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Egypt Business Forecast Report Q2 2010

Published by: Business Monitor International

Published: Feb. 5, 2010 - 74 Pages


Table of Contents


Executive Summary
Still Bouncing, But Politics Threatens
Chapter 1: Political Outlook
Long-Term Political Outlook
Beyond Mubarak: Scenarios For Change
Over the long term, the pent-up frustrations of an impoverished population that is fundamentally at odds with the
government will have to be relieved.
Domestic Politics
Muslim Brotherhood: Prospects For 2010
With an internal crisis and a likely government crackdown, it is possible that Muslim Brotherhood members will
lose some seats in the forthcoming parliamentary elections.
TABLE: POLITICAL OVERVIEW
Chapter 2: Economic Outlook
Economic Activity
Long-Term Outlook To Outshine 2009/10
It remains to be seen whether Egypt’s consumers have come through the global economic crisis unscathed, but
we do not expect the government to scale back its own spending for now, particularly as Egypt remains hostage
to global developments on the export front.
Table : ECONOMIC ACTIVITY
Balance Of Payments
Still Cautious On Export Recovery
The current account will be roughly in balance in 2009/10, before returning to surplus the following year.
Table : CURRENT ACCOUNT
Monetary Policy
Easing Cycle Over For Now
We have long been saying that Egypt’s strong growth and still-high inflation justified a break in the easing cycle
but, now that it appears the central bank agrees - having left rates on hold on November 5 2009 - we are slightly
more wary.
Table : MONETARY POLICY
Chapter 3: 10-Year Forecast
The Egyptian Economy T0 2019
Well Placed For Long-Term Growth
Egypt has a lot to look forward to, with many inherent advantages including its strategic and cultural position in
the world, a large and growing population and an underdeveloped private sector providing ample room for
expansion.
Table : Long-Term Macroeconomic Forecas ts
Chapter 4: Special Report
Political Risk In The Next Decade
What To Expect In 2010-2019
Table : Countries Facin g Major Leadership Succession In 2010-2019
Table : Countries At Risk Of Major Political Upheaval
Table : Countries At Risk Of Interstate Conflict Or Heightened Bilateral Tension
Table : Coun tries Facin g Secessionis t Or Autonom y Movemen ts, Insur gencies , Or Civil Wars
Table : Pivo tal States
Chapter 5: Business Environment
Business Environment Outlook
TABLE: BMI BUSINESS AND OPERATIONAL RISK RATINGS
Institutions
TABLE: BMI LEGAL FRAMEWORK RATINGS
Infrastructure
Market Orientation
TABLE: MIDDLE EAST & AFRICA, ANNUAL FDI INFLOWS
TABLE: TOP EXPORT DESTINATIONS, US$MN
TABLE: BMI TRADE RATINGS
Operational Risk
Chapter 6: Key Sectors
Consumer Electronics
Table : Consumer Electronics Demand
Defence
Table : Egypt’s Armed Forces , 2006-2014 (‘000 personnel)
Chapter 7: BMI Global Assumptions
Global Outlook
2010 Looking Rosier
TABLE: GLOBAL AND REGIONAL REAL GDP GROWTH
TABLE: develo ped market exc hange rates
Table : Emerging Market Exc hange Rates
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES
TABLE: EMERGING MARKETS

Abstract

As we move into 2010, the markets have continued to bounce and the global macroeconomicrecovery is still broadly in play. Egypt has been one of the most resilient economies in the MiddleEast and North Africa region and, by and large, our outlook remains a very favourable one. True,the pace of reform of the business environment has slowed in the light of the economic slowdown,but the country’s economic potential is huge and investor perceptions remain very favourable.2010/11 will likely see both parliamentary and presidential elections, however, and we are notconvinced that the pain for consumers is over just yet.

O n the political front, we look beyond the immediate risks this quarter and investigate longer-termscenarios for political change. Although our core scenario is for gradual democratisation, we dothink that the Egyptian population would like to see a more Islamic type of government and thereis always the risk that this could come about through violent or undemocratic means. Over the longterm, the pent-up frustrations of an impoverished population that is fundamentally at odds with thegovernment will have to be relieved. Against this backdrop, Egypt is at risk of an unconstitutionalchange of government, but this would require the support of the army. As such, we are inclinedto foresee gradual constitutional change.

E conomically, our views have not changed substantially since our last Business Forecast Report.We see a slowdown in 2009/10, followed by a return to near-trend growth thereafter, with a broadlypositive outlook in general (barring any major political shocks). We see real GDP growing by 3.5%in 2009/10, a slowdown from 2008/09 in spite of the apparent recovery, based on our view thatthe full effect of the global slowdown has yet to play out in terms of consumption and our concernsthat the global economic recovery will not be enough to drive a resurgence in demand for Egyptianexports and tourism services. However, the rate will bounce back in 2010/11 and average 5.0%for the remaining four years of our forecast period.

A s far as the business environment is concerned, developments over the last quarter have beenless than inspiring. Perhaps the most pro-market policy we have heard about is the stock market’sapplication for approval for short selling from the state regulator. However, in the current climate,moves like this are not necessarily going to be successful and we do not expect the governmentto be in a hurry to approve any measure that could increase market volatility. Likewise, the energyministry has delayed a move to reduce subsidies. While this is short-term positive for the businessenvironment, because its keeps costs low, it illustrates an ongoing low level of market orientation.

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