 80 million plus … rising at 2% a year; land is cheap; labour is cheap; the country has an under-penetrated but fast-growing consumer market; there is a huge investment need for new infrastructure; Egypt’s rich oil and gas fi nds have allowed it to invest without running up excessive external defi cits; it is not in the Eurozone; its economic and structural fundamentals look relatively sound and the country scores well on a number of global risk indices. “All of this explains why Egypt has not suffered too badly during the recent global fi nancial crisis,” says a new report out this month from leading Swiss bank group UBS. “In 2009, real GDP growth slowed to 4.5% … very respectable by global standards. And now GDP growth rates of 5 to 6% appear likely over the coming years.” But there are risks. The report, edited by UBS economist Reinhard Cluse, argues that the “greatest challenges lie in politics and public fi nances.” For Cluse the key question is “who will succeed President Hosni Mubarak, in offi ce since 1981 and currently 82 years old? Given widespread poverty and political pressures, the government is paying large-scale subsidies for food and energy to the population creating a large budget defi cit at a time of rapid GDP growth.”


T


UBS is worried about public debt too, which is currently running at 74% of GDP. Infl ation in Egypt is currently running at about 10%, which is relatively high by EMEA (Europe, Middle East and Africa) standards. It is the high cost of food that dominates the infl ation outlook in Egypt and the prices here tend to be volatile. “This situation is unlikely to change soon,”


says UBS. “The Central Bank of Egypt aims to achieve low infl ation rates over time but it is not fully independent and acts within the context of the general economic policy of the state. The Bank’s current comfort zone is to keep core infl ation at 6 to 8%.” On the currency front “the


“Currency fl exibility and volatility will increase when the CBE moves to infl ation targeting.”


Egyptian pound has appreciated a lot in real terms, but we see no serious overvaluation,” says UBS. Indeed, the Egyptian Pound might rise further if the country’s property and infrastructure development plans remain favourable. How does the local currency scene


work? “The Central Bank of Egypt (CBE) has heavily managed the Egyptian Pound against the US Dollar in the past,” says UBS, “but it has granted the currency more fl exibility, particularly since mid-2007.” UBS reckons that “currency


fl exibility and volatility will increase further when the CBE moves to infl ation targeting in a few years’ time.” The Egyptian Pound has been stable since mid-2003 and held up well against the US Dollar. It has also done well against the Euro, “but with much larger fl uctuations” says the bank. Egypt’s GDP, at around US$188bn, compares broadly with that of Israel or the Czech Republic. And it has an excellent “chance of advancing quickly through the ranks,” says UBS. The bank calls Egypt the Turkey of the Middle East because of its “fast-growing


population and its large domestic market potential.”


Because of its oil and gas reserves, Egypt is a net exporter of energy and this revenue stream has helped the country to grow fast without running excessive current account defi cits. “In fact,” says UBS, “in 2002-08 Egypt had external surpluses. In addition, Egypt enjoys extensive revenue from Suez Canal fees, and has established itself as a location for foreign inward investment in manufacturing. The country’s external debt is moderate, at less than 20% of GDP and – generally - Egypt’s macroeconomic and structural fundamentals are relatively sound.”


Visit the Egypt market report chaired panel session at the OPPLive conference on Thursday October 14 2010 at 14.30.


Egypt - key macroeconomic data and forecasts (Sources: IMF, IIF, UBS, Bloomberg): Economic activity


GDP (EGPbn) GDP (USDbn)


GDP per capita (USD) Real GDP growth (%) Priv consumption (%) Govt consumption (%)


Fixed capital formation (%) Exports (%) Imports (%)


Unemployment rate (%)


Industrial production (average, %) Population, mn


Population growth, %


Consumer price infl ation ave % Exchange Rates USD/EGP (average) EUR/EGP (average)


2003 417.5 81.5


1,210 3.2 2.3 2.7


-6.2 13.8 1.3


10.3 2.5


67.3 2.0 4.5


2003 5.13 5.79


2004 485.3 78.8


1,148 4.1 2.1 2.0 6.3


25.3 17.2 11.2 2.0


68.6 1.9


11.2


2004 6.16 7.66


2005 538.5 89.5


1,278 4.5 4.8 2.8


10.3 20.2 23.8 10.6 3.3


70.0 2.0 4.9


2005 6.02 7.49


2006 617.7 107.3 1,505 6.8 6.4 3.1


13.3 21.3 21.8 8.9


10.2 71.3 1.9 7.6


2006 5.76 7.26


2007 744.8 130.3 1,771 7.1 4.2 3.2


31.8 23.3 28.5 8.4 6.2


73.6 3.2 9.6


2007 5.72 7.83


2008 895.5 162.4 2,095 7.2 5.7 2.1


15.5 28.8 26.3 9.4 8.0


77.5 5.3


18.3


2008 5.52 8.11


2009F 1038.6 188.0 2,377 4.7 4.5 7.9


-9.1


-12.8 -17.7 9.5 4.3


79.1 2.1


11.8


2009F 5.52 7.68


2010F 1199.7 218.7 2,710 5.2 4.2 8.0 7.0 7.5 8.0 9.5 5.5


80.7 2.0 9.8


2010F 5.49 7.02


2011F 1379.6 249.9 3,037 5.5 5.0 6.0 8.0 9.7 8.6 9.5 6.0


82.3 2.0 9.0


2011F 5.52 6.18


EGYPTreport


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