Egypt lags neighbouring Middle Eastern countries for per capita income, creditworthiness and growth, but has a more favourable business climate. Political unrest over the last four years has weighed on growth. The government will need to rationalise the bureaucracy and loss-making public enterprises. But the improving political climate and business environment bode well for the outlook.
Softer oil receipts and widespread political unrest from the 2011 Arab Spring have weighed heavily on growth over the last four years. Egypt is the largest non-OPEC oil producer in Africa and its Suez Canal serves as a major transit route for oil shipped from the Gulf to Europe and the United States.
But it appears Egypt has turned the corner. Strong aid inflows from neighbouring Gulf countries have supported government spending. Abdel Fattah El-Sisih, the winner of the 2014 presidential election, has restored some stability. His reform agenda includes widening the tax base and reducing fuel subsidies. The success of an investor conference in March and growing capital inflow to fund major projects will support growth and trade.
There are both upsides and risk to the Outlook. Political stability and the improving business environment will support investment and spending. The IMF expects growth to reach 5% by the end of the decade, up from 2% in 2014. Yet risks remain from declining oil prices and the government’s large debt burden (more than 90% of GDP). Furthermore, the upsurge in violence in North Sinai instigated by an Islamic State affiliate and the government’s response to political dissent may inflame tensions in an already polarised population.
Egypt is a lower-middle income country. Despite per capita income doubling since 2000, average incomes remain well below most other oil producing countries.
Egypt has an OECD country credit grade of 6 and speculative grade sovereign debt ratings from all three major ratings agencies. These ratings underline its vulnerability to business, financial and economic setbacks. The improving economic outlook bought about a ratings upgrade from Moody’s in April.
The World Bank’s ease of doing business gauge—which measures regulation and red tape relevant to a domestic small to mid-sized firm—ranks the business climate 112 out of 189 economies. Egypt lags the region in most areas, but outperforms on access to credit and starting a business.
It also scores poorly on the World Bank’s governance indicators–landing in the bottom half on most measures and scoring particularly poorly for political stability. A history of political uncertainty has generated ongoing political protest, labour strikes, deep mistrust between Islamist and secular parties, and Muslim-Christian tension in some parts of the country.
Egypt is Australia’s 36th largest goods export market. Export receipts from Egypt totalled $US479m (0.2% of merchandise exports) in 2014. The biggest exports include wheat, vegetables, copper and meat. Australian firms, particularly those involved in agriculture, could benefit from Egypt’s 90m people and their growing demand for higher quality proteins and produce. Silo Bags Australia in partnership with Connexxion is one Australian firm doing business in Egypt.
Australian imports from Egypt are miniscule, as is trade in services. Approximately 500 Egyptians enrolled in schools across Australia in 2014, equivalent to 0.1% of total enrolments.
Bilateral investment between Egypt and Australia remains small, and is dwarfed by the bilateral trade. The stock of Australian investment in Egypt was worth A$148m in 2014 equivalent to just 0.01% of Australia’s international investment portfolio. Egypt’s vast mineral wealth and slew of infrastructure projects, including the construction of the new $8b Suez Canal, may present opportunities for Australian firms and investors.
Department of Foreign Affairs