Egypt is a crucial market for many of our clients. Its economy is the third largest in the Arab world after Saudi Arabia and the UAE. The country has strong ties with the West and has played an important negotiating role in the Israel-Gaza conflict. Egypt's main export is crude petroleum and the country also boasts a thriving textiles industry. We ensure our clients make sound investment decisions in Egypt, using our risk-assessed total analysis model. Our teams keep our clients informed of the latest market moves and political developments as part of our 'top-down' and 'bottom-up' perspective. Our expert views are supported by our interactive data and forecasting. We also provide in-depth analysis on 23 of Egypt's most important industries. Our analysts will make sure you, as our client, have the edge in Egypt.
Egypt Country Risk
2016 will be a relatively positive year for the Egyptian economy, as the currency stabilises and investment returns to the county.
The fiscal and net export position will improve significantly on the back of fuel subsidy reform. Subsidy cuts will likely be watered down if public unrest occurs on a significant scale, however, the bulk of reform will remain in place.
Hikes to domestic energy prices will push consumer price inflation back into the double digits by the end of the year.
Egypt's geopolitical importance will ensure that even if an IMF agreement is delayed for longer than expected, further foreign aid commitments will materialise around the turn of the year. Western powers such as the US and EU have an interest in ensuring the North African country does not experience a more...
Egypt Operational Risk Coverage (9)
Egypt Operational Risk
Egypt Operational Risk
BMI View: Egypt's operating environment presents a number of risks associated with its strong trade union presence, a significant threat of terrorist attacks and an education system which falls short of supplying adequately skilled graduates for the labour market. In addition, the utilities network suffers from frequent shortages which disrupt business activity. On the positive side, Egypt benefits from good international supply chain connections and trade infrastructure, low utilities prices and a government seeking to encourage investment. The country has the largest population in the Arab world, with rising incomes and a high rate of urbanisation, and therefore offers an increasingly attractive consumer market. However, overall the deteriorating security environment in the country makes Egypt a less attractive destination for investment than...
Egypt Crime & Security
Egypt Crime & Security
BMI View: Though the security situation in Egypt has improved following the ouster of President Mohammed Morsi in July 2013 by way of a military coup, security forces continue to face significant challenges. Current President Abdel Fattah al-Sisi has struggled to contain a widening economic gap, endemic corruption and the escalating instability in the Sinai region, which has caused terrorist attacks to spread and escalate in major cities such as Cairo. This was further exacerbated by the crackdown on dissidents and opposition groups such...
Egypt Labour Market
Egypt Labour Market
BMI View: Egypt's labour market presents a number of risks to investors, driven by significant income disparities affecting the composition and educational levels of the workforce. Investors face high costs of employment and poor labour availability, as urbanisation and female labour force participation rates are low on a regional comparison. We give Egypt an overall Labour Market Risk score of 40.6 out of 100 in our Operational Risk Index. This places the country 17th out of 19 countries in the MENA region, between Syria and Morocco (which have scores of 42.5 and 33.8 respectively).
Education risks are significant and appear to have worsened over the past two decades. While primary school is compulsory and free - leading to very high attendance rates - the quality varies substantially and Egypt is no longer the educational beacon of the Middle East that it once was. This presents...
BMI View: Egypt's logistics network poses a number of risks to business activity, which will cool investor sentiment towards the country over the medium term. Of particular concern is the underdeveloped and overburdened utilities network, which results in shortages of electricity, fuel and water disrupting business operations. In addition, the poor quality of alternative transport options means that supply chains are subject to frequent delays due to their reliance on the congested road network. These logistics shortcomings threaten to hinder Egypt's economic growth, which is beginning to recover following the prolonged unrest since 2011. The main advantages for investors are to be found in extensive maritime and air trade connections, which reduce trading times and costs. Egypt is placed in the middle of the pack...
Egypt Trade & Investment
Egypt Trade & Investment
BMI View: Egypt's appeal to investors has suffered significantly since the revolution in 2011, as regulatory reforms have stalled, foreign currency shortages have worsened and corruption has not been addressed. Though political stability has improved, terrorist attacks continue to weigh on investor sentiment and have damaged the tourist industry. Investors will continue to find opportunities in Egypt's large market, particularly in the hydrocarbons and manufacturing sectors, but structural reforms to cut red tape, improve transparency, secure judicial independence and lower trade barriers will be necessary before the country offers a welcoming destination for foreign direct investment (FDI). Consequently, Egypt underperforms on a regional comparison of 19 Middle East and North Africa (MENA) countries in BMI 's Trade and Investment Risk Index, placing...
