Is Egypt’s economy finally looking up after the near standstill it had come to in the wake of the Arab Spring uprising in January 2011? Recent indicators appear to point that way.
Last week the global rating agency Standard and Poor’s affirmed Egypt’s credit rating at B-/B, but raised the economic outlook to ‘Stable’, citing political and security stability, slight recovery of GDP, and financial reforms that help boost economic growth. But S&P noted that the high deficit, government debt, need of borrowing and continued low GDP.
A few weeks earlier, Moody’s raised Egypt’s credit ratings outlook to stable from negative, again citing a more stable political and security situation and signs of economic recovery. It refrained from upgrading the credit rating which stands one notch below S&P’s, saying government finances are still too weak. Moody’s said that reforms launched over the past year, including cuts in fuel and electricity subsidies and measures to lift public revenues by a shift to value-added tax system from a goods and services tax, had improved the outlook.
In a statement, Moody’s said the constitutional referendum held last January in January and presidential elections last May, as well as the parliamentary elections to be held by early 2015, had provided a political reform roadmap and led to greater institutional stability.
Egypt’s economy grew 3.7 per cent year-on-year in the fourth quarter, up from 2.5 per cent in the previous quarter, and more recent economic indicators have pointed to a sequential pick-up in growth.
“Domestic investors are showing confidence in the economic recovery of Egypt,” Moody’s said, citing the USD8.5 billion issue of Suez Canal investment certificates to retail investors which were covered in little less than a week. Economic growth and employment will be supported at least for the next five years by the expansion of the Suez Canal and development of the surrounding area, it said.
This, coupled with external support from Gulf Cooperation Council member states to the tune of some USD17 billion during 2014, supports Egypt’s budget and cuts the government’s financing costs, it noted. The US government has resumed military cooperation and aid.
Investor confidence, however, is extending to foreign investors. Earlier this month saw some 150 representatives from 66 US companies in addition to representatives from the US Export-Import Bank and the US Overseas Private Investment Corporation pay a two-day visit to Cairo to explore potential investment opportunities. The visit, organised by the US Chamber of Commerce, steered clear of politics.
The delegation met President Abdel-Fattah al-Sisi for some two hours during which the businessmen heard him talk of his vision for improving the economy and the pressures he faces from a population that is in dire needs of economic growth and that faces the challenge of Islamist terrorism.
The delegation included a personal envoy from US Secretary of State John Kerry, Ambassador David Thorne. Ahead of the visit, Kerry said a critical component of Egypt’s success is economic growth driven by policy reform.
The businessmen delegation met senior Egyptian officials to discuss investment plans in Egypt. These included the ministers of trade and industry, finance, planning, tourism, administrative reform, communications and information technology, petroleum and mineral wealth, agriculture, health, electricity and renewable energy, supply and domestic trade, as well as the governor of the Central Bank of Egypt.
“We all recognise that this country has been through turmoil and that the economy is challenged,” said Gregori Lebedev, a senior member of the Board of the Directors of the Chamber of Commerce and co-leader of the delegation. “I think the size of the delegation reflects the fact there was a prospect of change and reform and let’s go see for ourselves what those prospects are because we would like to be a part of that solution if we can and we certainly want to be part of (Egypt’s) long term growth.”
“We know that prosperous economies are good for citizens wherever you are in the world,” Mr Lebedev said. “So anything that the American business community can do to stimulate a challenged economy will do nothing but benefit Egyptian citizens at large.”
Following the meeting with President Sisi, Mr Lebedev said it was clear the new government was not ‘whitewashing’ the country’s myriad problems. “I think people have to give some amount of credit for an otherwise successful individual [President Sisi] to take on challenges that most people would turn away from,” he said.
Khush Choksy, vice president of the US Chamber of Commerce for Middle East affairs, said the visit couldn’t have come at a better timing to seize on positive signals the government has sent to the business community. “Business likes to get in the act early,” he said, adding that American investment in Egypt now stands at over USD10 billion.
Strong political will
The mega-projects launched by the current administration in Egypt, Mr Chomsky said, aim at jumpstarting the economy. Such projects, and the local eagerness to invest in them, have triggered interest of private American businesses. He said the chamber plans to host another regional investment conference in Egypt next spring; investors form some 40 countries are expected to attend.
Minister of Supply and Domestic Trade, Khaled Hanafi, said tht the Egyptian economy showed a promising future despite the problems and challenges. “There are enormous investment opportunities,” Mr Hanafi said, “which require partnership and capital. There is a strong political will to take all the necessary decisions to maximise the competitive edge of the Egyptian economy. The government, for its part, is planning a number of mega projects in the field of warehousing and logistics especially where grains and food products are concerned. There is also a project for a state-of-the-art commercial and shopping city in the Gulf of Suez region.”
Egypt needs investment in the power sector, according to Minister of Petroleum Sherif Ismail, and such investment will be open to the private sector. As far as oil is concerned, he said, some 36 new contracts have been signed with exploration companies in 2013 to drill 153 wells at an investment of USD2 billion.
But Egypt’s energy needs will not be covered solely by fossil fuels, Minister of Electricity and Renewable Energy Muhammad Shaker said, and the country is looking to invest in solar and wind energy to supply part of its power needs. In confirmation, Minister of Trade and Industry Mounir Fakhry Abdel-Nour said that the field of energy in all its forms tops the list of investment needed in Egypt.
All the talk about the much-needed investment, however, underscored the fact that Egypt cannot begin soon enough on legislative reform regarding investment laws and regulations. According to Minister of Investment Ashraf Salman, all the necessary legislation should be in place before the economic summit next March. He said the government aspires to reduce the poverty level by 20 per cent in 2017/2018, reduce the budget deficit to less than 10 per cent, and reach a growth rate of 6 – 7 per cent.
“The government should be very transparent and very candid about what laws are going to be changed, and should make it very clear that nothing will be taken retroactively on any of its decisions,” Hisham Fahmy, head of the American Chamber of Commerce in Egypt, said.
15 November 2014