Egypt has been through myriad changes since 2014 as the government has sought to introduce a wide range of legislative and regulatory reforms to restore economic order. Although the economy has struggled in recent years – with GDP growth averaging 2% per annum between FY 2010/11 and FY 2013/14 – indicators are finally resuming a more positive trajectory.
This comes on the back of attempts in recent years to improve public finances, reduce the size of the state and enhance the country’s business environment. To that end, a new investment law easing bureaucratic restraints was adopted, a subsidy-reduction programme to curb spending was put in place and the Egyptian pound was floated.
OBG reached out to more than 100 C-suite executives from across all sectors of the economy from mid-2017 to early 2018 to get their assessment of the outcome of the currency flotation, which took place in November 2016. Unsurprisingly, the results are overwhelmingly optimistic, with around 73% of respondents indicating the flotation will have a positive or very positive effect on local business conditions this year.
Some of the grounds for optimism were likely the benefits seen in the immediate aftermath of the currency float, such as a decrease in the cost of labour and raw materials, as well as improved liquidity. Foreign currency reserves in particular have experienced a significant recovery, reaching $37bn at the end of 2017, their highest level since 2011.
Egypt’s economic comeback
Overall, efforts to put Egypt’s economy back on a surer footing seem to be finally paying off, and confidence among the business community appears to be returning in full force.
When asked about local business conditions for the coming 12 months, 91% of respondents have either positive or very positive expectations, up from 79% in OBG’s first Egypt CEO Survey, released in early 2017. More importantly, those with negative expectations accounted for just 4.5% of total responses, a considerable decrease from the previous survey’s 19.4%. This demonstrates a marked shift in business sentiment from just one year ago.
Another important finding that testifies to improvements in Egypt’s attractiveness as an investment destination is that 70% of respondents say the country’s current tax environment is either competitive or very competitive on a global scale, while just over half describe access to credit as easy or very easy. The number of respondents reporting access as difficult stood at 33.6%; though still a relatively large share, it represents a decrease from 46.7% last year.
In terms of overall GDP growth, 70% of respondents to our survey forecast growth of between 3% and 5% in 2018, slightly lower than the IMF’s projection of 5.2%. Short-term expansion is set to benefit from the recovery experienced in the tourism industry and developments in the country’s burgeoning energy sector.
Beyond the currency flotation
While Egypt’s bold reform agenda has certainly positioned the country for continued economic expansion, a number of challenges call for more immediate attention.
The aftermath of the currency flotation, for instance, resulted in a dramatic surge in inflation, peaking at 33% in July 2017, its highest level since 1986. The situation seems to have been brought under control more recently, with the IMF forecasting inflation will decline to 13% in 2019 and 10% in 2020, which is more in line with the average inflation rate of 11% recorded in the five years leading up to the revolution.
Another pressing challenge Egypt will need to address is its persistent fiscal deficit, which is expected to reach 9.4% in FY 2017/18, though efforts to rationalise subsidy allocation along with sound economic performance and political stability should help mitigate the effects of this.
An additional source of concern is the level of unemployment, which remains prohibitively high, especially among the country’s youth population, for whom the rate stood at 33.1% in 2017, compared to 12.2% nationally, according to the IMF. Sustained job creation is therefore key as the number of entrants to the market continues to rise. More than 50% of CEOs surveyed by OBG cited leadership as the skill in greatest need, followed by R&D (12.7%) and business administration (9%).
Lastly, among the potential obstacles that could hinder economic growth, 65% saw increased instability in neighbouring countries as the top external risk in the short to medium term, followed by the rise in oil prices (17.2%).