After suffering greatly in the aftermath of the Arab Spring 6 years ago, Egypt is finally getting back on track. Vital sources of foreign exchange such as tourists and investors are returning. Also helping are a macroeconomic reform plan recommended by the IMF as part of its USD 12 billion loan program, improved security situation, new gas field discoveries as well as newly promulgated investor friendly laws which are attracting investor interest.
The recently discovered Zohr gas field, the largest in the Mediterranean spins a new perspective on the Egyptian economy. A major problem faced by Egypt was significant gas imports since local production was declining. This was putting undue pressure on foreign exchange reserves, which were already dwindling. The newly discovered field has enabled the country to wean itself of gas supplies, catering to as much as 30% of domestic demand. It, in fact, aims to make Egypt an energy hub in the region with the country expected to export significant quantities in the short term.
The government’s decision to rapidly devalue the local currency, while creating some chaos initially, has started paying dividends, the most notable of which is increased FDI, clocking in at USD 7.9 billion last year. The declining currency made assets cheaper in foreign currency terms and stock market has also been a chief beneficiary, with the EGX30 gaining as much as 70% during the year, attracting as much as 7.5 billion pounds in 2017, the highest level since 2010.
Inflation, which saw households resorting to cheese instead of meat as a source of protein, while still in double digits, has been significantly brought under control.
Aiding in the improving sociological scenario is government handouts, which is expected to increase purchasing power among the masses. This becomes especially important given the gradual phase out of fuel and other subsidies which were putting undue fiscal pressure on the government.
Having a large demographic base that contains a comparably young population, as well as the third largest population in Africa after Nigeria and Ethiopia, Egypt holds great potential for companies looking to establish a long term presence.
Thanks to the improving energy landscape, and also a commitment towards renewables, investment firms are targeting the markets renewables energy sector.
Investment has not only been limited to the private sector. Foreign investors are snapping government issued T-bills and hold a cumulative 22% of all debt outstanding, investing mainly in shorter-term maturities.
From falling inflation, rising investment and an improved energy scenario, Egypt’s economy is finally beginning to show improvement. While already attracting a lot of investor interest, there is still a lot around for bargain hunters.