Overview. Egypt’s economy is staggering. Prices in all sectors continue to surge, putting inflation at its highest rate since 2017. The search is still on to find a sustainable economic system that can support Egypt in the long term. Stabilising the economy is now imperative. If it were to fail, the ensuing political turmoil and lapse in security will be sure to spread and infect the entire region. Egypt, and indeed its Gulf Cooperation Council (GCC) friends cannot afford for that to happen. Anticipate that GCC member states will continue to invest in Egypt to bolster the financing gap and the government will welcome the assistance. Average Egyptians, however, are already voicing concerns about the loss of autonomy. Yet again, Sisi and his government are stuck between a rock and a very hard place. He is now visibly aware of that and is finding it increasingly difficult to silence his opposition.
President Sisi. On 25th January, Egypt celebrated the 12th anniversary of the Arab Spring.Sisi used the occasion to defend his mega projects but in ways that hint at a never before seen awareness that he is now sitting in a perilous position. In his speech he said, “I will speak about what’s being circulated, that the national projects are the cause of the crisis we’re currently in. Could we not have developed the Suez Canal … and after seven years its income would have reached $8 billion?” “While we had a power shortage, could we have not developed the electricity infrastructure to cope with the demand and also to cope with the development we were aiming for?” he said. “There wasn’t anything unimportant that we worked on, or a miscalculation that we made.” Reading between the lines we feel that Sisi’s defensive tone shows that he sees that he could be facing the very real risk of an uprising. In other speeches he has referred to the 2011 protests but whereas before he celebrated the ‘glorious revolutionaries’, he is now taking a much more cautious stance saying that unrest could “bring any nation to its knees”, and that it should “not ever be repeated.” He may be defending his big plans publicly but at the same time, his government has quietly told ministries to cut all non-essential spending. Only the defence, foreign, interior and health ministries are exempt from the order. Yet still the mega-projects continue – adding millions to the coffers of military owned construction, cement and manufacturing companies. All this to the perceived detriment of the average Egyptian who just wants affordable housing, decent education, bread on his table and a salary that keeps up with market pricing. Sisi is correct to be concerned. We are too.
Diplomacy. US Secretary of State Antony J. Blinken visited Egypt, Israel, and the West Bank on a whistle-stop tour of the region in late January. His visit times with escalating violence in the West Bank. Sisi also did some travelling in January. He visited India, Azerbaijan and Armenia.
Libya. Egypt hosted a meeting between rival Libyan leaders in Cairo in early January. Speaker of the Libyan House of Representatives, Aguila Saleh, and Head of Libya’s Higher Council of State Khaled Al-Mishri discussed drawing up a roadmap to complete the election process. They also agreed to refer for endorsement, their nation’s constitutional documents, to both bodies. If approved, the constitution will pave the way to finalising electoral laws, executive measure and will unify state institutions. Should the two sides fail to reach a consensus a public referendum on the election laws will be held.
GERD. Sudan’s current leader, Abdel Fattah al Burhan has said that his nation and Ethiopia are “aligned and in agreement” over Grand Ethiopian Renaissance Dam (GERD). He made this statement after talks with his Ethiopian counterpart in Khartoum late January. At the time of writing, Egypt has not yet responded to the remark but something will be said and said strongly. The three nations have been in talks led by the African Union but have repeatedly failed to agree. This shift by Sudan away from Sisi’s side will not go unnoticed and there will be repercussions. Sisi has many ‘incentives’ at his disposal when it comes to seducing Sudan but even so – we see some tough love in its future.
Upcoming Legislation. The House of Representatives got back in session and January ended. We expect a few highlights to be on their agenda in coming weeks. Look for talks and votes on tax, transport and tourism. Transportation could be a particularly hot topic. The Transport Minister will face questions on his borrowing policies and high spending on everything from new Spanish Taglo trains to metro upgrades and expansions. We said last month that Egypt at the time was ‘all about the money’. This year will be no different as the government struggle to balance their budget while managing massive international debt re-payments. The Senate will get back to work on 5th February.
