In 2015, Egypt was one of the fastest-growing economies in the Middle East and North Africa region – second only to Morocco – with GDP growth of 4.5 per cent. It is a clear sign that the project-led recovery plan and economic reforms initiated by Cairo are paying dividends.
There has been a sharp step-up in project activity since 2014, with $17bn of contracts awarded in 2014 and $29bn in 2015. This compares with just $4bn in 2013.
The big acceleration in awards in 2015 came after President Abdul Fattah al-Sisi staged an investment conference to showcase the opportunities on offer in the country. More than $130bn in pledges were secured at the Egypt Economic Development Conference held in March 2015, and in the months since, Cairo has been working tirelessly to convert agreements into deals.
The government has successfully procured an emergency generation programme to solve the country’s electricity crisis and other conventional, coal and renewables contracts have been awarded to meet future demand. Last year also saw the award of an $8bn deal to build Egypt’s long-awaited first nuclear power plant. In addition, there have been major contracts let on the long-running Cairo Metro scheme.
In 2016, the momentum has continued, with $9.2bn of contracts signed by the end of the first quarter – most importantly, the deal to develop the Zohr gas field, which was only discovered in mid-2015.
The discovery of this field raises the prospect of Egypt becoming self-sufficient in energy once again and reducing the heavy burden of petroleum imports on the economy. First production is targeted in 2017.
Between now and then, however, the Egyptian economy faces strong headwinds, chief among them a foreign currency shortage, rising debt, high inflation and the threat of terrorism. The biggest challenge is the lack of foreign currency, which is hampering importers and denting confidence among investors and project developers. The tourism sector is a major source of hard currency, but terrorist incidents in the second half of 2015 threw its 2014 recovery into reverse.
As a result, the Washington-based IMF is predicting lower GDP growth of 3.3 per cent in 2016, before a rebound to 4.3 per cent in 2017. A devaluation of the Egyptian pound in March was intended to solve the dollar shortage, but was limited in impact and economists say further adjustments are needed to close the gap with black market exchange rates. This will keep investors hesitant in the months ahead and will continue to delay some important contract signings.
While the current account deficit has deteriorated sharply due to external factors, Al-Sisi has made some progress in reducing the fiscal deficit, through tax and subsidy reform. The government will need to remain committed to its economic agenda if it is to unlock funding from the US-based World Bank and perhaps the IMF. An injection of funds from multilateral institutions would bolster foreign currency reserves and most importantly send a strong signal of endorsement to investors and lenders that should unleash Al-Sisi’s planned projects boom.
The government estimates some $300bn-worth of investment is needed to bring the country’s infrastructure up to scratch and rebuild the economy, and it has set out an ambitious programme of projects it wants to develop. Any doubts over Egypt’s commitment to building a new economic zone along the Suez Canal and a new administrative capital will have been dismissed by the focus these schemes are currently receiving.
A growing relationship with China has added a new dynamic to Egypt’s projects market in recent months and will go some way to alleviating concerns about constricted finances among Arab partners in the wake of the oil price collapse. Beijing is fully aware of the potential of the Egyptian market and is eager to position itself to benefit from the prospective projects boom.
With GDP of $330bn, Egypt has one of the largest and most diversified economies in the Middle East and North Africa. It also has the biggest population in the region, estimated at 90 million in 2016. With nearly 70 per cent of its people aged under 30, the country will experience a huge burst of population growth in the coming years.