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Egypt Business Forecast Report Q2 2011
Business Monitor International, March 2011, Pages: 45
Life After Mubarak: Now Comes The Hard Part Egypt has been thrown into the global spotlight after unprecedented demonstrations pushed Hosni Mubarak out of office in early February. This has forced investors to fundamentally reassess their risk perceptions not only of the country, but other states throughout the wider Middle East and North Africa region as well.
For many, the key question going forward will be the extent of the impact this political transition will have on the economy’s medium-term growth outlook. For us, it is undeniable that the coming quarters will see marked changes to trade, investment, and consumption patterns, and we have downgraded our FY 2010/11 real GDP growth forecast to 3.2% (from 5.1% previously) accordingly.
The resignation of former president Hosni Mubarak on February 11 has gone a long way towards improving Egypt’s short-term political risk profile, particularly as the diminution in large-scale demonstrations and widespread violence allows the country to regain a sense of normality, and economic activity is able to slowly resume. While we are encouraged that the widespread violent unrest which engulfed the country for over two weeks has now died down, we stress that Egypt’s political crisis is only now beginning. A host of new questions have sprung up around the power of different political groups, the role of the military in any new government, and how domestic economic policy may change in the future. The outlook on the Egyptian pound has also been altered as a result of the unprecedented outburst in public unrest in the country since the start of 2011.
While we had become increasingly bearish on the unit heading into the year due to unexplained and somewhat erratic policy decisions from the central bank, the explosion in violent demonstrations which eventually led to the resignation of former president Hosni Mubarak has cemented our view that appreciatory pressures on the currency will be minimal this year. We now forecast the currency will average EGP5.9500/US $ in 2011, compared to EGP5.6345/US $ in 2010. Weaknesses in Egypt’s underlying business environment (namely elevated corruption, uncertainty over property rights, and a rigid labour market) will not likely be addressed in 2011, as the caretaker military government focuses on preparing the country for parliamentary and presidential elections.
Indeed, we expect reform momentum to be a key victim of the political unrest, and we stress that there is no certainty that any future government will be any more business friendly or open to foreign investment.
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