Why investors love new, improved EGP
riyadh — Most Egyptian businessmen are finally giving off an air of optimism these days, thanks to the three-year, $21 billion loan programme signed in November with the International Monetary Fund.
Egypt made the right decision. Investors are again assessing the country’s prospects positively. Since November, the pound’s appreciation has been faster than most expected, pointing to a more balanced and efficient market. External flows are helping instil stability in the foreign exchange market. The successful sale of Eurobonds has encouraged carry-trade investors who have invested more than $2 billion since the float, as per the Central Bank of Egypt. Egypt’s stock market is one the best performers in emerging markets and the best in Africa.
There are some obvious consequences to allowing the currency to weaken. The inflation rate reached 28.1 per cent in January on an annualised basis, its highest level since December 1989 and eroding consumers’ purchasing power. The spike was largely propelled by a 37.3 per cent increase in food prices. Anchoring inflation expectations remains a key challenge for the CBE.
The cost of capital is rising after the 300-basis-point hike delivered by the CBE in November. Inflation will also test the government’s willingness to carry through with
Egypt’s large consumer market and strong logistical network ties to Asia, Europe and Africa makes it a good manufacturing destination
the painful reform and rebalancing process. In part because of faster inflation, automobile sales have collapsed to the lowest in more than three years. Businesses are complaining about reduced domestic demand. The good news is that Egypt’s large consumer market and strong logistical network ties to Asia, Europe and Africa makes it a good manufacturing destination. Over time, manufacturing can help the economy’s export base, while creating desperately needed jobs for its 90 million inhabitants. Egypt’s automotive industry has become one of the largest in Africa, producing more than 100,000 vehicles a year and employing 75,000 workers.
A move into greater local content production could lessen the reliance on intermediate imports (which have become pricier), produce better-paying jobs and develop a sustainable production chain. Authorities have set an annual growth target of nine per cent for manufacturing, increasing its share of GDP to 25 per cent by 2020. Under these plans, the sector will create at least three million jobs by the end of this decade. — Bloomberg