Egypt: Retailers waiting for stability

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Retailers in Egypt are keeping their fingers crossed for a broader stabilisation of the country’s economic and political scenes, following several months of upheaval and uncertainty that has dampened overall consumption. There are a few encouraging signs pointing towards a gentle increase in consumer spending later in the year, but any improvement will be heavily dependent on the performance of the newly-elected president and the ongoing recovery of the country’s economy.

According to the latest projections by the International Monetary Fund (IMF), Egypt’s economy will expand by 1.5% in 2012, down from 1.8% GDP growth in 2011, which in turn was a noticeable drop from 2010’s 5.1%. With unemployment forecast by the World Bank to remain at around 12% this year, a sizeable portion of the Egyptian population will not be in a position to indulge heavily in consumer spending, instead having to direct available income to staples.

Most Egyptians are apparently choosing to err on the side of caution. The latest Nielsen Global Survey of Consumer Confidence and Spending Intentions, issued in early June, showed that Egyptians have mixed feelings about the state of their country’s economy and how it will affect their spending patterns for the rest of the year.

There was a slight improvement in consumer sentiment in the most recent survey, which covered the first three months of 2012, with confidence ratings up five points to 97, just short of an optimistic outlook. While 85% of respondents said Egypt was still in a recession, down from 90% at the end of 2011, more than half believe the economy will be back into positive territory by the end of 2012.

According to Ram Mohan J Rao, the managing director of Nielsen Egypt, at least some of this confidence stemmed from political developments over the past year.

“Egyptians trust in their abilities and resources, and this is how they trust their country can come out of this recession,” Rao said. “They also believe that with the fall of the regime and the eradication of corruption, the economy will improve as well as their condition.”

However, a majority of Egyptians surveyed said they had changed their spending habits to reduce household costs, with 65% stating they had sought to cut expenses. The areas most affected by this sentiment were outlays on clothing, down by 45%; entertainment, 41%; technology upgrades, 30%; and food stuffs, with 16% of those surveyed stating they had switched to buying cheaper grocery brands.

This trend appears set to continue, as many respondents to the Nielsen poll said they would try and reduce spending on non-essential expenses. The survey also found that just 36% of Egyptians considered the coming 12 months a good time for people to make purchases.

With the Nielsen poll finding that the greatest single concern of Egyptians was political instability, any threat to the smooth running of the affairs of state could directly impact consumer sentiment. The results of the general election, which took place on June 16 and 17, were delayed, causing further concern for Egyptians, many of whom returned to Tahrir Square demanding the results be announced. President-elect Mohamed Morsi of the Muslim Brotherhood was announced the presidential runoff winner on June 24.

Likewise, lingering effects of the Supreme Constitutional Court’s June 14 ruling to dissolve the parliament elected last November on the grounds that a part of the ballot was conducted in breech of the constitution remains to be seen.

The ruling sparked an angry reaction from many Egyptians, particularly those supporting the Muslim Brotherhood, which won the largest single block of seats in the poll. There are concerns that the court’s decision could prompt a renewed wave of protests and political instability, which in turn could harm the retail trade, along with other key sectors of the economy.

While these recent events have the potential to reduce consumer confidence further, many observers believe that an elected and stable government will serve to restore positive sentiment.

The uncertainty of consumers does not appear to be deterring developers though, with new shopping space being brought on line and more scheduled to be opened throughout the year. Earlier in 2012, Jones Lang LaSalle, a property investment and advisory firm, forecast solid growth in retail space in Cairo for 2012 and 2013, predicting that a further 260,000 sq metres would be added to the 786,000 sq metres of existing mall retail space.

Combined with a steady rise in other retail space, the total leaseable retail area in the capital could reach 1.8m sq metres by 2014. The Jones Lang LaSalle report said that the limited supply of quality retail space would see competition for prime locations, as well as drive new developments.

While uncertain sentiment may curb any rise in retail activity, some political stability will do much to keep consumer confidence climbing.

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