Egypt gathers steam

How the Arab world’s most populous state has ridden out the recession with barely a scratch to show for it.
Egypt gathers steam
By Joanne Bladd
Sat 22 May 2010 04:00 AM

If numbers alone tell the story, egypt appears to have beaten the odds. Despite perching on a ticking demographic timebomb of 80 million people, the Arab state seems to have escaped the worst recession for 30 years comparatively unscathed.

Bolstered by tourism, Suez Canal revenue and manufacturing profits, economic growth hit a post-crash high of 5.8 percent in the first quarter of 2010 — not a gulf away from the 7.2 percent growth last seen in 2007. It is, says the country’s dryly understated minister of economic development, Osman Mohamed Osman, “very satisfactory indeed.”

And this is no state-led cheerleading. A Thomson Reuters country ranking for economic attractiveness this month placed Egypt at number six, elbowing in beside the emerging powerhouses of China, India and Brazil. For capital appeal, the North Africa state outstripped the UK and US, and was the highest-rated Arab state — a sign, wrote analyst Amitesh Kumar; “that investment reallocations and new money are more likely to work their way east, towards the promise of higher relative economic strength.”

This sheen of economic stability is unmistakably good news for Egypt’s partners. In a Regus survey of more than 75 countries, more than half of Egyptian firms reported a spike in revenue over the last year, compared to a global average of 42 percent. Nearly half — 48.6 percent — reported a jump in profits, versus a global average of 38 percent. More than 60 percent expect to tell a similar story this year.

Egypt’s saving grace has been its big and underpenetrated domestic market. Though FDI fell 40 percent to $8.1bn last year, the lure of its epic population is forecast to tempt $10bn of fresh capital off the sidelines in 2010.

One sector set to boom is real estate. The construction industry grew 14.7 percent in the first quarter of the year — partly on the brute force of the government, pushing giant infrastructure schemes, but also on the back of a pick-up in tourism. Egypt’s largest cash cow, tourism, saw a 24 percent surge in revenue in Q1, bringing with it renewed demand for hotels, resorts and tourism infrastructure. Talaat Moustafa Group (TMG), the Arab state’s largest listed developer, posted a 3.2 percent rise in first-quarter net profit to $57.8m, spurred on by an eleven percent spike in revenue from its hotel business.

“The tourism market is gradually recovering from the effect of the financial crisis on tourism flow and tourists spending,” the company said in a statement.

Tourism accounts for more than twelve percent of Egypt’s jobs.

Residential real estate is also poised for growth. According to an April report by consultancy New Look, more than two million new homes will be needed by 2015 to accommodate Egypt’s vast middle-class.Other sectors of the economy are also joining the party. In Egypt’s banking sector, total assets have grown 43 percent in the last four years, according to a report by consultancy firm Value Partners. And there is plenty of room to expand: just ten percent of Egypt’s 80-million-strong population has a bank account, while just four percent owns a credit card. Little wonder that banking heavyweights Lebanese Blom Bank, National Bank of Kuwait and Bahrain’s Ahli United have all made inroads into the market.

Courtesy of an immature domestic market and a policy of relying almost exclusively on customer deposits to fund investment activities, Egyptian banks also largely sidestepped the global crash. According to Value Partners, credit growth in 2009 was weaker than deposit growth, at nine and thirteen percent respectively.

“Egyptian banks were not exposed to the toxic structured assets that affected Western banks, and the almost non-existent mortgage market has protected the local system from a collapse in house prices,” says Value Partners’ Roland Topic.

Commercial International Bank, Egypt’s largest lender by market value, this month posted an 11.9 percent rise in first quarter profit on the back of the Arab state’s recovering economy. The first-quarter profit was $94m, up from $83.9m in the same period last year, the bank said.

Not that there aren’t chinks in Egypt’s armour. The Arab state’s sprawling telecoms industry is facing stormier waters, as the market for mobile phones reaches saturation. A report by Cairo-based EFG Hermes last year put market saturation at between 80 and 85 percent, and suggested fresh growth would be unlikely to appear until 2015.

Mobinil and Vodafone Egypt are the country’s oldest mobile providers, and were joined by Etisalat Misr — an offshoot of the UAE telecoms giant — in 2006. Egypt’s Orascom Telecom, the largest Arab mobile company by subscribers this month recorded a 32 percent decline in first quarter net profit.

The biggest issue hovering on Egypt’s horizon, however, is the upcoming presidential elections. Currently, this looks likely to take place against a backdrop of protests, factory strikes and increasingly violent demands for an overhaul of the minimum wage.

President Hosni Mubarak, who has clung grimly to power for 28 years, is playing coy. The 82-year-old has not yet said whether he will run in the next election, slated for 2011, but it is widely believed he is grooming his son Gamal to take power if he doesn’t. In the interim, a grassroots campaign has begun in support of Mohamed ElBaradei, the Nobel Peace Prize winner who, until recently, held the top spot at the International Atomic Energy Agency (IAEA).

For Egypt’s numerous foreign firms the threat of political instability looms large. After almost three decades of severe top-down control, a shift in leadership could seriously rock Egypt’s fledgling economic recovery.

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