Is Egypt’s economy heading for Africa’s top notch?

EGYPT IS RISING. The rise in the past couple of years has been both consistent and remarkable. It seems poised to become Africa’s number one economy. Here is a context: before rebasing Nigeria’s economy in 2014, the giant West African country trailed South Africa as Africa’s second largest economy. Rebasing Nigeria’s economy revealed a sizeable part of the economy – particularly the informal – that was not earlier captured. Capturing this part brought Nigeria to the top and South Africa second. But afterwards, Egypt rose sharply to become the second largest economy, thus displacing South Africa to the third position. Some forms of events in the internal affairs of countries are responsible for the rise or fall in their economies year-on-year. And so, Egypt kept rising, looking set to overtake Nigeria as the differences in the two economies have been narrowed down over the past two years, in part because of the slowing down of Nigeria’s economy while the growth in Egypt’s economy remained consistent.

Some lessons are evident from Egypt as many things set it apart among the nations in Africa. Egypt’s economy is stable. The economic base is diversified. Unlike many countries that are solely reliant on commodities export for their national revenues, Egypt’s economy relies on agriculture, media, petroleum imports, natural gas, and tourism. Manufacturing contributes value added GDP of 16.37 percent, while agriculture contributes 11.3 percent. Revenue in the digital media market is projected to reach $1.231 billion in 2022, with video games as the market’s largest segment. Tourism is one of the most important sources of income and accounts for around 12 percent of GDP. Natural gas accounts for roughly 34 percent of the northern African country’s GDP. Proximity to Europe seems to be paying off now, especially on the maritime front. The Suez Canal – a 160 km or 100 miles long shipping canal connecting the Gulf of Suez in the Red Sea with the Mediterranean Sea – separates the western portion of Egypt from the Sinai Peninsula. To understand its importance to Egypt’s economy, the loss to the international maritime route within a week of Evergreen ship blockade might provide an insight. According to the authority that operates the Suez Canal, the crisis cost the Egyptian government up to $90 million in lost toll revenue as hundreds of ships waited to pass through the blocked waterway or took other routes.

Egypt is a transcontinental country and a gateway into Africa from the Middle East. Apart from being an African country, it shares a lot with the Middle East. As a member of Middle East and North African (MENA) countries, Egypt shares relationships with other MENA countries of Algeria, Bahrain, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Saudi Arabia, Syria, Tunisia, United Arab Emirates and Yemen. Economic interactions within the MENA region have remained limited, however, despite many attempts to promote trade and policy cooperation. The most restrictive sense of MENA encompasses Egypt, Israel, Jordan, Lebanon, Syria and the West Bank and Gaza. Recent progress in the Arab-Israeli peace process and the steps by several countries towards external economic liberalisation have been mutually beneficial for Egypt and Israel in particular, coming at a time of renewed global interest in regional arrangements in the developed and developing countries as in the EU, APEC, AU or MERCOSUR. For Egypt, therefore, MENA has been a blessing. Report after report has justified Egypt as the top investment destination in Africa in the past couple of years. Foreign direct investment (FDI) flows to Egypt reportedly doubled from $4.6 billion in 2014 to about $1 billion in 2019, before the outbreak of COVID-19. The United Nations Conference on Trade and Development (UNCTAD), in its 2020 World Investment Report, recognised the fact that Egypt maintained its position as the first destination for foreign direct investment in Africa for the third year in a row, a feat that was attributed to economic reforms that contributed to macroeconomic stability. Egypt was also the only economy in the Middle East and North Africa to record positive economic growth in 2020, despite the COVID-19 pandemic. In an unrelated report issued in 2021 by the Rand Merchant Bank’s (RMB’s) “Where to Invest in Africa,” Egypt came as the best attractive destination for investment in Africa for the fourth year in a row, up from the sixth place in 2014.

South Africa and some countries of North Africa generally have more access to electricity than the rest of the continent. Per capita access to electricity in Egypt is adjudged one of the highest in Africa. As of 2020, according to World Data, 100.0 percent of the country’s 100 million people had access to electricity, meaning that the per capita access to electricity is higher than most other African countries. A 2021 report revealed that by December 17, 2020, Egypt’s power generation capacity recorded 59,063 megawatts while that of the distribution networks hit 164,000 megavolt-ampere (MVA), rising by 12,560 MVA. The 3.5 megawatts generated by Nigeria in March 2022, by contrast, was dismally low for a population of well over 200 million people. Part of Egypt’s energy strategy is to increase the share of renewable energy from hydropower, solar and wind components of the electric energy mix from 12 percent at the end of 2021 to 20 percent by 2022 and to 42 percent by 2035.

