Investors and manufactures expect that the Egyptian economy’s growth in the current year will reach 5% due to stability in the Egyptian pound’s value and increases in exports. However, they have some concerns regarding maintaining the interest rate at its value, which the Central Bank of Egypt kept unchanged at its Monetary Policy Committee meeting in December, setting the overnight deposit rate and the overnight lending rate at 18.75% and 19.75% respectively.
Daily News Egypt polled Egyptian investors, manufactures, and exporters to learn their opinion regarding the expected growth in industry and exports.
The majority of respondents are optimistic about how industry will fare in 2018.
Industrial growth rate expected to hit over 7%
All respondents agreed that the economy would achieve higher growth rates in the current year compared to last year.
45% of respondents said that industrial growth may hit more than 7%, while half of them see that it will exceed 5%. Nevertheless, only 5% of the respondents see that the growth will hit 9%.
Waleed Helal, chairperson of the Chemical and Fertilisers Export Council, said that he expects industrial growth to reach more than 7% due to the new laws that have been issued recently and new incentives provided to investor, in addition to the rationing of imports to promote local production.
Sherif El Gabaly, president of the Chamber of Chemical Industries at the Federation of Egyptian Industries (FEI) and chairperson of the Polyserve Fertilisers and Chemical Group, said that the growth is expected to exceed 5% due to political stability after the upcoming presidential election.
Magdy Tolba, businessperson and chairperson of Cairo Cotton Centre, said that the growth in the industrial sector is dependent on the application of one integrated strategy in the industrial sectors and the avoidance of work in isolation by the state. If implemented, there will be significant growth in the sector.
Tolba was hopeful that the growth is expected to be no less than 5%, adding that if a clear integrated strategy is organised and applied, the growth may reach 9%.
Sotouhi Mostafa, vice president of the Egyptian Federation of Investors Associations, and president of Aswan Investors Association, said that he expects an additional increase in the industrial sector by 2% due to stability in the dollar value and new megaprojects currently being implemented by the government.
Meanwhile, member of the board of directors of the Suez Investors Association, Abdel Basset Al-Hakim, noted that until now, there is no sign that there will be any growth in the small and medium enterprises (SMEs) sector due to lack of financing and the difficult conditions in the sector.
2018, an export boom
More than 95% of respondents noted that Egypt’s exports will increase in the current year due to the stability in the value of the Egyptian pound and new exhibitions that have been launched in different countries for Egyptian exports, besides the new trade agreements that Egypt has joined recently, and the development of Egypt’s strategy towards Africa.
El Gabaly expects a growth in exports at an average of 15% to 20%, with an improvement in Egypt’s trade balance.
Helal agreed with El Gabaly that the Egyptian non-petroleum exports are projected to increase by 20%, attributing the increase to the Industry and Trade Development Strategy 2020 by the Ministry of Trade and Industry, in addition to the Central Bank of Egypt (CBE)’s initiative to finance SMEs.
The CBE launched an initiative in January 2016, and allocated EGP 200bn, to finance SMEs, instructing banks to allocate at least 20% of their total loans portfolios for these projects within four years from the launch date of the initiative.
For his part, Tolba predicted that exports would achieve 25% growth.
Chemical, engineering, and building materials industries the most prominent sectors that will lead growth in 2018
65% of respondents pointed out that the chemicals, engineering, and building materials industries are the most prominent sectors that will lead growth in 2018.
Furthermore, 15% of the respondents said that mining industries will lead growth in the current year, while 10% said the food industry and agricultural crops will lead growth. Meanwhile, 5% of them see that the leather and textile industries will achieve great growth in the coming period, in addition to 4% for marine transport and logistics, and only 1% of respondents see that the glass industry will lead the growth.
Flow of FDI
About 90% of the respondents expect new flows of foreign direct investments (FDI) to be injected into the Egyptian market in the current year due to issuing the new Investment Law and its executive regulations, and the Bankruptcy Law that facilitates exit from the market, promotes suspended factories, and settlements for stumbling businesses. Add to this the positive outlook for Egypt’s economy determined by rating institutions.
On Tuesday, Fitch Ratings revised the outlook for Egypt’s Long-Term Foreign and Local-Currency Issuer Default Ratings (IDRs) to positive, up from stable, and affirmed IDRs at a B rating, according to a press release issued by the credit rating agency.
Mostafa expects an increase in FDI because Egypt is a stable market compared to neighbouring countries and due to the recent laws issued by the Egyptian Parliament to stimulate investment.
In this regard, Mostafa demands the enforcement of the Bankruptcy Law to make it easy for investors to exit the market without problems.
Stability in EGP value
Approximately 99% of the respondents foresaw stability in the pound’s value against the dollar during the current year, while 1% of respondents expressed concern about the pound’s value depreciating due to the increase in inflation and interest rates, thereby leading to decreases in industrial production and investments.
The increase in production, exports, the flow of tourism, Suez Canal revenues, and Egyptian expats’ remittances are also expected to contribute to the stability and appreciation of the Egyptian pound’s value, according to respondents.
In this regard, El Gabaly said that the local currency will be stable in 2018, especially after the presidential election.
Osama El Tabaay, head of New Damietta City Investors Association, expects the pound’s exchange rate to be stable in the fourth quarter of the current year due to the increase in exports and industrial production, in addition to the development of new mega projects such as East Port Said and the Suez Canal Axis.
Necessity of developing existing industrial areas
Upper Egypt was one of areas that respondents demanded the government pay attention to, especially as this area is full of land that needs to be developed to transform Egypt into an industrial hub for some important industries to stimulate exports.
Mostafa further demands the government to focus on developing Upper Egypt as it is a basin for many strategic industries such as mining, fertilisers, and agricultural land.
For his part, Ayman Reda, general secretary of 10th of Ramadan Investors Association, said that many industrial cities seek new industrial land to develop new industries and demanded more incentives and facilitations for youth who wish to invest in small and micro-sized projects through providing land to them based on a usufruct system, as they do not have the sufficient financial solvency to pay for land prices to start their business.
Law enactment the main challenge to growth
Respondents addressed some problems and challenges facing industrial investments and the flow of FDI. Sixty percent of respondents said that the enactment of the laws which the government issued recently provide motivating legislation to attract investments. However, there are no qualified employees to enact these laws.
Second, 20% of respondents mentioned sector problems including the lack of finance for SMEs, explaining that it is limited and entails some difficult conditions and criteria.
Third, 8% referred to the high percentage of stumbling factories and widespread cases of factories that work at only 30% of their capacity.
In addition to this, 7% of them see that challenges to growth revolve around the lack of qualified workers, besides the negligence of some industries that have a huge added-value such as textile industries that profess an added-value reaching 90% when adequately promoted.
Five percent of respondents highlighted the issue of increasing the overnight interest rate, which reflects badly on investment, hoping that it would be decreased to reach about 9% or 10%.
In this regard, Reda called on the government to enforce the newly issued laws, such as the new Investment Law and new Industrial Licences Law, and to provide training for employees who will implement these laws to eliminate bureaucracy.