Econostrum | Economic News in the Mediterranean

Egyptian economy weathers economic crisis well

Written by Nina Hubinet, au CAIRE on Monday, October 15th 2012 à 19:03 | Read 864 times

Strong internal demand and government measures to support the economy allowed Egypt to avoid the worst effects of the global crisis. For 2011, the Egyptian authorities have forecast economic growth of more than 6%.

Group of tourists in the Temple of Luxor. (Photo: Nina Hubinet)
Group of tourists in the Temple of Luxor. (Photo: Nina Hubinet)
EGYPT. At the World Economic Forum held in Davos in January 2010, the Egyptian minister for trade and industry, Rachid Mohamed Rachid, declared that 2010 would be a "difficult" year for the Egyptian economy. 

The minister cited the fall in revenues from tourism (2.1% from 2008 to 2009), the Suez Canal (around 4% for 2009) and foreign direct investment (16% from 2008 to 2009), three major sources of foreign currency.  
The drawn-out recovery of Europe, Egypt’s most important export market, was also of concern to the authorities. 

However, a number of indicators then moved upwards. According to Egyptian investment bank Beltone Financial, revenue from the Suez Canal were forecast to reach €3.6bn at the end of the 2010 financial year, up from €3.3bn in 2009. 

Tourists return

Zoheir Garranah, the Egyptian tourism minister, has predicted that receipts from the tourism sector will increase 17% in 2010, thanks to the recovery in the world economy: "Based on current reservations", he said in October 2010, "revenues from tourism could reach €9.5bn this year."  
Foreign direct investment is also up, and should exceed €5.8bn in 2010 – up from €4.9bn in 2009 - according to statements made by former investment minister Mahmoud Mohieldine in September 2010.  
Overall, Egypt’s gross domestic product grew 5.1% between June 2009 and June 2010, compared with 4.7% in the preceding 12-month period. For 2011, the government has forecast GDP growth of 6%. Investment bank Beltone is a little less optimistic, forecasting growth of 5.4%.   

Certain strengths have allowed Egypt to come through the world crisis relatively unscathed, one of these being strong domestic demand. "At the height of the crisis, we imported steel and cement for the first time in a decade", recalls finance minister Hany Dimian. The construction sector received a boost from consumption by 80 million Egyptians. 

An unfavourable political context

The government’s various stimulus plans also ensured a degree of economic activity. In financial year 2009-2010, the Egyptian government injected close to €46bn into the economy.   
"Egypt has relatively little involvement in Western financial markets. As a result, it did not suffer directly from the financial crisis", says Simon Kitchen, analyst with investment bank EFG Hermes  in Cairo. 

Nevertheless, it appears unlikely that Egypt will resume the growth rate of 7% it recorded before 2008. Unemployment remains above 9%, and high inflation - 12% on average for 2009-2010 – is slowing development.   

Deficiencies in infrastructure also constitute a serious handicap. Considerable investment is required to upgrade roads and ports, and improve education. A year before the 2011 presidential election, however, many foreign investors are hesitant about committing to the Egyptian market.       

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