Egypt may have become the EU’s beautiful bride in the aftermath of Russia’s aggression against, and invasion of, Ukraine. This is particularly because of the size of liquefied natural gas (LNG) and the proximity of the source to the EU. Egypt is one of the top 10 African countries sitting on the most natural gas. According to BP and the U.S. Energy Information Administration, Egypt has 2.186 trillion cubic metres (tcm) or 77.2 trillion cubic feet (tcf) of proven natural gas reserves, equivalent to around 1.6 billion tonnes of LNG, placing it 16th in the world. Egypt competes with Qatar, Saudi Arabia, the UAE, Algeria, and Iraq in the Middle East and also with a gas-rich non-Arab country in Iran. Egypt’s LNG sales are increasing in leaps and bounds. At the end of May 2022, revenue from natural gas exports reportedly increased by 768 percent to $3.959 billion in 2021 compared with $456 million in 2020. It can therefore be concluded that Egypt can achieve unprecedented profits from exporting LNG to the EU at spot prices. Egypt is currently the fastest-growing Arab exporter of liquefied natural gas (LNG), according to a report released last August by the Organisation of Arab Petroleum Exporting Countries (OAPEC). The report showed that Egypt exported around 1.4 million tonnes of LNG in the second quarter of 2021, having not exported any LNG during the same period in 2020.

Egypt contributed about five percent of Arab countries’ total LNG exports, which amounted to 28.3 million tonnes in the second quarter of 2021. Despite its relatively small contribution to the total, it represented the largest percentage – 47 percent – of the growth of Arab LNG exports during the second quarter of 2021, which were up from 25.3 million tonnes in the same period a year earlier. Within the framework of Global Gateway Africa, the European Commission announced earlier this year an investment funding for Africa worth EUR 150 billion as part of the European Union (EU) Global Gateway investment scheme to support Africa for a strong, inclusive, green and digital recovery and transformation. It also came in a veiled attempt to counter China’s Belt and Road Initiative and to avoid being locked out of Africa by China’s growing infrastructure and embedded loans. Earlier last week, the EU signed a deal with Israel and Egypt to boost Eastern Mediterranean gas exports to Europe. Within the deal, Israel and Egypt will aim to boost natural gas exports to Europe under a memorandum of understanding (MoU) signed on Wednesday as the continent looks to replace Russian energy imports. Israeli gas is already being sent by pipeline to liquefaction plants on Egypt’s Mediterranean coast, for onward reexportation as LNG.

Egypt and the EU are also working on green hydrogen partnership. From last week’s EU-Egypt joint statement on climate, energy and green transition, emphasis was laid on accelerating the “just energy transition and developing a resource-efficient, socially just and low emissions and climate neutral economy to enhance shared prosperity.” In partnership, Egypt and the EU “will address the common challenges of security of energy supply, diversification of energy sources and transition towards a resource-efficient, socially just, resilient and, as appropriate, climate neutral economy, founded on the absence of distortions to renewable energy and clean fuel and energy trade and investment in related value chains. For this purpose, the EU and Egypt will step up the cooperation with a particular focus on renewable energy sources, hydrogen, and energy efficiency actions, building on Egypt’s significant potential for the cost-effective expansion of renewable power generation, clean fuel production in particular hydrogen…” The Association Agreement, the EU Global Gateway, the EU Agenda for the Mediterranean and its Economic and Investment Plan, and the EU-Egypt Partnership Priorities that the Association Council is expected to formally endorse on June 19 will very likely “play an important role to leapfrog the opportunities of a green transition, including through flagship investments in renewable energy and sustainable resource management, building on the implementation of ambitious climate policies and targets in Egypt.”

Egypt will host the next United Nations summit on climate change – COP27 – in Sharm El-Sheikh this year, from November 7 to 18, with Sameh Shoukry, Egyptian Foreign Minister as president-designate. In that event, a lot of pledges or commitments will be made or renewed on renewable energy and reduction of greenhouse gas emissions. The implications of COP 27 are many. Egypt’s increasing focus on renewable energy is expected to culminate in a rise in power generation, with extensive investment inflows and expansion of local investments on renewable energy. This is expected to boost industrialisation, reduce the cost of production and increase regional competitiveness, thereby drawing many investments in manufacturing into Egypt. If the slow growth in Nigeria’s economy continues, it should not be surprising that a rising Egypt could soon clinch the top spot even though Nigeria remained the largest economy in 2021. This is because the gap between Africa’s most populous nation and the economies of South Africa and Egypt has narrowed. In 2022, Nigeria led South Africa and Egypt with only $23.5 billion and $38.7 billion respectively, down from as much as $187 billion and $263 billion respectively in 2014. The World Bank, in a 2022 report, observed that “the recent surge in economic activity has set Egypt on track to achieve growth of 5.5 percent” in the 2021/2022 financial year. Surely, these cannot be ignored and months ahead will prove whether or not Egypt overtakes Nigeria to become Africa’s leading economy. business a.m. commits to publishing a diversity of views, opinions and comments. It, therefore, welcomes your reaction to this and any of our articles via email: comment@businessamlive.com