Egypt Business Forecast Report Q3 2008

Publication Date	May 2008
Publisher	Business Monitor
Product Type	Report
Pages	59
ISBN Number	1744-8840
Product Code	BMI01249

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Summary

political temperature Rising, Ratings Falling These are turbulent times for Egypt, with the current macroeconomic worries translating into downside revisions in both our political and economic risk ratings. Fiscal deficit, inflation and interest rate projections have all been revised in directions that have negatively affected our economic ratings, while scores in the social stability and policy formation categories have been adjusted in the political domain. The government will retain its hold on power, but it must bring the food crisis under control if it is to be able to continue along the prudent reform path it has been following over recent years and maintain strong growth and investment.

On the political front, the National Democratic Party (NDP) government is being buffeted from all directions at the moment, with an angry population blaming it for food shortages, high inflation, a perceived anti-democratic crackdown on the most popular opposition force, the Muslim Brotherhood, and the ongoing problems in the neighbouring Gaza Strip. We think it has good reason to be worried, and see a risk of continued extra-budgetary spending sprees, as it works to placate the population. Persuading Hamas to agree to a peace deal with Israel would take the pressure off from one direction, but the government's antagonistic relationship with the militant group will continue to hurt its standing in the eyes of Muslim Brotherhood supporters.

Economically, the picture is still broadly stable, with a good growth outlook, strengthening currency and current account surplus all looking assured for this year. However, the structural weaknesses we have been highlighting for some years are amplified in the current economic climate: inflation has risen to worrying levels (1 . % year-on-year [y-o-y] in March), and the government is dipping into the public purse to attempt to mitigate the impact. We have revised up our forecasts for government spending, and this in turn will keep the debt burden higher for longer.

Apart from the impact of the inflationary environment on businesses, the increased levels of popular activism are also bad news. Strikes and anti-reform movements have been widespread in recent months, and there have also been popular protests against the building of a new fertiliser factory in Damietta. There is a danger that this unrest, should it continue, could be a significant deterrent to investment going forward. Egypt already scores a low 1. 0 in our Business Environment Ratings.

Content

Executive Summary
political temperature Rising, Ratings Falling
Chapter 1: political Outlook6
- SWOt Analysis
- BMI political Risk Ratings
- Domestic politics8
- Strikes, Unrest, Bread Riots: Return to the Bad Old Days?
- The recent municipal elections appear to mark an end to Egypt's democratic experiment, and yet public
- engagement with politics is at a level reminiscent of the 1970s
- Foreign policy
- Between A Rock And A Hard place: the Hamas Question
- Egypt will find it increasingly difficult to steer a neutral path where the Hamas question is concerned,
- which may weaken it further domestically
- table: Egypt political Overview
Chapter 2: Economic Outlook
- SWOt Analysis13
- BMI Economic Risk Ratings
- Economic Activity
- Resilience to global Conditions to Continue
- We remain comfortable with our outlook of 6.7% growth for this year, and a gradual slowdown thereafter
- table: Economic Activity
- Fiscal policy
- Deficit Narrowing? Not This Year
- Fiscal figures from the first half of FY07/08 are discouraging, as are the current economic conditions in Egypt
- table: Fiscal policy18
- Exchange Rate policy
- Egp Appreciation to Continue
- We see the central bank continuing to allow rates to rise and the pound to appreciate, which bodes well for its
- credibility as an inflation-targeter
- table: Exchange Rate policy
Chapter 3: Special Report
- Business Outlook For global Frontier Markets
- Growing Fast On The New Frontier
- The 41 states that BMI examines in a new report on our online service may make up only a small slice of the
- world economy, but they possess characteristics that will see them gain importance in the eyes of investors
- and global businesses over the coming years
- Frontier Investment
- potential And pitfalls
- The spectacular macroeconomic performance of frontier markets in recent years has been matched by mildly
- successful efforts to deepen capital markets
- table: Frontier Markets - Key Data And projections For top 10 Countries
- table: gDp per Capita, US$ (In Order Of % Increase)
- Table: Diversity Through Frontier Markets - Correlation Coefficients January 2004-April 2008
- table: Frontier Market Indices25
- Regional Overview
- From Hidden Dragons to Final Frontiers
- Laos
- Neighbouring Economies The Key To Growth
- Laos's GDP growth has been boosted in recent years as neighbours China, Thailand and Vietnam compete for
- its natural resources
- yemen
- Huge potential, But Don't Bank On gCC Membership
- Markets do not come much more frontier than Yemen, and, as would be expected, there is huge potential for
- development, with the prospect of eventual GCC membership likely to act a key investment pull
- table: yemen Economic Activity
- Democratic Republic Of the Congo
- Mining Industry to Drive growth
- The Democratic Republic of the Congo's mining industry will be a key driver of growth and is likely to attract
- significant levels of FDI, with our real GDP forecasts standing at 8.3% and 7.9% in 2008 and 2009, respectively
- table: Democratic Republic Of the Congo - Economic Activity32
- Cuba
- Investment prospects After Fidel
- The accession of a new leadership structure in Cuba has sparked excitement that the 45-year-old trade embargo
- with the US may be lifted and Cuba may move toward market liberalisation
- table: Cuba Macroeconomic Data And Forecasts36
- Mongolia
- Minerals to Drive Economic Boom
- Mongolia is in the midst of a massive resource-led economic boom that should lift GDP growth into the double
- digits and underpin robust increases in exports and inflows of foreign investment capital over the long term
- table: Mongolia - Economic Activity
Chapter 4: Business Environment39
- SWOt Analysis39
- BMI Business Environment Risk Ratings40
- Business Environment Outlook
- table: BMI Business And Operational Risk Ratings
- Institutions
- table: BMI Legal Framework Ratings43
- Infrastructure
- Market Orientation
- Table: Middle East, Annual FDI Inflows
- table: Egypt top Export Destinations, US$mn48
- table: BMI trade Ratings48
- Operational Risk
Chapter 5: Key Sectors51
- pharmaceuticals & Healthcare
- table: Drug Expenditure & prescription Market Indicators (US$mn unless otherwise stated)53
- tourism
- table: Egypt's tourism Industry - Historical Data And Forecasts
- table: Egypt's travel Industry - Historical Data And Forecasts58