The growth outlook for 2014 has been revised down to 2.0%, 2.5% as a result of ongoing political turmoil and transition. With population growth at around 2%, Egypt remains in state of stagflation.
The IMF predicts annual growth will be 3.6%, down from a prior prediction of 4.8%. The downturn in economic growth and high levels of unemployment (12-13%) hit government revenues hard, and the government is running a budget deficit of around 12%, down from 13% in 2013. Egypt is leaning heavily on macro-fiscal support from the oil rich GCC states and the IMF.
With inflation running just shy of 10%, down from 12.97% in November 2013, Egypt continues to suffer from protracted political uncertainty and the short-term outlook for 2014 remains bearish. General Abdul Fatah Al-Sisi has just been elected President. Growth forecasts for 2015 will then likely be revised upwards though the continued dominance of military government undermines the likely of market based reforms. Egypt remains in a complex political (constitutional and representational), security and socio-economic transition, though the overthrow of Morsi's Muslim Brotherhood government and the 2014 elections will create a great deal of political uncertainty. Youth unemployment, structural economic challenges and the domination of power by military and political business elites will continue amidst ongoing regional instability.
A surging population buffeted by unemployment, weak foreign exchange reserves, burgeoning budget deficit, distortionary subsidies and massive drop off in Foreign Direct Investment indicate poor economic growth prospects for Egypt in the short to mid-term. Egypt's chaotic economy and governance structures will spur inflation and increase illegal and informal markets. Elite capture of state processes and institutions, greater centralization of constitutional power and corruption will starve local administration and deepen instability.
The transportation sector remains the main pillar of economic growth, with 8% of global shipping passing through the Suez Canal, and 90% of Egypt's foreign trade shipped through ports. The sector accounts for 4.8% of GDP in 2014, with 4.1% in the private sector.The retail sector is booming, with the value of the retail segment increasing by 79.7% in local currency terms, from an expected US$35.48 billion in 2012 to US$63.77 billion by 2016.
The IT sector is likely to lead the growth pack, as Egypt remains a leading destination for global outsourcing, above the UAE. Egypt also has the only fully vertically integrated textiles industry in the Middle East, accounting for 30% of local employment and 14.4% of non-petroleum exports in 2013, according to General Organization of Export and Import Control. Agriculture contributes around 13% of GDP, which is critical for feeding the 80 million population, which still relies heavily on imported wheat.
The Petro-chemical sector is expected to attract US $7 billion in annual revenue, produce around 15 million tons per year petrochemicals products including urea and ammonia, and create 100,000 new jobs by the year 2022, according to the Egyptian Petrochemicals Holding company (ECHEM). The depletion of national gas reserves will see significant investment in renewable energy.
The construction sector is expected to reach 5.6% in 2014, dominated by the private sector. The financial sector is poised for growth in 2014 with strong showings in mortgage finance, insurance, capital markets and the exchange market. Tourism is also an important driver of foreign currency, but like all other aspects of Egypt's economy, will remain vulnerable to political instability.
Egypt's doing business ranking (ranked 128 out of 189 economies) slipped in 2014, compared to 2013 figures, as a result of widespread political uncertainty and weaker government investment. Egypt's business environment is behind Jordan and Lebanon, behind the regional MENA average and considerably behind the UAE and Kingdom of Saudi Arabia. While starting a business is easy (50), contract enforcement (156), paying taxes (148), protecting investors (147) and dealing with construction permits (149) is challenging. Market access to credit (86) and trading across borders (83) are stronger points.