Boston, MA -- (SBWIRE) -- 05/24/2012 -- While the 4.1% year-on-year (y-o-y) real growth we estimate took place within Egypt's construction sector in 2011 can be viewed as relatively positive, it does not reflect the underlying problems facing the sector. Although the swift resumption of stalled projects following the revolution ensured positive growth in 2011, persistent investor uncertainty and constraints on government capital expenditure have diminished project pipelines. We expect the government's fiscal problems to remain a major drag on growth. However, the potential for a stabilising in the political and economic situation in H212 (following elections in May 2012) means that risks are weighted to the upside.

Developments include:

- An expected 33% rise in natural gas and electricity prices will compound the already highly challenging market conditions that face the sector. The price hikes will be applied to steel, cement and ceramics industries, and form part of a larger plan to reduce the budget shortfall by approximately EGP20bn (US$3.3bn). Compounding this is our expectation that inflation will head higher in 2012, with our country risk analysts projecting consumer price inflation to average 12.0% in 2012, compared to an estimated 10.1% in 2011.
- With government spending likely to remain restricted, we expect multilaterals, bilateral loans and other sources of international funding to provide some respite for the sector. This was illustrated in February 2012, with the World Bank's announcement that it will provide a US$240mn loan to the Egyptian government in order to finance the construction of a 1,500MW natural gas turbine power plant. In addition to this, the European Investment Bank (EIB) has committed to lending US$900mn a year and supporting the use of PPPs in the country.
- With the election for the lower house of parliament considered broadly successful and presidential elections coming up in May 2012, we expect the resulting improvements in economic and political stability to have positive implications for fixed investment as well as investor sentiment. These improvements are also likely to see a rebound in tourism; prior to the political uprisings, these had been a key driver of investment in construction and real estate. In light of this expected improvement in the political landscape, we believe that risks over the short-term are weighted to the upside.

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