By Christopher Le Coq
While the global economic climate was characterized by renewed volatility in 2010 due to the euro zone crisis in conjunction with morose conditions slowing recovery in the United States — on the domestic front, Egypt achieved a respectable 5.1 percent growth rate for the fiscal year ending June 2010.
Finance Minister Youssef Boutros-Ghali expects the economy to grow 6 percent by this coming June and 7 percent the following year.
The performance of the Egyptian pound, which overall weakened 5.69 percent against the US dollar and strengthened 2.26 percent versus the euro since 2009, has “had limited impact on the economy,” Angus Blair, head of research at investment bank Beltone Financial, told Daily News Egypt.
By Dec. 20, the Egyptian pound had fallen to a five-year low against the greenback, trading at 5.806 to the dollar. Beltone expects the pound to continue weakening against the dollar to average around 5.75 in fiscal year 2010/11, and to depreciate to around 5.90 the following fiscal year, adding however that this was no cause for concern.
Simultaneously, Egypt has managed to recover in the field of non-oil exports, while imports are improving at an even faster pace, based on high levels of domestic demand.
In this vein, retail, consumer goods, the financial sector and tourism have outperformed others, which is in contrast to telecoms, ICT as well as building and construction that have posted rather lackluster numbers in 2010, Blair noted.
As is typically the case when the economy expands, so does inflation. One-off spikes contributed to food price inflation, which saw a combination of “external price increase in commodities and domestic supply shortages,” he said.
One of the most patent illustrations occurred during the summer months when the Black Sea region, one of the biggest wheat exporting parts of the globe, was stricken by a drought, forcing wheat producers, most notably Russia, to institute a wheat export ban. This sent local wheat prices in Egypt, one of the biggest wheat consumers worldwide, soaring during the sweltering summer months of Ramadan — a time when consumption traditionally peaks, pushing food prices up.
To stimulate the economy, the government injected LE 20 billion through a non-budget stimulus scheme geared towards infrastructure projects.
Promoting PPP
While the government invests into the economy by digging into its own pockets, it has consistently warmed up to the private sector by allowing it to play a larger role in investing in and handling certain aspects of the economy.
Such an approach paved the way for the introduction of the public-private partnership (PPP) law, which was adopted in May and will enter into force at the beginning of 2011, with around $20 billion slated to be spent on PPP related infrastructure projects.
So far, four projects are being tendered in the field of utilities, transportation and hospitals, worth a total $5 billion, which has helped get the PPP ball rolling.
Continuing on the theme of investment, in an unexpected announcement this past September, Minister of Investment Mahmoud Mohieldin said goodbye to the government to head up a position within the World Bank.
In the meantime, Minister of Trade and Industry Rachid Mohamed Rachid has temporarily taken on his duties as acting investment minister, and it is not yet clear whether someone will be brought in to head the ministry or if it will be scrapped altogether and more authority given to the regulatory bodies of the non-financial services sector.
Rachid has said that he will not make any decisions on consolidating or restructuring public sector companies while acting investment minister.
Trade boost
On the trade front, the ministry has been hyperactive through discussions and signing of free trade agreements in an attempt to reorient Egypt’s economy away from Europe and the US, which have been bogged down in an economic malaise, in order to cast its eyes on emerging economies, whose growth rates have been surging.
In addition to engaging in trade talks with several smaller countries, such as Romania, Egypt signed in August a major FTA with Mercosur, the Latin American trade block.
Egypt became the first Arab country to sign an FTA with Mercosur — which includes Brazil, Argentina, Paraguay and Uruguay — allowing for preferential treatment of products and reducing the cost of Egyptian imports for key items including sugar, meat and soy oil.
Rachid said Egypt could triple its trade with Mercosur over the next few years, which currently stands at $2.5 billion annually.
Notwithstanding Egypt’s drive to wean itself off of the European and American economies, it nonetheless sought to bolster trade liberalization with the EU by amending its EU-Egypt Association Agreement, which entered into force June 1 and focuses on agricultural, processed agricultural products and fish and fishery products, as well as undertaking talks with the US to further expand trade ties.
Another major project in the works is the Cape-to-Cairo free trade agreement, which was spearheaded by both Egypt’s and South Africa’s ministries of trade several months ago. The agreement would result in the fusion of the Common Market for Eastern and Southern Africa (COMESA) and South African Development Community (SADC) agreements.
As a result of such an aggressive trade policy, exports were able to hold their double-digit growth by jumping 13.2 percent, whereas imports also expanded by 9.3 percent.
Globally, Egypt’s balance of payments for the bulk of the year remained in the positive; in September, it stood at $3.36 billion in 2009/10 versus a deficit of $3.38 billion in 2008/09.
Although trade was clearly a high priority on the government’s agenda, it recognized that a change in the pensions and insurance law was critical to address needed social welfare.
In June, the pensions and insurance law passed, through which the government aims to achieve more social solidarity by better managing pension funds in order to increase pensions for those in the most need. The contentious law is still being met with skepticism from insurance industry insiders and criticism from the public.
Having set the stage for next year through the latest set of reforms and legislation, the Egyptian private sector with the support of the public authorities anticipate that economic growth will expand upward and expand its reach.
A Russian ban on wheat exports in the summer caused a price surge in Egypt.
