Boston, MA -- (ReleaseWire) -- 05/01/2014 -- We have upwardly revised our construction industry forecast for Egypt to 4.6% in FY2014 on the back of a stronger than expected FY2013 which continued through Q114. We believe the industry has picked up momentum again and there is a strong demand for infrastructure projects. However, we highlight that risks to our forecast lie to the downside as the country's business environment remains weak, deterring much-needed foreign investment. Uncertainty over Egypt's future will continue to limit its access to private capital for infrastructure development, reinforcing the country's dependence on external loans and financial assistance from neighbouring allies.
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Egypt's heightened political risk has particularly affected the inflow of foreign direct investment (FDI), where we have seen a rapid decrease since FY2009, with a contraction in inward FDI of 0.7% year on year (y-o-y) reported in 2011. We are more optimistic over the next 10 years, when we expect to see the Egyptian economy increasingly modernise, with the private sector taking a more dominant role and FDI recover.
Key Trends And Developments
- Our moderately bullish view on the Egyptian economy has been underlined by recent data which show a slight pickup in the economy. We expect economic growth to broadly head higher in the coming quarters, on the back of greater political stability and low base effects. However, any recovery will be volatile with significant potential for backsliding.
- According to the latest data from the Central Bank of Egypt, cement consumption (which we use a proxy for construction activity) in December came in at 3.3 million tonnes, a y-o-y increase of 8.4%. An improved political situation appears to be taking hold, which is resulting in greater confidence in the country's economic outlook.
- We expect FDI and aid receipts to continue to play a significant role in Egypt's construction industry growth. Investment and cooperation between Egypt and Gulf Cooperation Council (GCC) states has intensified markedly and we believe this trend will strengthen over the coming years.
- Arabtec signed an agreement in March 2014 to build one million houses for low-income families with the Egyptian army. Construction on this US$40bn project, which will be developed in several phases, is expected to begin in Q314 and will be completed by 2020.
- Despite environmental risk surrounding coal-based power generation and concerns of inviting new import dependency, we believe coal will gain a small, but significant foothold in Egypt's energy mix, in future. As rising gas consumption places growing pressure on the supply side, we believe the country's heavy industries will increasingly look to coal to satisfy their energy needs, in the absence of viable energy alternatives and amid broad political support.
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