Government’s stimulus investment package: Would it rein in inflation?

Fatma Salah
6 Min Read

The Egyptian government launched a stimulus investment package in the recent conference of the Prime Minister, which dealt with the government’s plan to stimulate the Egyptian capital market by completing the government’s IPO programme, as well as tax and export incentives to support the industrial sector.

This step comes in light of the high levels of inflation in Egypt as a result of the consequences of the Coronavirus outbreak, as well as the Russian-Ukrainian war, which cast a dark shadow on global economies, which directly affected emerging market economies, including Egypt.

The government is trying to control the stagflation through these stimulus packages. Daily News Egypt surveyed the opinions of research centres about the impact of those decisions on different sectors, especially industry.

Reducing Egyptian imports

Amr Al-Alfi, head of research at Prime Securities, sees the recent Prime Minister’s conference, which dealt with resilience in the face of the global economic crisis, as a new game plan.

In a research paper, Al-Alfi said that the government is adopting a new action plan, as it has provided important incentives to investors in particular, on top of which is reducing the Egyptian import bill, as the government aims to support industries that compete with imported goods, reducing its import bill by about $20bn.

He explained that this will lead to a series of consequences for the economy, as imported inflation is likely to rise in the short term causing a decline in the standard of living, so that new factories could benefit from economies of scale.

In addition to the rise in the gross domestic product, production and income will increase as a result of the decrease in the unemployment rate.

He pointed out that the impact will also include an improvement in the current account deficit, especially with the government planning to increase its export capacity to replace certain imports, and encourage industries within strong global markets, where Egypt has a comparative advantage such as textiles.

Al-Alfi pointed out that the second important axis is to stimulate the activity of the Egyptian Exchange, as it was announced that shares were sold in 12 state-owned companies, by merging the seven largest ports in Egypt, and the seventh highest performing hotels, which in turn brings a lot of liquidity and momentum that the Egyptian Exchange needs. 

He explained that the third important axis is the inflation-reducing measures aimed at alleviating the severity of the crisis, as the government promised more support to help control inflation.

He pointed out that the government is working to encourage foreign investment in modern technology sectors such as data centres, which Egypt has already started working on through Telecom Egypt.

The government wants to improve and consolidate the idea of ​​copyright and intellectual property rights by moving forward to secure investors in terms of the protection of their business under the law, according to Al-Alfi.

He believes that Egypt is in a good position to become an energy centre for global access, especially with Europe’s shift away from Russian energy, especially since these countries are finding sustainable and consistent alternatives to fossil fuels, pointing out that Egypt has a distinguished position in terms of proximity and distributional capacity for renewable energy.

Tax incentives

Al-Alfi stressed that the government aims to create a more favourable environment for investors, as it confirmed that many old routine procedures will be removed by issuing a special “golden licence” for projects that are of high national importance.

In addition, it will provide new incentives such as tax exemptions for a period of 3 to 5 years for new companies operating in strategic sectors.

Mostafa Shafie, head of the research sector at Arabeya Online, said that the government is working to create incentives for investment, which was evident in the last Prime Minister’s conference, especially with the economic conditions and changes globally, and the consequences of the Russian-Ukrainian war on economies.

Shafie added that one of the most prominent incentive decisions is the suspension of value-added tax on some production machines and tools, which represents a positive factor on the shoulders of companies and maintains their profit margins, especially with the conditions of slowing global trade movement.

He added that Egypt directly benefited from the consequences of the crisis, especially after it was able to export gas to the European Union, as it is the ideal alternative to Russian gas, in addition to benefiting from the petrochemical sector in general, which witnessed the revival of its exports as an alternative to the Russian and Ukrainian ones.

He added that the government did not forget the capital market, especially since it was suffering from the outbreak of the Coronavirus, as the government plans to complete the government IPO programme, which would stimulate the Egyptian Exchange during the coming period.

Shafei believes that the current market conditions are not conducive to new government IPOs, especially since there are stocks that trade less than their fair value, and this type of offerings, led by Enppi and Port Said Container and Cargo Handling Company, will need new liquidity.

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