Egypt Industry Coverage (31)
BMI View: We hold a generally positive outlook on the Egyptian agricultural market. Nevertheless, our forecasts suggest that Egypt will face growing production deficits in grains and meat as it focuses on export-oriented cash crops, while the dairy sector will benefit from sustained private investment. Out to 2020, an expanding population and rising disposable incomes will support consumption growth in sugar and dairy products. Moreover, rice and beef consumption will benefit from the greater range of products available under the new food subsidy scheme.
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|BMI Market Value By Commodity (2011-2019)|
BMI View: A weak currency and a shortage of foreign exchange reserves will continue to curtail growth in the autos market in 2016 as consumers face higher prices for vehicles and domestic producers struggle to obtain the currency needed to pay for imported kits and components.
|Structural Weaknesses Hampering Growth|
|Vehicle Sales, Units|
|e/f = BMI estimate/forecast. Source: AMIC, BMI|
Worsening currency conditions will see market sales decline again in 2016....
Egypt Commercial Banking
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Egypt Consumer Electronics
BMI View: We hold a positive outlook for the Egyptian consumer electronics market in our Q1 2016 report update. We had made modest downwards revisions in our Q415 report update to better reflect the negative impact of currency depreciation on consumer electronics sales. In 2016, we are anticipating the market to post stable growth of 5.8% to reach a total market value of USD3.9bn. Over the medium term, we expect the market to settle on a slower growth rate, with the wave of deferred purchases unlocked in 2014 not to be repeated. Overall, we have a positive medium-term outlook for Egypt's consumer electronics market, with a young population, low device penetration rates, rising incomes and...
Defence & Security
Egypt Defence & Security
BMI View : Heightened domestic security issues - namely those associated with Islamic State, the Muslim Brotherhood, civil unrest as well as continuing regional tensions - will be the major concern for Egypt over 2016, and this will in turn see to a strong rise in defence expenditure over the year. The majority of Egypt's current spending will however, continue to be focused on anti-terrorism capabilities and the procurement of advanced weaponry from overseas suppliers as opposed to the development of a domestic defence manufacturing sector. As al-Sisi's military regime attempts to ensure its grip on power, we expect defence spending to maintain its upward trajectory albeit to a lesser extent as the years go on, owing to broader fiscal constraints given the country's weak economic outlook. Furthermore, high personnel costs - given the large armed force's size - and...
Food & Drink
Egypt Food & Drink
BMI View: Egypt's food and drink industry holds long-term growth prospects: a large and youthful population, a developing middle class and low base effects. Sustained investment by multinational corporations into the sector corroborates our view that Egypt holds strong growth prospects. However, we do note that the weak short-term economic outlook will constrain growth over 2016.
|Food & Drink Spending|
|f = BMI forecast. Source: BMI, national sources|
Egypt Freight Transport
BMI View: Egypt's economic growth will gather steam over the coming quarters on the back of political stability, pent-up demand and a weaker currency. While this will be good for the country's exports, it does mean that the country's domestic consumer demand for imports of container goods - whether transported by air or in intermodal containers - will falter. However, support in this regard will come from the steady improvement in the tourism sector, where increasing political stability and a weak currency will encourage returning visitors, with their own demand for goods imports.
Although our growth forecasts for volumes carried on Egypt's different freight modes in 2016 and 2017 - namely Air, Road and Rail - are not for spectacular growth, they are nevertheless positive, and will remain so over the course of our forecast period to 2020, due to a relatively...
Egypt Information Technology
BMI View: We expect the Egyptian IT market to extend the strong growth from 2015 into 2016, and over the medium term, but with growth decelerating somewhat as the boost from pent-up demand during the period of political and economic instability dissipates. Our core scenario is for a CAGR of 11.5% over 2016-2020 to EGP26.6bn, though the US dollar rate is expected to be slower due to depreciation. Nonetheless the outlook is positive, a view underpinned by our assessment of household income trends and demographics in the context of low device penetration rates - alongside the modernisation momentum in the enterprise market where cloud computing is expected to be an area of outperformance. Although the core scenario is positive we do continue to highlight downside potential in domestic and regional political and security risks.
BMI View: Strong government support for PPPs and a growing infrastructure project pipeline reinforce our positive outlook for Egypt's construction industry in 2016. The recent deterioration in the security situation will have a direct impact on investment in the tourism industry and as such commercial construction projects are at risk of being delayed and cancelled.
Key Trends And Developments
We maintain our construction industry real growth forecast for Egypt in 2016 at 8%, given the large project pipeline and solid foreign investor interest in the market.
