Since President Abdel Fattah Al Sisi was sworn into office as president on June 8, 2014, Egypt's economy has been trying to get back to normal levels, but has faced obstacles presented by the general lack of security in the country. The economy has passed through two different governments in 2015, each with its own challenges and visions. Al Bawaba EG takes a closer look to examine the economic situation in both phases. The roadmap of June 30 was the state's tool to achieve stability that will help flourishing the economy. Presidential elections were the second of a three step transition. The first step, voting on a new constitution, took place in early 2014. Step three of the transition, parliamentary elections, concluded in December 2015.
However, Egypt's economic growth has been moderate and insufficient to absorb the rapidly growing population and labor force.
Starting 2015, Prime Minister Ibrahim Mahlab's government has initiated reforms to reduce energy subsidies, broaden the tax base, reduce the deficit, and improve targeting efficiency of social safety nets but more remains to be done.
Egypt's economic freedom ranked 124 in the 2015 Index. Its overall score is 2.3 points higher than last year due to improvements in labor freedom, monetary freedom, and investment freedom. Egypt is ranked 12th out of 15 countries in the Middle East and North Africa region, but its overall score is still below the world average.
Over the past five years, Egypt's economic freedom score has declined by nearly 4.0 points, pushed down by double-digit losses in property rights, investment freedom, and financial freedom. However, this decline has come to a halt in the 2015 Index.
Further action to restore and improve economic freedom is essential to counter economic stagnation and poverty. Long-established weaknesses in the institutional framework that include price controls and government subsidies of gasoline have greatly burdened the budget and forced the government to seek a bailout from both the IMF and other Arab states.
Mahlab's government announced in July that the FY 2014/2015 budget aims to decrease the deficit to 10% of GDP, compared to the previous year's 12% of GDP deficit. The government targeted a 90% reduction of GDP foreign and domestic debt, as well as a 14% surge in investment and 3.2% economic growth.
The prime minister, then, asserted that the unemployment rate will reach 13% during the same year, compared to 13.3% in FY 2013/2014. He attributed this slow growth to the decline in several sectors such as tourism, industry and agriculture. The government expected the average annual growth in citizen income to be EGP 100, increasing from an average annual salary of EGP 19,200 to EGP 19,300, a monthly increase of EGP 8.3.
The adjustments Al-Sisi made to the FY 2014\2015 state budget included reducing petroleum subsidies to EGP 100.2bn from EGP 104bn noted in the draft, compared to EGP 134bn allocated in the FY 2013/2014 budget. He also called for decreasing electricity subsidy allocations from EGP 33bn in the draft to EGP 27.2bn, compared to approximately EGP 18bn in last year's budget.
Egypt's government is also currently working on the launch of a new economic stimulus package to boost the sectors necessary for economic development. These include the industrial, housing and construction, communication and tourism sectors, the Ministry of Finance's July bulletin stated.
Amid ultra high security measures, Egypt held Sharm El Sheikh's Economic Development Conference in March, in the attendance of President Al Sisi, most of the government officials and top level company officials. The Egyptian political administration received broad international and Arab support during the "Egypt the Future" economic conference, which was aimed at boosting the country's economy.
During the conference, the government announced huge investment projects, in addition to 40 agreements and memoranda of understanding being signed in the electricity, energy, housing, telecommunications and oil sectors. PM Mehleb stated that Egypt have agreed upon total investments worth $60 billion, including $18.6 billion on funded projects. Egypt received $12.5 billion in support from the Gulf states in addition to $5.2 billion in loans and funds, which will be directed at projects carried out within a year or two, according to Mahlab's closing speech at the conference.
The largest deal signed by the Egyptian government during EEDC was that with Emirati Emaar Properties to construct a new administrative capital. The agreement stipulated that Egypt will give "Emaar" the land while the company will undertake all investments, divide the service and commercial buildings, and sell them for its own profit. Meanwhile, Emaar will give the government administrative buildings free of charge, Hany Dimian, former minister of finance, said.
