Egypt Macro and Equity Market: Harvesting the Fruits of its Economic Reforms and Political Stability

Egypt Macro and Equity Market: Harvesting the Fruits of its Economic Reforms and Political StabilityEgypt Macro and Equity Market: Harvesting the Fruits of its Economic Reforms and Political Stability


Egypt’s progress kept painting the third quarter of 2014 amid improving security conditions, numerous reforms and national attention. The land of Pharaohs regained its standing as turbine of the region providing relief aid to Sudan’s flood victims and training Libyan forces in their fight against anti-government militant groups.

However, fears over water security overshadowed the scene as the “Grand Ethiopian Renaissance dam” project that is expected to be finalized in 3 years could threaten Egypt’s share of Nile water. Though, an agreement was signed in September between Egypt, Ethiopia and their neighbor Sudan to form a committee of national water experts to debate the impact of the Ethiopian dam project.

 Back to the security front, and besides the Muslim brotherhood, terrorist activity of Ansar Bayt al-Maqdis, ISIS affiliates in Egypt, rose by the end of the third quarter. Yet, the country took strong action to defeat terrorism as revealed in Sinai where Egyptian forces arrested and killed several jihadists.

 Economic growth was stimulated in the last quarter of the financial year (FY) 2013/2014 by the accelerating activity of manufacturing and real estate hand in hand with the construction sector. Officials estimated real Gross Domestic Product (GDP) growth at 2.2% during FY 2013/2014 compared to 2.1% in FY 2012/2013. On a quarterly basis, real GDP growth stood at 3.7% over the period April-June compared to the 2.5% and 1.4% registered in the previous 2 quarters. This reflects the progressive expansion of the economy amid a favorable environment and rising investment confidence. In this context, Egyptian authorities invited the International Monetary Fund to assess economic performance which will certainly boost the country’s image and boost confidence.

 Investments projects marked Q3 2013 with Egypt’s government planning to develop its refining and petrochemicals sectors amid a $14.5B investment plan over the next 5 years. The Emirati Arabtec also started its $40B housing project in Egypt that will build affordable homes for Egyptians on the land provided by the country’s armed forces free of charge.

 Similarly, the 145-year-old waterway remained one of the top concerns of Egypt’s President that announced, in the beginning of August, expansion plans of the Suez Canal by adding a new channel worth $4B, part of the $8.4B upgrade project. The latter was financed through investments certificates only bought by Egyptian citizens denominated in Egyptian pounds, maturing in 5 years and bearing an interest rate of 12%. By mid-September, the whole cost of the upgrade project was raised in eight days only. However, 2 ships crashed at the northern end of the canal by the end of September delaying shipping activity for a short period. However, revenues amounted for $5.37B during FY 2013/2014 compared to $5.03B in the same year.

 Annual inflation reached 11.1% in September 2014 compared to 10.2% in the previous year and 8.2% in June 2014. This was partly related to the uptick in the prices of food items ahead of Eid el-Adha.

Many reasons were behind the progress of tourism activity between June and September 2014. The improvement of the security situation, the proliferation of cultural and scientific activities as well as lifting travel bans by several countries boosted the sector’s performance. Tourists’ number sprouted in the 3rd quarter of 2014 by 70% y-o-y to $2.77M compared to the same period last year. Yet, the overall incomers during the first nine months stood at 7.20M, still below the 7.55M reached in 2013.

 Hotels also revealed signs of improvement in Q3 2014 despite the heightening operational costs due to the newly imposed taxes. Hotel occupancy rates in the capital Cairo edged up by 6 percentage points (p.p) to 32% during the first three quarters of 2014 with the average room rates rising 5.6% y-o-y to $88. On a positive note, and after suffering a 7.4% yearly loss in room yields by June 2014, Cairo hotels saw their room yields surging 27.3% y-o-y to $28 by the end of September 2014.

 Externally, Egypt’s balance of payments reflected the improving standing of the country on the external front as it rise from $237M in FY 2012/2013 to $1.48B by the end of FY 2013/2014. The net inflow of Foreign Direct Investments (FDI) also edged up from $3.8B to $4.1B over the same period on higher net inflow from the oil sector despite the 6.7% y-o-y drop in net Greenfield investments to $2.2B. Conversely, trade deficit widened 9.8% y-o-y to $33.70B on decreasing exports (-3.2% y-o-y) and rising imports (+3.7% y-o-y). on the brighter side, Egyptians working abroad highly boosted remittances to the country that surged by 14.3% y-o-y to $5.40B over the same time frame.

 On the fiscal front, the overall revenues added 16.8% y-o-y to $65.09B during FY 2013/2014, while total fiscal expenses followed at a slower pace of 10.2% to $98.54B. In this context, fiscal deficit (including net acquisition of financial assets) stood at $35.46B compared to $34.58B in FY 2012/2013.

 The Monetary Policy Committee (MPC) decided to maintain levels of interest rates after increasing key interest rates in June in an attempt to curb inflation for the first time since March 2013. Net foreign reserves slumped by 9.8% y-o-y to $16.87B by the end of September 2014. Customers’ confidence in the banking sector boosted total deposits (including government deposits) by 21.5% y-o-y in August 2014 to $207.09B, as well as total lending that inched up by 6.9% y-o-y to $81.82B.

 Trading on Egypt’s stock market kept improving during the third quarter with the index surging 74.6% y-o-y during the first nine months of 2014 to close at 9,811.40 points. The average daily volume traded reached 155.56M shares worth $94.40M in Q3 2014, up from 108.18M shares worth $56.14M recorded a year earlier. Market capitalization stood at $73.31B up from $56.35B in September 2013 with the number of transactions increasing by a yearly 23.8% in Q3 2014 to 1.47M.

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