The Egyptian government has the announced that it will tender 12 public-private partnerships (PPP) in the next 12 months. According to the Egyptian Ministry of Finance's PPP Central Unit, the new PPPs will be worth around USD4bn and...
BMI View: Egypt's insurance market faces significant structural challenges, including cultural barriers to traditional insurance cover and low household income rates which limits demand. The market is evolving, however, and significant growth potential is presented by takaful insurance and microinsurance products which make cover more affordable. We do expect to see slow but steady growth in both life and non-life insurance premiums over our five year forecast period to 2019, supported by domestic economic growth and an improving regulatory environment which is likely to attract more foreign firms to the market.
Egypt Medical Devices
BMI View: The Egyptian market will remain fairly attractive in the Middle East and Africa region, due to its large size. Per capita expenditure will be low, but there is enormous potential for growth as the country has the largest population in the Arab world. As production is relatively limited, the market will remain reliant on imports. In a climate of relative political stability and an increasingly more positive economic outlook, the public sector needs modernisation, therefore opportunities...
BMI View: Tin prices will be capped by US dollar strength in 2016, leading us to trim our price forecast to USD14,500/tonne. Beyond 2016, prices will recover gradually as the global tin market posts sustained market deficits and inventories dwindle.
BMI view: We have revised our aluminium price forecast from USD1,575/tonne to USD1,600/tonne in 2016, as the tightening market provided an earlier than expected floor in Q116. Aluminium prices will gradually edge higher as the global market moves into a deficit by 2018.
BMI View: Globally, iron ore prices will remain subdued due to weak demand growth in China and expanding output by major miners in Australia and Brazil. China will see output slow as the country's iron ore miners operate on the higher end of the global iron ore cost curve.
BMI View: Nickel prices will bottom in 2016 as weak production drags the global market into deficit. For instance, we expect Chinese imports of nickel to grow over the coming quarters. Prices will begin 2016 weaker than we had previously expected and we have thus revised down our 2016 average price forecast to USD9,000/tonne from USD10,500/tonne.
BMI View: We have revised down our average copper price forecast for 2016 to USD4,900/tonne. We expect prices to find a floor over the first half of 2016, and begin to stabilise thereafter, supported by production cuts and modest consumption growth.
BMI View: Gold prices will prove resilient in 2016 due to a dovish shift in global monetary policy and elevated systemic financial sector risks. However, we do not foresee a sustained multi-year recovery and the mining sector will thus remain under significant stress. We forecast slowing mine production growth and increasing consolidation.
BMI View: Global steel prices will remain subdued due to a persistent steel oversupply over the coming quarters. From 2017 onwards, steel prices will gradually edge higher as the global steel surplus will narrow due to Chinese supply moderation.
BMI View: We maintain our average zinc price forecast for 2016 of USD1,750/tonne. We expect zinc prices to reach a floor over the first half of 2016, and begin to stabilise thereafter, as production cuts shift the market to a deficit.
BMI View: Lead prices will gradually edge higher as the global lead market will shift into deficit by 2017 as production growth will slow over the coming years.
BMI View: The mining sector of the Middle East and North Africa will see strong growth in over the coming years, especially given easing sanctions on Iran. With low base effects, governmental will to increase non-oil revenues and significant resources it appears the region is set for strong growth. We highlight Turkey and Northern Iraq as key areas for growth. That said, the region will remain peripheral in the global mining sector as it continues to underperform due to political instability in much of the region.
The key issue in the Middle East's mining sector presently is Iran's ongoing negotiations with Western powers. Our core scenario is for sanctions to be eased from Q116 which will have be a game changer for the country's beleaguered mining industry...
Oil & Gas
Egypt Oil & Gas
BMI View: Pledged investment in upstream developments and LNG imports will be crucial to meeting gas demand over the next five years, while the Zohr discovery could solve Egypt's gas challenges in the long term. Policy slippage with subsidy reform and payment schedules to oil and gas companies, pose the largest risk to slowing the positive momentum.
The Egyptian petrochemicals industry has benefitted greatly from depreciation and the lack of foreign currency that emerged as the authorities acted to halt the decline of the Egyptian pound. With access to locally available feedstock, petrochemicals producers were able to raise production and serve local demand, even at times of slack demand. This will mark a temporary reprieve and stability is likely to be restored in 2016, alongside market growth. A revival in local consumption and sustained exchange rate weakness would support the planned massive expansion of capacities over the next few years.
While local production is benefitting from a weaker exchange rate and import difficulties, it has not escaped a squeeze on margins as cost pressures have risen. The local market will be sluggish, although depreciation will favour local producers. The automotive sector remains in a slump, which is undermining consumption of a range of rubber and...
