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Egypt Freight Transport Report Q4 2010
Business Monitor International, Aug 2010, Pages: 34
Egypt Freight Transport Report provides industry professionals and strategists, corporate analysts, freight transportation associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Egypt's freight transportation industry.
Egypt may be opening the door to more private sector investment in the freight transport sector. The country is emerging as a highly active public-private partnership (PPP) market in the Middle East. The government has stepped up efforts privately to procure projects in utilities and social infrastructure and soon it seemed, transport as well, as demand for basic infrastructure was strong, but cannot be met solely through public funds.
Burdensome contract enforceability procedures and persistently high inflation are going to be the main risks, and could prevent the implementation of PPPs as envisaged by the government. The reliability of domestic infrastructure players is a crucial and positive factor for facilitating PPPs. Egyptian infrastructure major Orascom Construction Industries, one of the leading infrastructure companies in the Middle East, has drawn in international majors as partners jointly to invest in Egypt's infrastructure sector. Major projects in the PPP pipeline include the 6th of October City wastewater treatment plant, the Helwan and Nahia wastewater treatment plants, the Shubra- Banha tollroad, and the Rod El Farag Access road build, operate, transfer (BOT) project, meanwhile the dormant New Cairo Monorail could also gain momentum.
Encouraged by the successes of recent PPP ventures and the completion of the stimulus plan, the government is reportedly planning transport concessions, mainly for highways, but also ports and the expansion of the Cairo Metro, with a total value of EGP10bn (US$1.76bn), according to a report by newspaper Al-Masry Al-Youm, cited by Reuters.
Mid-way through 2010 the Egyptian freight transport sector's operating environment looked good, despite political risks. Egyptian economic growth largely side-stepped the effects of the global recession in 2009. The pace of growth slowed but did not turn negative. The authors expected some further slowing in 2010, caused by weakening consumption and private investment. After 4.7% GDP growth in 2009, we predicted the pace would ease to 4.6% in 2010, before picking up to 4.8% in 2011. That said, we expect the average annual growth rate to 2014 to be 5.1%, clearly marking Egypt out as a regional out-performer. The main political risk is the vexed issue of the succession to 82-year old Hosni Mubarak, in power for almost three decades. Parliamentary elections are due at the end of this year with the presidential contest looming in 2011. The authors believe the opposition is too divided to triumph, and we expect some form of succession from inside the ruling National Democratic Party, but warn of the danger of unrest and disruption, as well as of a period of uncertainty that could affect the economic climate.
The authors predict a small recovery in airfreight volume moved through Cairo, following a fall in 2009 prompted by the international recession. We project a gain of 1.5% in 2010, following 2009's 3.9% contraction. We believe positive fundamentals will raise the pace of growth, although this will be limited by what we see as foot-dragging on aviation deregulation. Egyptian rail freight performance has been poor in recent years, but we expect it gradually to edge into positive territory. In terms of absolute volume we expect total cargo to fall for the second year running in 2010, by 1.1%, following the 2.1% drop in 2009. While the global recession played its part, other closer-to-home factors were more prominent. The rail system has been starved of investment and has suffered from a poor safety record. We predict a gradual improvement, with volumes up 0.2% in 2011 and average annual growth of 0.9% in the medium term.
The total volume of goods handled by the Port of Alexandria continued to grow through the global recession, although we see the pace of expansion slowing sharply over our forecast period. Total tonnage rose 8.7% to 22.096mn tonnes in 2009, and we predict a 5.0% increase this year, to 23.194mn tonnes. At Port Said, where the transhipment business plays a bigger role, tonnage fell 7.1% in 2009, and we are predicting a further small fall of 0.7% to 8.832mn tonnes in 2010. Box traffic at both ports is expected to continue growing, but at a low rate, lagging behind the expansion of the domestic economy .
The authors expect exports to remain quite strong over the medium term, thanks to high energy prices and a revival in Suez Canal traffic and tourism revenues. In 2009, during the global recession, Egyptian trade (imports plus exports) fell by 15.5% in real terms. We predict that it will fall by a further 0.9% in 2010 before returning to growth with a 3.0% expansion in 2011. Across our five-year forecast period to 2014, foreign trade will grow by an annual average of 2.9%, trailing GDP. Over the same five years, exports will grow by an annual average of 3.3% ahead of imports with growth of 2.6%.
We believe the main downside risk to our freight forecasts for Egypt is political, and concerns the run-up to the presidential elections. The authors view is that the opposition remains too divided to win the elections. But the desire for change, the government's selective use of repression, potential divisions in the ruling party over succession, and long-standing allegations of electoral fraud could come together to generate protests and disruption, which would have a destabilising effect on the economy.
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