Before the onset of Covid-19, Egypt’s economy was among the strongest performers in the MENA region, with a Reuters poll from January 2020 putting the country’s economic growth at 5.8% for FY 2019/20 and 5.9% for FY 2020/21. This is more than double the regional average for MENA, which the World Bank estimated at 2.6% for 2019/20.
These forecasts since have been revised, with the European Bank for Reconstruction and Development now predicting Egypt’s economy will expand by 0.5% in 2020 and the IMF estimating 2% growth. Egypt was somewhat fortunate that the pandemic occurred after the conclusion of a $12bn IMF-backed reform programme, which helped to make the economy more competitive and productive. Our latest Egypt CEO Survey, conducted as part of a wider survey of OBG’s African markets, sought to look specifically at business leaders’ insights into multiple facets of Egypt’s economy against the backdrop of the global crisis.
One question we asked firms was at what capacity they expect to be operating by September 2020. Respondents from ICT and retail companies said that they expect to be largely operational by September 2020, with 100% and 75% of respondents saying that they will be operating at above 80% capacity, respectively, which is significantly higher than the average across all sectors of 56%.
Rising Demand for ICT Services
The confidence shown by these two sectors is likely down to the solid market fundamentals driving growth. Due to the country’s partial lockdown, demand for telecommunication services has increased substantially as many professional and social communications moved online. Although this sharp growth is expected to taper off gradually, the pandemic has accelerated a number of behavioural shifts, ranging from remote working to greater uptake of e-commerce. “The importance of advanced and robust infrastructure allowing communities to stay connected and be virtually present in several locations is unprecedented since the global crisis,” Ahmed Shalaby, president and CEO of real estate development company Tatweer Misr, told OBG. “Remote work, e-learning and e-commerce are set to be ongoing trends for years to come.”
Egypt has among the highest levels of smartphone penetration in Africa, with 45.2m internet users, and some 35m (78%) access the web through mobile devices. Moreover, the amount of users is around six times higher in 2020 than it was in 2010. Around 84% of respondents from the retail sector would benefit from some level of digital disruption in response to Covid-19, and almost 50% of total respondents said they were expecting either high or very high benefits from digital disruption in their sector. This is the second-highest proportion in the African countries covered by OBG, exceeded only by Tunisia.
On the business-to-business side, companies operating in Egypt’s well-developed banking and construction sectors are among the region’s most influential firms, and are highly likely to adopt and innovate digital technology. A large amount of financing has been directed towards supporting small and medium-sized enterprises, both before and after the onset of Covid-19. Digital disruption could also be extremely beneficial to those who are moving away from traditional financing methods.
An increased emphasis on financial technology may force banks to adopt more digital-centric policies to facilitate lending. Some business leaders have underscored the affect this acceleration has had on Egypt’s position globally. “The overall sentiment is that Egypt, technologically, has been catapulted 10 years ahead,” Tarek Madany, managing director of appraisal company GAT, told OBG. “Companies and employees have adapted to working remotely, gaining new skills, and adopting new digital technologies and capabilities for the first time. This has helped them to compete with major global players, but at a lower cost.”
Benefits for Local Industries
One particular trend in the industrial sector that could stand to benefit Egypt is the so-called “China plus one” policy, whereby European or US firms that previously based all of their supply chain in China add an additional location to diversify production. Egypt, with its strong manufacturing base and strategic geographic location at the crossroads of trade routes linking Asia, Africa and Europe, has a lot to offer international companies looking for a new base. Indeed, 75% of respondents said that Covid-19 is likely or very likely to boost local industry and manufacturing. When counting only responses from the industrial sector, this rose to 83%.
Looking at the health sector, the crisis may result in positive long-term gains for the system overall. Egypt still lags behind its peers in terms of health care spending, despite its target to spend 3% of GDP on the sector before the crisis – when total spending was around 1.2%. However, business leaders are optimistic that the crisis could be the catalyst for an increase in spending. Some 84% of respondents told OBG that they were either likely or very likely to encourage health care spending in the long term. Although the government initially increased spending after the extent of the pandemic became clear, it is uncertain whether this will translate to long-term growth in the health budget. With that being said, in June 2020 Egypt received $400m from the World Bank to expand its health coverage as rising cases of Covid-19 continued to put pressure on services.
Long-Term Vision
Macroeconomic data shows that, compared to many other countries in the region, Egypt is well positioned to remain resilient in the face of ongoing challenges. The country’s CEOs have made it clear that the crisis could lead to structural benefits in the long term, such as increasing industrial activity, accelerating digitalisation and making firms more competitive. “Companies that invest in digital capabilities will emerge from this crisis stronger by benefiting from the market growth enabled by digital transformation, and will thrive in the long term,” Madany told OBG. However, it remains to be seen whether these short-term insights and policy objectives can be effectively transformed into long-term economic outcomes.
Read More from OBG
