Egypt Business Forecast Report Q2 2009

Publication Date	February 2009
Publisher	Business Monitor
Product Type	Report
Pages	62
ISBN Number	not applicable
Product Code	BMI03422

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Summary

Inauspicious Start to 2009... But No Disasters Ahead Egypt has not had a particularly auspicious start to 2009: the Israeli strikes on Gaza have put the government under huge pressure, the stock market has continued to fall, and even by the finance ministry's estimations the economy is going to perform much worse this year. Our own forecasts are more bearish than the government's, with downward revisions in nearly all of the indicators we forecast: growth, balance of payments, fiscal deficit and debt. We also do not see any particular improvement in sentiment, in terms of either portfolio or direct investment. However, we do note that Egypt's relatively underdeveloped (and less leveraged) real estate and banking sector reduce the chances of a crisis as seen in the Gulf and many developed markets.

Politically, this year will be even harder than last year, in our view. Although inflation should recede, unemployment will be more of an issue, with domestic and foreign companies cutting Egyptian jobs. We expect a significant influx of returning workers from the Gulf, where growth is slowing.

This coincides with an increase in domestic anger towards the government over the Gaza conflict, which will boost the already popular Muslim Brotherhood. Even if this is discounted, the threat of instability emanating from across the border has also increased. We have revised down our shortterm political risk rating for Egypt from 66.0 to 63.5.

On the economic front, Egypt is suffering, by and large, from externally created problems. We have slashed our 2009 and 2010 growth forecasts in the light of the ongoing global economic slowdown, as well as a deteriorating security situation in the Gulf of Aden, which is threatening Suez Canal traffic. In turn, this will negatively affect the balance of payments - we now see the current account deficit coming in at 3.6% of GDP, in spite of reduced pressure on the import bill from lower commodity prices - and force the government to up spending, widening the fiscal deficit. This will likely derail the debt consolidation process we have seen over recent years. However, Egypt will avoid both default and outright recession, which is more than can be said for many countries in 2009.

The business environment will remain broadly pro-investment. There is a risk of more populist policies, and we have seen this coming to the fore over 2008. At the same time, however, the government is trying to stimulate investment and growth, and it has taken a number of positive measures to cut customs duties and support the autos and tourism industries, among others. Even so, Egypt has not escaped the effects of the credit crunch: borrowing costs are higher, and there is little appetite for perceived risky investments globally, which will mean that there is little chance of progress on privatisation this year.

Content

Executive Summary
- Inauspicious Start to 2009. But No Disasters Ahead
Chapter 1: Political Outlook
- SWOT Analysis
- BMI Political Risk Ratings
- Foreign Policy
- Ratings Down: Gaza Issue Threatens Stability
- If the Israeli government managed to remove Hamas from power, this would reduce the threat from the Gaza Strip
Chapter 2: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Ratings
- Economic Activity
- Growth Forecasts Slashed. Again
- Egypt will continue to grow in real terms, but at a much slower pace than over the last few years
- TABLE: ECONOMIC ACTIVITY
- Fiscal Policy
- Deficit To Widen In 2009
- The budget balance will get worse before it gets better, and remains a key constraint on Egypts economic
- health and creditworthiness
- TABLE: FISCAL POLICY
- Debt Policy
- Total, Government Debt Forecasts Revised Up
- Both total and government debt look sustainable, but the worsened economic outlook overall has resulted in a
- downgrade for Egypt in our sovereign risk ratings
- TABLE: DEBT POLICY
Chapter 3: 10-Year Forecast
- The Egyptian 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
- TABLE: Long-Term Macro economic Forecas ts
Chapter 4: Special Report
- China
- A Seismic Upheaval In 2009?
- One of the biggest and least discussed wild cards that could rear its head in 2009 is dramatic political
- upheaval in China
- United States
- Europe
- A Double-Dip Recession?
- The deteriorating global macroeconomic outlook, high levels of leverage, and a broken business model will
- combine to spell trouble for the financial services sector in 2009
- TABLE: Banks Leverage Ratios
- TABLE: Assets As % of Home Country GDP
- TABLE: Assets As % of Home Country GDP When Euro zone Is Considered Home Country
- TABLE: Exposure As % of Total Exposure To Region
- TABLE: Banks Foreign Exposure (US$ mn)
- TABLE: Exposure As % of National GDP
Chapter 5: Business Environment
- SWOT Analysis
- BMI Business Environment Risk Ratings
- Business Environment Outlook
- TABLE: BMI BUSINESS AND OPERATIONAL RISK RATINGS
- Institutions
- TABLE: BMI LEGAL FRAMEWORK RATINGS
- Infrastructure
- Market Orientation
- TABLE: MIDDLE EAST & AFRICA ANNUAL FDI INFLOWS
- TABLE: BMI TRADE RATINGS
- TABLE: TOP EXPORT DESTINATIONS
- Operational Risk
Chapter 6: Key Sectors
- Information Technology
Executive Summary
- The Egypt IT markets position within the Middle East and Africa region is on the rise, with average growth
- of 16% expected through to 2013 and opportunities in most sectors
- TABLE: EGYPT S IT SECTOR - HISTORIC DATA & FORECASTS, 2006 - 2013
Chapter 7: BMI Global Assumptions
- Global
- TABLE: GLOBAL ASSUMPTIONS
- TABLE: GLOBAL AND REGIONAL REAL GDP GROWTH, % chg y-o-y
- Economic Activity
- TABLE: DEVELOPED STATES, REAL GDP GROWTH FORECASTS
- TABLE: EMERGING MARKETS, REAL GDP GROWTH FORECASTS
- TABLE: DEVELOPED MARKET EXCHANGE RATES
- Monetary Policy
- Commodities
- TABLE: EMERGING MARKET EXCHANGE RATES