While growth has been revised downward through 2024, it will remain robust by regional standards
While Egypt will continue to offer opportunities for MNCs, these will be more muted and difficult to access in 2023. A 4.1% GDP growth for 2023 will be driven by gas exports and foreign investments into the energy sector, hiding the significant slowdowns seen in consumption. In 2023 private and public consumption will not drive growth in the same way they did in the last few years. Consumers will see sharp reductions in purchasing power and will trade down. Public demand opportunities will be characterized by more cost-reduction pressures and extended project timelines. Yet, foreign investment will drive CAPEX growth in 2023, with new agreements in the gas sector and the government’s Green Corridor Initiative. MNCs should also expect further investments from GCC sovereign wealth funds in the financial services, chemicals, and food sectors, among others.
Overview
- Egypt reached an agreement with the IMF in October 2022 over a US$ 3 billion financing package to help navigate fiscal and current account pressures.
- In the run-up to the IMF agreement, the Central Bank of Egypt (CBE) devalued its currency twice in 2022 and has committed to maintaining a flexible exchange rate.
- At least 45% of government revenues in FY 2022–2023 will be spent on making interest payments on Egypt’s public debt, which makes up around 90% of GDP.
Our View
FrontierView has revised downward Egypt’s growth outlook through 2024 on the back of weakened private consumption growth, slower public investment, and heightened inflation. We forecast growth of 4% YOY in 2022 (down from 5%), 4.1% in 2023 (down from 4.3%), and 3.9% in 2024 (down from 4.5%). While these figures remain robust by regional standards, they rank on the lower end of Egypt’s annual growth figures since 2015, and they will be lower than the growth seen in the wake of the 2016 devaluation (4.2% in 2017 and 5.3% in 2018).
- Consumption: Private consumption will cool significantly to 1% YOY in 2022 and 2.5% in 2023 due to a sharp loss of purchasing power caused by consecutive currency devaluations, food inflation of over 20%, and higher borrowing costs. Most of the factors that drove consumption of over 7% in both 2020 and 2021 have now reversed. Inflation is expected to average 14.3% in 2022 and 14.5% in 2023, while interest rates have shot up by 5% in 2022 alone and will continue rising in 2023 as the CBE tries to rein in inflation. The pound has lost over 50% of its value against the dollar and will remain weak in 2023, with FrontierView forecasting a base-case exchange rate of 23–25 to the dollar.
- Government spending: Government spending is expected to average 4.2% in 2022 and 3.2% in 2023 as the government prioritizes procurement spending for existing operations and raises public sector salaries. The nominal 12% salary increases pledged in the FY 2022–2023 budget, as well as the increase in the minimum wage to EGP 3,000, will not offset the sharp loss of purchasing power. Some utility subsidies have been fixed until the end of Q2 2023, which will protect some purchasing power but stress government finances.
- Investment: Investment growth will be driven by foreign investments, and FrontierView forecasts 9.5% growth in 2022 and 10.1% growth in 2023. After half a decade of exponential investment growth, government investment growth will remain flat in real terms in 2022 and 2023 due to severe fiscal pressures. Investments from GCC allies will continue as the government sells its stakes in various firms. The financial service, energy, chemical, and food sectors will receive particular interest. Egypt has already agreed to various renewable energy initiatives at the COP27, and this will drive further investment in 2023.
- Trade: A 40% export growth in 2022—driven mostly by hydrocarbons—and a further 7.1% in 2023 are the main drivers of GDP growth. Egypt has rationed electricity use in public venues in order to export more gas to Europe, which is diversifying away from Russian energy. The agreement signed with the EU and Israel in the summer will also boost LNG exports to Europe. Discretionary consumer goods imports are now over 50% more expensive than at the start of 2022 and will face weakened demand. However, higher commodity prices and demand for capital goods will continue to drive import growth, albeit at a slower pace than export growth.
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