The Egyptian economy
At present, the general state of the Egyptian economy is considered to be quite positive overall. Sweeping reforms over the last years, such as allowing the Egyptian pound to float freely, an IMF assistance loan, the introduction of new VAT regulations, a new investment law and reform of state subsidies, are showing their first positive effects.
The trade deficit could, as had been hoped for, be slightly reduced to USD 36 billion. The obligation already implemented some time ago for importers to renew their import licences has enabled the government, first, to exert direct influence over which companies import and, second, to exercise stricter control over the goods to be imported. Although the Egyptian export sectors are still somewhat lacklustre, cumbersome import procedures and an at times much restricted access to foreign currency could counteract a further drain on reserves.
Foreign currency reserves have recovered significantly over the last 12 months, although they continue to be negatively impacted by the persistent trade deficit and lost tourist revenues, which despite their upturn are still weak.
In autumn 2016, reserves dropped to nearly USD 16.5 billion – which barely covered 3 months’ worth of imports – but at USD 36 billion they have since recovered to the level before the 2011 revolution. Here, the IMF loan naturally plays a key role.
The IMF has agreed with the Egyptian government and Central Bank to the payout of financial assistance of a good USD 12 billion. Disbursement will be made over a 3-year period; the first tranche of nearly USD 2.75 billion was already paid out at the end of 2016; the second tranche, amounting to USD 1.25 billion, followed in June 2017. In addition to the IMF, the World Bank and the African Development Bank made loan commitments of USD 3.0 billion and USD 1.5 billion respectively.
A negative impact on foreign currency reserves, however, is the fact that Egypt has become a net importer of natural gas. In August 2015, a large natural gas field was discovered off the Egyptian coast by an Italian energy group. The size of the deposits could cover Egypt’s need for an entire decade or provide the basis for the development of a petrochemical industry. This was due to come on stream at the end of 2017.
Transfers from Egyptians working abroad now amount to around USD 20 billion per year. This is a quite an increase over recent years, although the number of Egyptians working in the Gulf States has declined. In times of high oil prices, there were some 2 million Egyptians working in Saudi Arabia and the Gulf States and before the Arab spring a good 1.8 million in Libya. Despite this, in their heyday, only parts of these transfers found their way into the official banking system. This saw a dramatic change after the floating of the Egyptian pound and eradication of the black market.
Direct investment continues to increase, and even tourist revenues have seen a turnaround. For fiscal 2016/17, the plan was to attract foreign direct investment of around USD 10 billion. Achieved were at any rate a respectable USD 8.7 billion. Besides investor conferences at which numerous megaprojects were presented to investors, President el-Sisi enacted a new investment law by presidential decree. This law is due to be amended again: administrative reforms should provide investors with streamlined procedures for repatriating profits and simplified regulations for investment in free zones.