Though political risks rumble on, most recently with former Prime Minister Hazem el-Beblawi's interim government resigning on February 24, food, drink and retail firms are investing into Egypt. The country's demographic potential, combined with its strategic MENA position and forecast growth, mean that the long-term story is one of opportunity. However, severe risks still remain regarding the political situation within the country.
BMI's country risk team contends that Egypt's economy has recently turned a corner. We see significant potential for growth across the coming quarters, as low base effects take hold across tourism, investment and consumer spending. Though we believe that household consumption will tick up in future quarters, several factors will ensure growth remains well below potential. Tourism, which accounts for 10% of GDP and employs a similar share of the working population, will see modest growth in line with improved political stability, but numbers will remain well below levels seen before the overthrow of Hosni Mubarak in 2011. As well as low growth in the tourism sector, inflation will keep household consumption below potential. We forecast inflation to average 9.0% over 2014, significantly higher than historical averages. Overall, we are projecting growth in household consumption of 4.0% in FY2014, up from 3.0% the year prior.
Our view that the country will experience moderate economic growth, combined with an improving political scene, has been matched with increasing interest from multinational food and drink companies. In March, The Coca-Cola Company (TCCC) announced that it will invest US$500mn into Egypt. This investment will be used to not only increase production capacity for the sizeable domestic population, but will also develop Egypt's role as a regional hub for the MENA region. Similarly, Saudi Arabia's Aujan Coca-Cola Beverages Company announced in February that it plans to spend US$100m to build a fruit juice factory in Egypt, forecast to be ready between 2016 and 2017.
|Solid Growth Forecast|
|MGR Sales Per Capita (LHS) & Total Sales Growth (RHS)|
One industry we believe will perform particularly well is that of mass grocery retail (MGR). As the above chart shows, we forecast total sales to grow at an annualised rate of 14.7% between 2014 and 2018. We also expect per capita sales to increase from EGP498 in 2013 to EGP917 in 2018. Though some of this will be inflation fuelled, rising incomes and an increase in the formal MGR sector will be the main drivers of growth.
One of the leading players in the Egyptian (and Middle Eastern) MGR scene is Majid Al Futtaim (MAF), the sole franchisee of Carrefour in the MENA region following its increase to a 100% stake in March 2013. MAF has targeted Egypt as a key growth region, announcing in December 2013 that it is looking to invest around US$1bn a year over the next few years. MAF is currently constructing a $600 million mall in Egypt, expected to be completed in 2016, and is also looking to purchase the country's biggest retail chain, Metro. Though talks broke down at the end of last year, MAF has publicly stated that it hopes to purchase Metro in the early stages of 2014.
|Reward||Industry Reward||Country Reward||Risk||Industry Risk||Country Risk||Food & Drink Rating||Rank|
|Scores out of 100, with 100 highest. The Food & Drink Risk/Reward Rating is the principal rating. It comprises two sub-ratings, 'reward' and 'risk', which have a 60% and 40% weighting respectively. In turn, the 'reward' rating comprises 'industry reward' and 'country reward', which have equal weighting and are based upon growth/size of food/alcohol and soft drinks industry (market) and the broader economic/socio-demographic environment (country). The 'risk' rating comprises 'industry risk' and 'country risk', which both have 20% weightings respectively and are based on a subjective evaluation of industry regulatory and competitive issues (market) and the industry's broader country risk exposure (country), which is based on BMI's proprietary Country Risk Ratings. Source: BMI.|