By Farah Atia
Egypt’s rising consumer expenditure, driven by its fast-growing population, has become a big attraction for Arab Gulf investors eyeing opportunities in the Arab world’s most populous nation. According to an analysis by the CAPMAS 2011 Household Income and Expenditure and Consumption Survey (HIECS), “the average Egyptian household spends 40.6% of its expenditure on food, rising to more than half for the poorest.”
This element, despite the ongoing political turmoil which has driven away investors and tourists for the past two years, prompted Dubai-based Majid Al-Futtaim Holding LLC to proceed with buying Metro Supermarkets in Egypt, according to the company’s Chief Executive Officer Iyad Malas. Al Futtaim, which had previously acquired a 25% stake in Carrefour, is also planning to complete the mall for its New Cairo project “Cairo Festival City” by next month.
Meanwhile, Abraaj Group, which currently manages $7.5bn worth of assets from its headquarters in Dubai, including the second largest stake in Spinneys (which Al Futtaim is considering buying), is planning to raise about $250m for future investments in North Africa.
Ahmed Badreldin, Abraaj’s Middle East and North Africa head, said at the World Economic Forum last week that revenues of the firm’s current investments in North Africa are growing by around 20% annually, even in the face of challenges caused by the Arab Spring.
Despite the low growth rate forecast for 2013, which was recently reduced from 3% to 2% by the International Monetary Fund in the April 2013 World Economic Outlook report, consumption by Egypt’s 84 million citizens made up around 90% of Gross Domestic Product (GDP) last year. A report by Worldwatch Institute stated that at least part of the rise in consumption is the result of population growth.
“The past two years have been difficult for the Arab countries in transition, including Egypt, Jordan, Libya, Morocco, Tunisia, and Yemen. And the situation will remain difficult over the near-term. Unless countries adopt a comprehensive policy package that aims to maintain macroeconomic stability and lays the foundations for job-creating growth, hopes… will be dashed, with implications well beyond the region,” said Masood Ahmed, Director of the Middle East and Central Asia Department at the International Monetary Fund.
Investments by firms from oil-rich countries are helping Egypt pick up the slack created by a dwindling economy through enhancing economic growth and creating jobs, especially with the current lack of internal growth opportunities. However, the sustainability of foreign direct investments that are based on an elevated level of consumption remains uncertain. “The success of the political and economic transition will ultimately be determined by the extent to which [Arab countries in transition] can generate higher and sustainable growth to bring down unemployment,” Ahmed said.