Egypt Infrastructure Report Q4 2010Business IntelligenceSeptember 23, 2010 75 Pages - SKU: BTAI2831111 |
| Countries covered: Egypt We are expecting Egypt’s construction sector to experience strong and stable growth between 2010 and 2014, with real construction industry value growing at an average of 4.91% year-on-year (y-o-y), rising to US$15.8bn in 2014. Our positive outlook for the sector is predicated on our expectation that strong and sustainable demand for infrastructure projects, harnessed with high-levels of government investment and, more importantly, rising private investment, will serve to power construction growth in the region's most populous country. Key sector developments: Government efforts to open up the utilities sector to private investment through concessions and independent power producers (IPPs) continue to gather momentum as part of the country’s plans to invest US$110bn in the power sector by 2027. To this end a shortlist of 10 companies was announced in June 2010, following the launch of a tender four months earlier, for Egypt’s first privately-owned thermal power plant. To be executed on a build-own-operate (BOO) basis, the US$1.5bn project is one of three such projects the ministry plans to establish with the private sector, with another being a tender for a 1 gigawatt (GW) wind farm in the Gulf of Suez, which is expected to be floated in the near future. Public private partnerships (PPP) are beginning to proliferate within Egypt’s infrastructure sector as the government steps up its efforts to engage the private sector in infrastructure projects as part of its long-term infrastructure investment strategy. In order to meet the strong demand for physical and social infrastructure projects generated by a growing population, it cannot be funded solely with public funds. However, the response from international companies to recent PPP ventures provides cause for optimism. Further fuelling this optimism are the number of PPP projects now in the pipeline, these 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). The strong demand story for building materials is increasing focus on Egypt’s cement industry. The 25% y-o-y increase in Egypt’s cement demand in 2009 highlights the importance of the cement industry in supporting the country’s booming construction sector. With Egypt’s Industrial Development Authority (IDA) currently attempting to open up the sector to competition through the awarding of new cement licences, there will likely be opportunities for new players to get in on the action. A long tradition of domestic banking and an emerging private equity hub in Cairo, provide Egypt with a competitive advantage in facilitating project finance, while political support for PPPs has provided further help to anchor investments in the country. The combination of these two factors creates the foundation for a strong and sustainable PPP market, which has the potential to channel crucial private sector investment and expertise into the sector over the next few years. Risks remain, however, with weak contract enforceability procedures and persistent high inflation levels the chief culprits. While we do not anticipate construction sector growth to hit the lofty heights of 2006 and 2007, we nonetheless consider growth to be 4.25% in 2010, then rising steadily to 5.63% in 2014, to represent a sector performing strongly. Indeed, according to recent economic data from Egypt’s Ministry of Economic Development, cited by Reuters, the country’s construction sector grew by 13% in the fourth quarter of the financial year ending June 30 2010. This lends further support to our bullish view for the sector as well as offering some upside risk. Thus rising private sector involvement in the sector, combined with strong demand fundamentals should see Egypt establish itself over the medium-term as one of the most sustainable markets for infrastructure investment in the region. |
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