Egypt Business Forecast Report Q1 2009

Publication Date	October 2008
Publisher	Business Monitor
Product Type	Report
Pages	63
ISBN Number	1744-8840
Product Code	BMI02926

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Summary

Economic And Political Storm Clouds Gathering

As we went to press, the consumer price index (CPI) was at 21.5%, interest rates were spiking and the stock market was down nearly 50% year-to-date. Clearly, the economic outlook is not as stellar as it once was, and this could well feed through into a more negative picture for both the political scene and the business environment. We are now forecasting growth of 5.4% in 2009, slowing gradually over the remainder of our ten-year forecast period. A political shock could pose downside risks to this still relatively optimistic view, as could a more drastic than expected slowdown in the Gulf region.

We have left our short-term political risk rating unchanged at 66.0 this quarter, but note that resentment over the tragic Duweiqa rock-slide, which killed up to 100 people in September, will add to already high anti-government sentiment. According to a recent Pew Global Attitudes survey, just 13% of Egyptians were satisfied with their government, compared with 45% in Jordan and 79% in Kuwait. With inflation still high, economic conditions likely to worsen, and the government still on the wrong side of the Israeli-Gaza stalemate, as far as the population is concerned, there is a real risk of unrest. In addition, increasing cooperation between the Muslim Brotherhood and the secular opposition will not have escaped the governments attention.

Global economic conditions have deteriorated substantially since our last business forecast report, and, while Egypt had previously appeared relatively insulated by its exposure to the Gulf region, this area now also looks somewhat shaky. Oil prices are lower, the Egyptian currency and stock market look very dicey, and investor confidence worldwide has plummeted. We have revised down our growth and balance of payments forecasts for Egypt, but expect current momentum to carry it through the crisis, with a recovery expected from 2010.

The business environment and perceptions of the business environment will continue to suffer from increased populism in response to the worsening economic conditions. The government has hinted that it will take steps to increase incentives to invest in Egypt (on the back of the worsening outlook for foreign direct investment), but we think these will have to chime with public opinion. Tax cuts may be an option (although a fiscally painful one), but privatisation looks off the agenda for now. Indeed, even if it wasnt going to be unpopular with the population, there are no buyers around at the moment anyway; Prime Minister Ahmad Nazif said in October that the circumstances were not right to sell Banque du Caire at the moment, essentially shelving the project indefinitely.

Content

Executive Summary
Economic And Political Storm Clouds Gathering
Chapter 1: Political Outlook
- SWOT Analysis
- BMI Political Risk Ratings
- Domestic Politics
- Key Tests For Government Transparency
- Any improvements in perceptions of government accountability, either in the Duweiqa rock-slide tragedy or the
- Suzanne Tamim case, would be good news.
- Foreign Policy
- Sunni-Shia-Christian Relations Assessed
- In the current climate of economic hardship, sectarianism could rise, but we do not think it is a major threat to stability.
- Foreign Relations
- Hamas Security Threat To Persist
- As far as Gaza is concerned, the best outcome from the Egyptian point of view would be Hamas acceptance of Cairos national reconciliation plan, followed by a Fatah victory in early parliamentary elections.
Chapter 2: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Ratings
- Economic Activity
- Forecasts Revised Down Again
- Egypt seems committed to taking steps to counter the challenges posed by the global economic slowdown, but the growth outlook has certainly worsened, and we do not see the government meeting its 6-7% real GDP growth target for 2008-2009.
- Balance of Payments
- Global Slowdown To Hit Current Account
- The current account will turn to deficit in 2009, and widen over the coming years, but remain manageable.
- Exchange Rate Policy
- Further EGP Downside Ahead
Chapter 3: 10-Year Forecast
- The Egypt Economy To 2018
- Long-Term Forecasts: A Closer Look
- Egypt faces substantial challenges over the coming decade, but as long as the prevailing economic policies remain broadly in place, the future looks bright.
Chapter 4: Special Report
- Why The US Can Remain World Superpower
- Wealth Is Shifting East...
- The USs current financial woes will not necessarily undermine its position as a global superpower.
Chapter 5: Business Environment
- SWOT Analysis
- BMI Business Environment Risk Ratings
- Business Environment
- Institutions
- Infrastructure
- Market Orientation
- Operational Risk
Chapter 6: Key Sectors
- Petrochemicals
- Executive Summary
- In the Middle Eastern Petrochemicals Business Environment Rankings matrix, Egypt is ranked ninth with 46.1 points, down 0.9 points since the previous quarter.
- Defence
- Executive Summary
- Our forecast for the arms trade remains largely unchanged, as Egypt continues to pursue strong-arm tactics against domestic insurgents and modernises its military with high-technology weapons platforms.
Chapter 7: BMI Global Assumptions
- Global
- United States
- Eurozone
- Japan
- China
- Commodities
Tables
- Table: Egypt Political Overview
- Table: Economic Activity
- Table: Balance Of Payments
- Table: Exchange Rate Policy
- Table: Egypt - Long-Term Macroeconomic Forecasts
- Table: Geopolitical Power Index
- Table: Bmi Business And Operational Risk Ratings
- Table: Bmi Legal Framework Ratings
- Table: Middle East & Africa Annual Fdi Inflows
- Table: Bmi Trade Ratings
- Table: Top Export Destinations
- Table: Egypt Petrochemicals Sector Forecasts
- Table: Egypt - Defence Sector Historical Data & Forecasts
- Table: Global Assumptions