Pharmaceuticals & Healthcare
Egypt Pharmaceuticals & Healthcare
BMI View: Egypt's evolving demographic and epidemiological profile will support pharmaceutical growth over the long-term. The Egyptian government's commitment to healthcare has been demonstrated through significant increases to national budget allocations for the health sector. We note that the government is demonstrating increasing will to implement policy reforms within the health sector, boosting Egypt's attractiveness to international pharmaceutical companies. However, questions regarding financial feasibility will be raised. The country's improving political outlook and gradual economic recovery, albeit a slow one, will add to the market's attractiveness; however, regional instabilities remain a deterrent to company interest.
Headline Expenditure Projections
BMI View: The demand for power in Egypt will increase in the medium- and long term. We forecast total electricity generation will grow 4.46% in 2016 as the government brings gas and coal capacity online to overcome chronic power shortages. New power projects are moving forward and have received financial assistance from various global institutions. Thermal, renewable and nuclear power projects are all set to be developed to meet growing demand. These investments are the result of greater political stability and ...
Egypt Real Estate
BMI View: Short-term problems surrounding foreign currency, high inflation and security issues have dampened economic growth in early 2016. However, the government's economic reforms and closer relations with fellow Arab states will lead to greater opportunities in the commercial real estate sector in the longer term.
Egypt has been struggling to retain foreign capital since the uprising in 2011 that led to the downfall of former president Hosni Mubarak. The administration of President Abdel Fattah el-Sisi has sought to increase macroeconomic stability and enact reforms to make the country more attractive to international investors, and investment, particularly from other Arab countries, has increased. On the back of low oil prices, there is room for an acceleration in the government's reforms.
Overall, an improving economy will lead to increased...
BMI View: Being the largest and still developing market in the Middle East and North Africa region, Egypt offers attractive opportunities for investors in the retail sector. However, despite its vast potential, growth will remain below its full potential, suffering from the protracted slump in the tourism sector as well as elevated unemployment and inflation levels. Moreover, the ongoing subsidy reform in the energy sector and gradual currency devaluation will be additional factors weighing on consumer spending in the near term.
|Headline Household Spending|
BMI View: We hold a positive outlook on the Egyptian shipping sector in 2016. We forecast a universal uptick in volumes passing through the country's ports, in terms of both containers and gross tonnage. This view is predicated on both the macroeconomic backdrop and the fundamentals facing the shipping and freight transport industries themselves.
With regards the economy, we expect growth to accelerate in the coming quarters, as Egypt finally begins to shake off the poor macroeconomic performance it has been saddled with in the years since President Mubarak's ouster in 2011. Fixed investment will be a key driver of growth, and this will drive up bulk and project cargoes through the country's maritime facilities.
This uptick in investment will also help boost the shipping sector directly. In August, the expanded Suez Canal opened, having been rushed...
|Large Potential for Growth|
|3G/4G Subscriptions and Total Mobile Subscriptions (2013-2019)|
BMI View: The long delay of Telecom Egypt (TE)'s entry into the mobile market as a mobile virtual network operator (MVNO) is due to its inability to reach an agreement with the three existing mobile players, Vodafone, Mobinil and Etisalat. This is not surprising given that additional mobile competition would drive ARPUs down further, when they are already as low as EGP25 (USD3.11) as of June 2015....
BMI View: The short-term outlook for Egypt's tourism industry is extremely poor. The downing of the Russian airliner over Sinai in October 2015 led to the widespread cancellation of flights, evacuation of thousands of tourists and suspension of further flights to Sharm el-Sheikh until 2016. Many governments are now advising against all but essential travel to the country and tourism in many regions has largely collapsed, leading to the Tourism Ministry estimating monthly losses at around EGP2.2bn (USD280mn). Prior to these events we were forecasting a recovery in the tourism sector but this has now been pushed back to 2017 and is heavily dependent upon an improvement in the security situation.
BMI View: The Egyptian water sector is relatively well developed with regards to extraction and distribution; however, the wastewater and sanitation segments need much more investment. The Middle East is classed as a water stressed area, and the whole region is losing water at a dramatic pace as resources are over-used beyond renewal rates, and demand continues to increase across the board. Wastewater, if properly harnessed, represents a vast resource of low-quality water suitable for agricultural irrigation and some industrial consumption.
We believe Egypt's continued state of unease is likely to affect the development of the water sector. In particular, we believe that despite the public's vocal desire for better services and water access, funds will continue to remain limited, hampering the overall development of existing water infrastructure. Egypt remains politically and...