Arabian Business – May 06, 2018

arabianbusiness.com 25

COMMENT

q EGYPT’S REFORM EFFORTS SHOULD AIM

TO ENHANCE THE BUSINESS CLIMATE FOR

PRIVATE SECTOR DEVELOPMENT”

The fact that the Emirates

NBD Egypt Purchasing

Managers’ Index (PMI)

has remained largely in

contractionary territory (just)

also suggests that the private

sector has not yet started

meaningfully contributing to

the growth story. This should

start to change, as there are

a number of positive factors

at play in Egypt in 2018. The

Purchasing Managers’ data

supports this expectation,

with new orders, new export

orders, and optimism around

future output all positive.

Growth drivers

Ongoing political stability

after the March elections

will encourage increased

investment, both domestic

and from overseas.

Incumbent President Abdel

Fattah El Sisi has returned

for a second term with 97

percent of the vote on 41

percent turnout.

Falling inflation and an

easing of the monetary

policy should support greater

household spending and

private sector expansion –

although further subsidy

cuts will offset some of this

and households will remain

under pressure.

The reinstatement of direct

flights between Moscow and

Cairo bodes well for further

easing on flight restrictions

to Egypt. This would give the

tourism sector a significant

boost, further to the strong

growth it is already enjoying

(tourist arrivals were up

53.6 percent year-on-year

in 2017). Tourism minister

Rania Al Mashat also

announced plans to reform

the tourism sector in April

in a bid to encourage greater

investment.

Inward investment

Ongoing reforms will, it is

hoped, also entice greater

foreign direct investment

(FDI). Ratings agencies

Fitch and S&P have both

upgraded their outlook for

Egypt to positive in the past

six months.

Egypt’s major new offshore

gas fields like Zohr will bring

a number of benefits to the

Egyptian economy. Initial

production at Zohr will be

350m cubic feet per day,

rising to 1bn in June and

2.7bn by the end of next

year. This will be bolstered

by the North Alexandria

and Nooros fields once

launched. Plans to make

Egypt a regional energy hub

are also positive for growth.

Petroleum minister Tarek El

Molla said in April that Egypt

was looking for $10bn of

investment into the oil and

gas sector in 2018/19, which

would mark a 25 percent

increase year on year.

With all of that being

said, the real challenge will

begin beyond the next two

years. The “stroke of a pen”

reforms have been done,

and Egypt is enjoying the

fruits of these, but in many

ways the harder part of

the reform process is yet

to come. This will entail a

fundamental overhaul of the

Egyptian economy and the

encouragement of greater

private sector participation

in key industries.

The IMF has highlighted

this as a concern in its

reports, stating in its second

review that “Egypt’s reform

efforts should aim to improve

allocation of resources in the

economy and enhance the

business climate for private

sector development”. a

Renewed energy

The Zohr gas fi eld is helping

Egypt’s self-suffi ciency

Much of Egypt’s positive

economic outlook is built

on the development of the

Zohr offshore gas fi eld in

the Mediterranean, fi rst

discovered in 2015. By

mid-2019, it is believed it

will produce 2.9 billion

cubic feet per day.

Claudio Descalzi, CEO of

Italian energy giant Eni, said

the goal was to reach 1.8

billion cubic feet per day by

the end of 2018. Egypt has

been seeking to speed up

production from the recently

discovered fi elds, with an eye

to halting imports by 2019

and achieving self-suffi ciency

Last month, Mubadala

Investment Co agreed

to pay Eni $934m for

10 percent of Egypt’s

Shorouk concession, the

Mediterranean area that

contains the Zohr gas fi eld.

What the authorities are
looking to ensure now is
that growth will continue
apace, and not only from a
rebalancing of the external
position but from greater
private consumption and
investment as well, which
will be a more productive
growth generator.
The Central Bank of
Egypt (CBE) has noted in its
monetary policy statements
that government demand
and external rebalancing
have driven the growth
recovery to date, while
private domestic demand
has lagged behind. u Claudio Descalzi, CEO of Eni