Minister of Investment and International Cooperation Sahar Nasr announced on Thursday that foreign direct investment (FDI) has reached $6.8bn since the beginning of the year. The announcement didn’t specify whether this relates to the start of the fiscal year (FY) in July 2016 or the calendar year in January 2017. FDI in the first half (H1) FY 16/17 registered at $4.3bn, according to the Central Bank of Egypt (CBE) data.
Annual FDI was $11.1bn in FY 06/07, reaching a historic peak of $13.2bn in FY 07/08, then dropped to a low of $2.1bn in FY 10/11 due to the 25 January Revolution in 2011. FDI has gone on a steady recovering path, with rising energy investments reaching $6.8bn in FY 15/16.
According to Arqaam Capital, if the media release is for the period January to April 2017, then the FY 16/17 totals $11.1bn. This FY would be the highest since FY 07/08. If the release relates to the first ten months of FY 16/17, then this would still be significantly positive. The full year FDI would exceed the previous year’s level, being the highest since the 25 January Revolution.
On the other hand, headline inflation slowed from 31.5% in April to 29.7% in May. Inflation is still likely to increase back to the 30%+ around the summer due to seasonal factors and fiscal reforms, according to Arqaam Capital’s report.
The report cites that interest rate cuts are only likely when monthly inflation shows inflationary pressures have sufficiently subsided and the earliest possibility is around early 2018, adding that the rate hike of 200bps is unlikely to curb inflation in the next few months.
While monthly inflation stabilised, registered at 1.66% in May, marking its lowest level since the monetary and fiscal shocks in November 2016. Monthly inflation had peaked at 4.9% in November as a result of the currency flotation and the increase in energy prices.
Arqaam Capital forecast annual headline inflation to remain elevated until early Q4 2017. In summer, the second round of fiscal reforms is expected to take place (energy price hike, annual electricity repricing, and a 1% increment in VAT), coupled with the usual seasonal summer effect.
Consequently, headline inflation will remain in the 30%+ range in the summer and is expected to drop to the high 20% around November 2017, registering high teens in 2018 and declining in 2019, breaking the single digit level in late 2019/early 2020.
Moreover, the report cites that the annual change in core inflation, computed by the CBE’s Monetary Policy Dept, declined to 30.6% in May, from 32.1% April, while the monthly change increased to 1.99% in May, compared to 1.1% in April.
Arqaam Capital indicated in their inflation note issued on Thursday, that while the annual urban headline inflation rate had declined, the monthly change still reflected some inflationary pressures from the reforms pass through and increased consumption growth ahead of Ramadan.
