The Egyptian economy is suffering from an increasing budget deficit, and lack of direct foreign investment. Recent developments in the Gulf regarding oil prices and geopolitical risks are affecting current and future aid from the Gulf, said managing director and head of products at EFG Hermes Ahmed Shams.
At the 12th annual EFG Hermes One on One Conference, which is ongoing until Wednesday in Dubai, Shams told Daily News Egypt that these developments have increased the deficit in the balance of payments, which has led Egypt to look to the World Bank and other international institutions to compensate for the decline in aid.
Moreover, 70% of Egyptians who work abroad are in countries that are directly affected by the decline in oil markets.
In response to the erosion of dollar reserves, Shams stated that economic protocols suggest that the solution is to float the pound. This solution is difficult to implement in Egypt, due to the political and social dimensions associated with this resolution. Therefore, it is necessary to work to increase dollar resources, either through available resources and price adjustment, which is difficult, or by setting restrictions to rationalise imports.
Regarding the current circumstances of the emerging markets and the risks, Shams said Egypt is one of the few countries that can take advantage of international circumstances. He explained that there is almost no growth in Europe and a slowdown in China following the massive growth cycle in the past period.
This situation, according to Shams, heavily affects commodity prices at a time when there are opportunities to attract direct investments to Egypt, either through the stock market or by taking advantage of differences in interest rates (carry trade). These solutions may help in the short-term, but they are not developmental aids as much as they are temporary solutions.
He said that adjusting the dollar price is currently difficult. However, the sectors that did move their prices have grown significantly, such as the energy sector. This sector attracted large investments that contributed to resolving the energy problem, which swelled after 2011.
Short term solutions include taking out loans, or selling assets in order to build up a good dollar reserve that can be built upon later, Shams said.
In the long-term, Egypt is actually a very good market compared to the situation of emerging markets; there is negative growth in Brazil and the Turkish lira has declined by 80% since 2013, he said.
“Investors seek an economic reform programme and fundamentals in the economy, both of which are currently available in Egypt,” Shams said.
As for his expectations for economic growth in Egypt, Shams said the outlook for this year’s growth aligns with the government’s expectations: between 4.2% and 4.5%. These are good rates in a global comparison. However, predicting next year’s growth rates is difficult in the wake of global decline.