Boston, MA -- (ReleaseWire) -- 02/14/2014 -- As we anticipated, Egypt's construction industry has gained momentum in FY2013 with official figures reporting 5.9% real growth (our forecast indicated 5%). However, we are more cautious as for FY2014 when we anticipate slower growth of 3.6%, partly as a result of base effect and partly due to deterioration in the country's business environment. Despite high demand for investment in infrastructure, the government's capacity to fund projects is limited and Egypt continues to be highly dependent upon loans and financial assistance from allies and neighbouring countries. We highlight the need for foreign investment to boost construction industry growth, although expect that investors will remain wary given Egypt's uncertain political outlook.
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.
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Key Trends And Developments
- According to the latest data from the Central Bank of Egypt, cement consumption (which we use a proxy for construction activity) in August 2013 came in at 2.5 million tonnes, a y-o-y increase of 16.1%, marking the first increase in 16 months. August is normally the quietest month for construction activity, however, 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 in recent months and we believe that this trend will strengthen over the coming years.
- The interim government in Egypt is reportedly pushing ahead with the tender for the Safaga Port PPP. This port is located on the west coast of the Red Sea and it serves both tourists and trade industries. With an estimated cost of US$858mn, this is considered to be the third most important PPP project in the pipeline after the Abu Rawash wastewater plant and the waste recycling initiative.
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