The construction sector is currently facing a range of obstacles, including increased prices of industrial fuel, higher taxes and high foreign exchange costs, according to a report published by Gleeds Construction Consultancy Egypt (GCCE).
The report stated that although prices for the third quarter are expected to remain stable in general, the devaluation of the local currency, amid inflation, tax increases and subsidy cuts, is likely to take its toll on the sector.
During former president Mohamed Morsi’s first year in office, the Egyptian pound lost over 15% of its value against the dollar contributing to a 9.8% rise in the annual inflation rate in June, compared to 8.2% in May and 7.6% in March, the Central Agency for Public Mobilisation and Statistics reported. June’s inflation level is the highest since 2011, when inflation registered 10.4% in July 2011.
The release highlighted suppliers reporting low market demand due to “economic instability affecting the construction market.”
“The majority of suppliers and specialist contractors appear to be holding their prices to protect market share and profit margins,” it said.
“Some key commodities are showing increases in prices, (notably elevators and generators), due to their direct relationship with foreign currency exchange rates, as they are mainly imported,” the report explained.
The report shed light on efforts made by the government to make “corrective actions” in order to secure the $4.8bn International Monetary Fund loan, but the efforts are not yet implemented.
“The government has made good progress to increase taxes as part of that plan to secure the loan, however reforms to subsidies are only proposed at this time, pending action at a later date,” it said.
However, the report disclosed positive indicators, which are “witnessed in the growth of economic production and increase in exports in Q2 2013”.
“These positive factors are set to continue in Q3 2013 albeit the effect of Ramadan may dampen some of that progress,” it added.