Domestic business demand is likely to remain volatile and government investment will stall through 2022
Ongoing fiscal pressures will make a challenging business environment more difficult. Access to foreign currency and imports will remain restricted, with banks hesitant to approve letters of credit for domestic firms. The high level of uncertainty will make demand planning more difficult as companies face challenges in inventory management and public entities work with a tighter budget. However, increased investment from Saudi Arabia and the UAE provides an opportunity for MNCs to engage these new decision makers to identify new pockets of opportunity.
Overview
Egypt’s foreign currency reserves have fallen by about 15% since the start of the Russia-Ukraine war due to a ballooning import bill and a loss of foreign investments. After the devaluation in March, the Egyptian pound has continued to depreciate and is currently trading at around 18.7 to the dollar. In addition, the government expects the average interest rate on its debt to rise from 13.7% to 14.5% in the 2022/2023 fiscal year, straining its ability to fund public investment projects with foreign debt.
Our View
Egypt is structurally exposed to global economic volatility and will face severe fiscal pressures as commodity prices and interest rates rise. At a time when foreign investors have exited for safer alternatives, Egypt will rely on its GCC allies, in particular Saudi Arabia and the UAE, to stabilize its economy in the form of direct investments. The government is also in talks with the IMF for another loan, and this will likely necessitate further austerity measures that could suppress consumption. Government investment will stall compared to previous years as finances come under pressure, and delays in public projects are expected. Domestic business demand is likely to remain volatile and weak through 2022, outside of the more immune healthcare and energy sectors.
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