The Arabic Republic of EGYPT: Economic Perspectives
Traditionally playing an essential role of mediation in the Israeli-Palestinian crisis since 1948, Egypt experienced years of internal upheaval that forced the country to an economic and political decline. The Egyptian economy recovered from the revolutionary uprising of 2011 (5.3% of GDP growth rate in 2018 and 5.6% of GDP growth rate in 2019), but slowed in 2020 (3.6% of GDP growth rate in 2020) due to the outbreak of COVID-19.
However, Egypt remain one of the few countries to have a positive growth rate in 2020 (3.6%) with a return to post-pandemic growth in 2022 (5.7%).
- The Primary Sector contributes in 2020 to 11% of GDP and employs up to 23% of the working population. This is a key sector with 20% of total exports and foreign exchange earnings. Egypt’s hot climate and abundance of water (Nile water) help cultivate different crops (the main are cereals, cotton, sugar cane and beets).
- The Secondary Sector contributes to 36.5% of GDP and only employs 28% of the working population. Except Oil industries, industrial sector remains limited. The large part of Egypt’s foreign income depends on the Suez Canal (USD 5.61 Billion in revenue in 2020).The country is also the 13th largest gas producer in the world.
- The Tertiary Sector contributes to 50.5% of GDP and employs nearly 49% of the working population. The sector is dominated by income from the telecommunications and tourism sectors. Seriously hit by the lockdown restrictions, the sector’s revenue decreased by 31.2%
With more than 102 million inhabitants, the 3rd most populous country in Africa, Egypt, is also the continent’s 3rd richest country with an estimated GDP of USD 363.25 Billion in 2020. The official unemployment rate is around 8.3% (IMF), whereas 3/4 of all employees are paid as unofficial workers and 1/3 of the population lives below the poverty line (CAPMAS).
| Population (2020 UN) | 32.51 million inhabitants |
|---|---|
| GDP / Capita USD (2021, IMF) | USD 10.0 |
| HDI (2020, UNDP) | 79th over 190 |
| Doing Business (2020 World Bank rank) | 75th over 190 |
| Corruption Perceptions Index 2021 | 36h over 180 |
| Unemployment rate (FMI 2021) | 9.7% |
On a Political point on view, following Tunisia, Egypt was also hit by the wave of the Arab Spring in January 2011, leading to the resignation of Hosni Mubarak who was in power since 1981. Mohamed Morsi, elected after the presidential election of June 2012, is dismissed and replaced by the Minister of Defense Abdel Fattah al-Sissi. In 2014, a new Constitution is then adopted by referendum, Abdel Fattah al-Sissi is elected President of the Republic then reelected in 2018.
On an Economical point of view, with IMF assistance, the new government established a number of structural reforms since 2016 to restore Egypt’s credibility in the financial markets and improve the fundamentals of the country’s economy :
- Floating Egyptian pound : -50% of its value against the dollar and the euro
- Rising energy prices
- Higher inflation weighing on Egyptians’ purchasing power
- Terrorist threat remaining in the territory : terrorist groups claiming to be ISIS, risk of infiltration of terrorists from Libya.
Nevertheless, Egypt’s economy remains strong, the 3rd richest African country, more than US$ 302 Billion GDP in 2019. Its strength lies in the diversification of its economy :
- Manufacturing sector (16%)
- Real Estate and Construction (16%)
- Wholesale sector (14%)
- Agriculture, Forestry and Fishing (11%)
- Extractive sector (10%)
Public sector represents 31% of total activity and weighs 56% of the country’s investments.
Even with a diversified economy, Egypt remains economically dependent on 4 rents :
- Tourism : its history dates from 3150 before J.-C (temples, pyramids and ruins) and attracts millions of tourists around the world.
- The Suez Canal : avoiding the circumvention of the African continent, it is an important financial resource for Egypt which charges fees for using the canal to more than 4 ships crossing the can each day.
- Money transfers from diaspora : on average US$ 21 Billion each year since 2013.
- Hydrocarbons sales : US$ 11.6 Billion in 2018/19, representing 41% of exports.
Economic growth in Egypt is one of the most dynamic in the ANMO region (21 countries included such as MENA countries + Soudan, Somalia and Djibouti). Nevertheless, this growth is not enough to compensate for public spending heavy weight which has multiplied by 2.2 in 5 years.
| Economic Indicators | 2019 | 2020 | 2021e | 2022e | 2023e |
|---|---|---|---|---|---|
| GDP ($ Billion current price) | 230.87 | 205.46 | 225.86 | 231.69 | 246.72 |
| GDP growth (%) | 2.2 | -11.0 | 10.0 | 4.6 | 4.5 |
| Inflation rate (%) | 2.1 | 1.8 | 3.1 | 2.5 | 2.3 |
| Public debt (% GDP) | 27.1 | 35.1 | 35.0 | 36.9 | 38.5 |
| Current balance (% GDP) | -0.9 | 0.8 | 0.4 | 0.1 | -0.4 |
Money Supply
Current balance deficit widened by the deterioration of external financing will be assured a time by :
- Tapping into Egypt’s Central Bank’s foreign currency reserves : started in March 2020, US$ 5.4 Billion. The IMF expects a decrease of US$ 11.6 Billion in foreign currency reserves covering imports which would fall around 6 months
- The Fund’s Rapid Financing Instrument (RFI) and a Stand-By Arrangement (SBA) : requested to IMF by the Central Bank and the Government of Egypt to address any immediate balance of payments needs and support the most affected sectors and groups of people.
Sovereign Debt
Most international observers agree with the conclusions of the institutions of Bretton Woods about the rating of Egypt’s sovereign debt, estimations vary but broadly fits above those of the IMF :
