Since Abdel Fattah Al-Sisi became president, Egypt has been able to avoid default and recession by allocating a higher share of government expenditure towards debt repayment; however, a host of problems remain, from a deteriorating infrastructure and rapidly growing population to an ever increasing deficit and major imbalance in trade. Below in summary are infographics detailing the declining economic conditions and the factors contributing to their fall.
Egyptian exports have continuously fallen since 2011 as a result of the foreign currency crisis which made the import of necessary materials extremely difficult.
In total, however, exports have risen slowly, increasing 9% in April while imports fell by 22.6%. The Ministry of Finance reached a decision in June to support Egyptian exports with a $400m subsidy for producers who export a product with at least 40% added value, which is set to begin in July.
The biggest gains have been in construction and building material exports, which rose 69% this month and are set to rise further as the government makes deals with a number of Gulf firms that are set to begin their own construction and real estate deals. The Africa market, however, makes up the main goal of Egyptian exporters who seek to penetrate the market they feel they can dominate as a result of a number of free trade deals struck earlier last year.
Government support in infrastructure, construction, and industry will have a large effect on unemployment rates which have increased since the bottoming of tourism, closing of factories, and business austerity as a result of global economic slowdown.
The current population growth rates of 2.4% have resulted in almost 100 million Egyptians living domestically and abroad and represent a serious challenge to state strategies attempting to provide better living standards and social justice.
Cairo and Giza make up close to 20% of the population, which has resulted in legendary congestion. The government has expressed a desire to increase the space where Egyptians live, pushing people from the concentrated Nile Valley into other areas, such as Sinai, which only hosts 0.18% of the population.
The high population and poor infrastructure have resulted in water shortages, particularly in the poorer south, which have sparked protests against the government.
The Egyptian government has taken the infrastructural challenges seriously and President Al-Sisi has made investment in Egypt’s crumbling infrastructure a top priority when he allocated EGP 37.8bn to infrastructure investment for FY 2015/2016.
A number of airport development projects, metro extensions, port expansions, and road and rail network improvements are set for completion in the coming years according to the Ministry of Transport.
The government, along with Saudi Arabia, announced the launching of another mega project to develop the Jabal al-Jalalah road and city network, which will be located close to Ain Sokhna and the New Administrative Capital along the red sea in order to de-centralise the population from Cairo.
The El-Dabaa nuclear power plant and a road planned to connect Lake Nasser with the Mediterranean will also attempt to move the population east and west of the Nile Valley.
In April, Egypt and Saudi Arabia announced a SAR 60bn investment fund to finance the development of Sinai including a free trade zone, electricity plant, agriculture complexes, infrastructure, and an industrial zone worth $3.3bn, as well as a university and housing.
The Egyptian government is increasingly reliant on private investment in order to finance the country’s needs. Abdel Fattah Al-Sisi launched a number of reforms designed to increase foreign investment in line with policy prescription from the International Monetary Fund (IMF) and the World Bank. Egypt has seen an annual 26% increase in private investments since 2013. 62% of the government’s total implemented investments in 2014 were from the private sector compared to 49% in 2003.
Private investment was mainly concentrated in real estate, telecommunications, hospitality, and energy products but also made up sizable investments in extractive industries whereas public sector investment mainly focused on electricity, transportation, sewage, water, and health care.
Challenges to private sector investment include excessive bureaucracy, currency stability, and fund repatriation, which amount to a negative perception of Egypt’s investment capabilities.
The government has set about attempting to fix the main investor concerns by working with USAID and Booz Allen Hamilton to set up a one-stop-shop (OSS) investment office with the General Authority for Investments and Free Zones in order to streamline applications for licences.
The central bank recently announced on 9 June that it was able to cover 50% of foreign currency requirements for the repatriation of funds abroad and the rest would be covered in “the near future”.
While the currency is not set for stability in the near future with many top analysts such as JP Morgan stating that the Egyptian pound is likely to continue its devaluation as the government seeks to liberalise exchange rates.
Director of the Communications Department at the IMF Gerry Rice stated that in order for Egypt to reduce its dependence on foreign reserves, it should liberalise the foreign exchange rate, which would expose the domestic financial system to increasing volatility but would ease investor concerns in receiving payment from the Egyptian government.
However, according to the April 2016 World Economic Outlook published by the IMF, countries domestic laws have little to do with the global slowdown in capital flows to emerging markets of which Egypt suffers from. The slowdown is a result of the narrowing difference between profits in developed countries, which have a far greater labour and product market reform. They state that floating foreign exchange rates only decrease the impact of capital shortfalls, not reverse it.
Egypt moved up the Global Competitive ranking for the first time since 2011 as a result of a more positive assessment of the nation’s institutions such as higher levels of physical security, a more efficient judiciary in settling business disputes, and better protection of property rights.
Less noticeable are the improvements in the macroeconomic environment and financial market development which reflect recent reforms such as a reduction in energy subsidies, tax reforms, and a strengthened business environment as well as a general increase in overall stability.
Egypt ranks lowest in openness to trade and investment, tariff and non-tariff barrier, and the presence of more favourable laws and infrastructure for foreign investment as well as investment in skills and higher education supporting private sector growth.
