Egypt is undergoing a stage of economic transformation. Analysts say that the economy of Egypt still faces challenges to its improvement and the work of the government comes from a weak starting point. However, the country is seen as a market for UAE companies within multiple industries. "The sovereign rating of B3 currently carries a stable outlook because we see that the credit challenges and the credit strengths are balanced. We see gradual improvement in the government finances but the deficit is very large. At the same time the government debt level remains high," said Steffen Dyck, senior analyst at Moody, the international finance corporation for credit ratings. Steffen explained that the Suez Canal receipts have shown a very strong correlation with global trade, and based on this correlation, world trade would have to grow by around 10 per cent per year between 2016 and 2023 to achieve the projected $13 billion (Dh47.7 billion) in annual revenues. "Under more conservative scenarios of trade growth and assuming no material change in the current toll structure, Suez Canal receipts would grow at a much slower pace, thereby limiting the positive effects on Egypt's external payments position. For instance, between 1992 and May 2015, average growth in world trade was only around 2 per cent per year." According to interviewees, the gains from the Suez project will be seen over the longer-term. However, according to Gary Dugan, managing director, Global Wealth Division, and Head of Investment Strategy at NBAD, the initial benefit is the increased speed that shipping can pass through the canal that should cut down shipping costs for products bound for the UAE. "The future development of industrial parks alongside the canal offers the opportunity for UAE companies to develop manufacturing bases in Egypt with first class infrastructure around them. As much as the Egyptian economy can improve in the coming years the greater the opportunity for Egypt to be a captive markets for UAE goods and services," said Dugan. Free zone Egypt is viewed as a market for the UAE companies with around 600 companies now operating there. One of the companies in Egypt is the Abu Dhabi's National Marine Dredging Company (NMDC) which is expected to set up the Suez Canal Development Zone (SCZone), an independent free zone, which is viewed as an opportunity for UAE companies to set up industrial parks and logistics hubs. "From an Egyptian perspective this could be the turning point for Egypt's economy if they are able to truly capitalise on the investment opportunities in and around the Suez Canal in industries ports, than this could completely transform Egypt's economy. But again it's how to get there? if the bureaucracy stays as it is, if the issue of financing and funding and inability for local banks to support local investors is still in Egypt, then its going to be very difficult to do so," Hossam Abougabal, an analyst with the Middle Eastern financial outlet MEE. In hope to stabilise the country, the UAE has provided Egypt with an unprecedented economic support whether on grant based investments or bringing private sector to the Egyptian market. Saudi Arabia, Kuwait, and the UAE pledged a combined $12.5 billion in aid to stimulate the Egyptian economy during the investment summit conference that was held earlier in March. "Support from GCC countries in the form of deposits at the central bank of Egypt and fiscal grants has helped avoid a severe crisis. The deposits saved a run down in reserves which could have more consequences. On the fiscal side the grants have helped maintain spending on government infrastructure. Reforms on the expenditure and the revenue side will be credit-positive, if implemented," said Steffan. The new capital city, a project proposed between Cairo and the Red Sea, is viewed as an investment in Egypt by UAE's private sector. The project is set to be built by Capital City Partners, owned by the Emirati businessman Mohammad Al Abbar. This project is seen as a foreign direct investment (FDI) coming into Egypt. The project is one of various other high end luxury projects in the country. Cityscape Egypt expects to witness a purge from the UAE. Infrastructure "The flow of capital from the UAE to Egypt helps in a number of ways; it provides inflows of capital that support the Egyptian pound, it is helping to build infrastructure that will improve the long-term growth of the economy. If the capital inflows encourage the financial and political stability of Egypt the UAE will benefit from having a much improved trading partner," said Gary. Arabtec has a project which is one million affordable home project in Egypt, however analysts believes there was a complication over financing. According to Reuters, the entire project will cost about 280 billion Egyptian pounds ($35.8 billion). On Wednesday, September 2, Arabtec said that there is no progress in the project. According to Abuogabal, both the Capital and the Arabtec face similar financial complications. "But Egypt can be a very profitable market for the UAE businesses. Many of Egypt's industries from retail to even petrochemicals are not working at their full capacities, if [these industries] reach their capacities, Egypt can be a very profitable market for the UAE businesses," Abougabal said. Source: Gulf News