The project will span 17,000 acres at an estimated cost of $45 billion, and will be implemented within five to seven years. Mahlab's government revealed that the capital will not be moved outside of Cairo. The latter will remain the political capital of Egypt, while the project for a new administrative capital will serve as the seat of governance.
One-Million Housing Units project
One of the mega national projects long promised by President Al Sisi was the one million housing units that will help solving the issue of housing in the country. Mahlab's government entered long talks with the Dubai-listed contractor Arabtec Construction to implement the first phase of the low-cost housing project in the country.
In August 2015, Arabtec asserted that it will reveal all details of the $40 billion housing project upon reaching an agreement with the Egyptian government, Arabtec said in a statement. The first stage includes building 100,000 housing units, supported by both the Egyptian and Emirati governments. The delivery of the first batch of units will be in the beginning of 2017, and the "one million housing unites" project is expected to be completed before 2020.
Egyptian officials said that the success of the new Suez Canal can't be measured through ships and revenue alone. The new canal is also meant to inspire confidence in Egypt's return to its old economic position in the Middle East. However, the navigation traffic data for November 2015 issued by the Suez Canal Authority revealed a decline in revenues for the third consecutive month since the inauguration of the New Suez Canal on 6 August.
Despite the massive investments spent in the expansion project of the canal, this is the tenth month in a row revenues have fallen year-on-year, according to figures released by the Suez Canal Authority. Suez Canal revenues continued their downward trend in September, with US$448.8 million in tolls collected compared to US$469.8 million in the same month last year. The canal's revenues recorded $449.2 million and $408.4 million during the months of October and November respectively.
Dabaa Nuclear Plant
In the middle of November 2015, President Al Sisi witnessed the signing of Dabaa nuclear preliminary deal between Russia's State Nuclear Energy Corporation "Rosatom" and the Egyptian Ministry of Electricity. Egypt and Russia are going to sign the final contract on the Dabaa nuclear plant in January 2016.
Al Sisi said in November that Egypt will pay for the power plant with proceeds from "the actual production of electricity" from this plant, with electricity generation set to start in 2024.
The Egyptian president previously said the Russian offer was the "fastest" and "best" on the table, stressing that the plant will only be used for peaceful power generation purposes.
This project, launched during the reign of current PM Sharif Ismail, is seen as the real start of Egypt's development plan. The implementation of the large sea port on the eastern side of the Post Said city is part of the overall Suez Canal Axis Development Project. The new port will include industrial, logistics, and residential zones as well as one dedicated to fish-farming. A road tunnel will also be built under a channel to the south of the city.
During his speech at the launching ceremony, Al Sisi reviewed the project's features, and gave his instructions to the Armed Forces Engineering Authority, which supervises the project, that it will be completed in two years instead of three. The port is characterized by direct access from the main Suez Canal and the Mediterranean Sea, with a total site for port and logistics development of 2,600 hectares.
According to the website of the General Authority for the Suez Canal Economic Zone, the East Port Said Port and its Industrial Development Complex will be Egypt's foremost transshipment hub and trade-oriented gateway.
Foreign Grants and Loans
The financial foreign grants for Egyptian government, especially from Arab countries, have witnessed a significant decline in 2915. The Ministry of Finance stated that the country received an EGP 8 billion grant since May 2014 compared to EGP 51.5 billion in the same period of the fiscal year (FY) 2013/2014.
The volume of grants in the FY 2015/2016 reached EGP 2.2 billion compared to EGP 25.7 billion in FY 2014/2015 with a 92% decline.
The International Monetary Fund (IMF) has kept its forecasts for Egypt's growth at 4.2 percent in 2015 and 4.3 percent in 2016. IMF foresees Egypt's budget deficit falling by 0.8 percent to 3.7 percent in 2015 and 4.5 percent in 2016 compared to 13.4 percent in 2014. Egypt's savings following the drastic oil price drop was a main factor allowing the economy to maintain its performance, according to an IMF official.