FX. 2023 opened with an exchange rate of EGP24.72 to USD1. As January ended this soared to over EGP30. The knock-on effect on inflation is becoming crippling for the majority of Egyptians. The Russian Central Bank has added the EGP to its official exchange rate list. This is a win/win situation for both countries. Egypt will now be able to pay for Russian imports in its own currency and travellers to Moscow will be able to change EGP on arrival, cutting the high demand for hard currency. It should also encourage the return of Russian tourists to Red Sea resorts who had limited travel plans as they too struggled to buy USD at home. At the time of writing, EGP1 = RUB2.36. Imports from Russia totalled almost USD 2.48 million in 2021. Russian tourists accounted for more than 50% of tourist entries to Egypt in 2022 which saw more than 11.5 million people visiting the country.
Interest Rates. The Central Bank of Egypt will meet on 2nd February. We anticipate that the increase of interest rates will be the main topic of conversation as inflation continues to climb. We anticipate a minimum hike of 100 basis points this time around but expect to see a rise in total of 250 points by the end of the year. Separately, the National Bank of Egypt and Banque Misr has announced that they will be withdrawing their 25% yield 1-year CDs. We expect other major banks to follow shortly but we also expect that new, slightly lower earning CDs will take their place. Sources tell us that Mashreq Bank has been given the nod by CBE to issue a 22.5% CD. Interest will be paid monthly.
Forecasts. For the 2nd quarter in a row, Standard and Poor’s (S&P) has maintained Egypt’s foreign and local currency credit ratings at B level with a “stable outlook”. S&P expect the average growth rate to reach 4% annually in the next 3 years. A Reuters poll predicts Egypt’s economy will grow by 4.8% in this fiscal year. The new agency surveyed 18 economists to generate the average numbers. The World Bank predicts a 4.5% growth while Fitch and the IMF both put that figure at 4.4%. Growth will be driven by the energy and construction sectors and backed up by retail, wholesale, agriculture and IT.
Subsidies. The Supply Ministry has begun the roll out of a programme aimed at keeping bread prices across the country closer to the price paid by those covered by the subsidy programme. The Ministry will issue debit cards that can be used in bakeries selling subsidised loaves. The cards can be topped up as required. The Ministry says that sale prices for card users will be reviewed monthly but details are scant. What is clear however is that the rapidly sinking value of EGP means that the cost of the subsidy programme has soared by at least 76% as Egypt struggles to keep up with the increasing cost of importing enough wheat to feed its people.
Cost of Living. The government has committed to continue its freeze on electricity prices for another 6 months. We anticipate that as the hotter summer months roll in and air conditioning units are switched on in homes and businesses, when this current ruling expires on 30th June, tariffs will be adjusted. When they are, retail prices will, of course, follow.
Tourism. This sector received a boost in January as it welcomed its first group of Chinese tourists since the pandemic. Egypt Air has also announced that it will resume flights to the Asian nation in March. The airline will operate flights to Beijing, Hangzhou and Guangzhou. The UNWTO World Tourism Barometer predicts a healthy growth in tourism right across the Middle East. The UNWTO report that more than 900 million people travelled internationally in 2022. This number is more than double the figures reported the year before but still short of the numbers recorded in 2019. Despite this, the future is looking bright for Egypt and the region. We anticipate growth will be maintained. Fitch Solutions agree with us, although we do think their 2023 prediction is a little low. Fitch has retained their bullish outlook over the medium term to 2026. Fitch predicts 52 million will visit by 2026 breaking it down as follows; 11.5 million in 2023, 13 million in 2024, 13.5 million in 2025 and 14 million in 2026. Egypt’s goal for tourism investments is EGP 7.4 billion in the financial year 2022/23. This is up 19.4% compared to the previous year.
Privatisation. Sources tell us that the government plans to merge several state owned hotels into a new company prior to offering them to foreign and domestic investors. Expect an announcement on this by the end of March. Some properties owned by the Holding Company for Tourism and Hotels will be looking particularly attractive. Iconic venues like the Cairo Marriott, Mena House Marriott and the Old Cataract Hotel in Aswan could all be up for grabs as part of the newly put together package. The current economic crisis will see the government to accelerate its privatisation programme.
Islamic State claimed responsibility for an attack on a Police check point in Ismailia on 30th December. Three Police officers were killed in the raid. It has been three years since we last saw ISIS strike outside of the Sinai Peninsula.
Egypt must find a long term cure to all that ails it. It badly needs foreign investment but it must also create a level playing field for local businesses to compete. Many domestic manufacturers are slowing production or shutting up shop completely as they are unable to pay for the imports required to stay in the game.It would help if the military drastically scaled back their tax free involvement in many business sectors whilst the government simultaneously freed up much needed hard currency.