Here’s where international organizations see the Egyptian economy heading — and how it can improve
Here’s where international organizations see the Egyptian economy heading — and how it can improve: The local press was out with a series of interviews with international organizations and finance institutions on their outlook for Egypt’s economy and where they see the country’s reform priorities should be moving forward. Highlights from the interviews:
GDP growth will likely come in at 6% in FY2020-2021, and will register an average of 5-6% in the following nine fiscal years, Renaissance Capital Global Chief Economist Charles Robertson says. Robertson sees potential for annual GDP growth to hit 7% during that period, but stresses that this would be contingent on the enactment of structural reforms to spur growth. International Finance Corporation (IFC) regional manager for Egypt, Libya, and Yemen Walid Labadi also expects Egypt’s GDP to grow at a 6% clip next fiscal year.
Egypt has plenty of attractive market qualities that could put it at a competitive advantage if the correct policies are put in place. Egypt’s comparatively low wage levels, for example, could be a strong selling point for investors to bring their businesses here rather than peers such as Ukraine, Poland, Romania, or the Philippines, all of which have much higher wages, Robertson says. Egypt can also capitalize better on its strategic geographical location by increasing trade, and enjoys a large labor force, European Bank for Reconstruction and Development (EBRD) Lead Economist for the SEMED region Bassem Kamar says.
As the country’s overall economic health improves, FDI could pick up to USD 12-18 bn per year by the end of 2030, Robertson predicts. Egypt’s FDI inflows rose 5% y-o-y in 2019 to USD 8.5 bn, according to UNCTAD figures. Robertson had said at RenCap’s annual MENA Investors Conference that Egypt could be on the cusp of a manufacturing FDI boom, thanks to its geographical proximity to Europe and comparatively low wage levels.
Investors will increasingly gravitate away from debt instruments and towards FDI as global interest rates are on the decline, Deutsche Bank regional head Ahmed Shehab says. Egypt could be well-positioned to get a piece of that pie if it does a better job of marketing the success of its reform program and pushes ahead with the next phase of reforms, which would make it an attractive destination for foreign investments.
Right now, it’s all about creating a clear, sizeable role for the private sector: Without exception, all the officials and organizations the press spoke with stressed on the importance of clearing the way for private sector investors to contribute to economic growth. Kamar, the World Bank, and UNCTAD also said that it is also pivotal for the government to give investors more clarity on where there are investment prospects, and what the state’s long-term vision for specific projects or industries as a whole looks like.
Which sectors are looking the most attractive? Infrastructure projects could be a major attraction for investors, deputy head of the EBRD’s Egypt office Khalid Hamza says, particularly as the government is pushing ahead with large-scale national projects that the private sector could get in on. However, the World Bank says that infrastructure projects in the country are lacking transparency and adequate competition, which pushes investors away. Hamza also sees strong prospects in manufacturing and tourism development projects. Investors are also keen on Egypt’s healthcare, renewable energy, logistics services, and ICT sectors, Labadi says.
Egypt has come a long way with its reforms, but needs to double down on improving the investment climate. A key priority for the country should be improving governance policies and transparency at state institutions, which will be key in attracting investors, IMF Mission Chief to Egypt Uma Ramakrishnan says. The World Bank also urged the government to push through key pieces of legislation such as the Competition Act, which would increase regulation against monopolistic practices and give the Egyptian Competition Authority wider jurisdiction to help protect competition in the country. The Madbouly Cabinet had signed off in January last year on proposed amendments to the legislation.
We also need to work on cutting red tape and simplifying procedures for investors. Chief among those is the process of allocating land and receiving industrial permits, which IMF Executive Director Hazem Beblawi says has actually become more complicated in recent years. Several international organizations have previously lauded the Industrial Permits Act, which was passed in April 2017, for setting a limit of 30 days for the Industrial Development Authority to respond to an investor request for a license. However, Beblawi says the Fund sees that Egypt is structurally ill-prepared for the legislation to be effective.