Economic crises are never a good thing. But depending on the timing, they can be especially devastating. Egypt's economy was in major growth mode when the recession struck last fall. GDP growth was high, job creation was strong, and Egyptian businesses were going international. As the recession began, analysts turned to a number of critical sectors, knowing that their resilience would be key to Egypt's ability to keep its economy afloat as the months of economic turmoil ground on. And the results were decidedly mixed. The construction sector in Egypt is critical, not only for the jobs it creates, but also for playing its part in Egypt's international trade arena. Cement held up well despite massive price deflation. "The price trends of commodities like cement and steel went down by more than 50 percent, said Ismail Sadek, an analyst and construction expert at Beltone Financial. Sales of cement were up 24 percent in the first half of the year, compared to the first six months of 2008. For steel, the picture was less clear. "Steel prices are attached to the international prices, said Sadek. As international prices plummeted, Egypt's domestic market mirrored the collapse. Steel fell from a high of LE 6,700 per ton late last summer to as low as LE 2,800 per ton. Flat steel, which is used in industry and primarily feeds the export market, fared the worst. Ezz Steel, the country's preeminent steel merchant, generally maintained rebar sales, but it was forced to close down a flat steel factory. In November, local cement prices recorded an average of LE 485 per ton and steel reached LE 2,750 per ton. Prices have fluctuated, and most recently, Al Ezz Steel Rebars announced its selling prices for December at LE 3,070 per ton. Rebars are mainly used in construction and most of the sales are for the domestic market. "Performance of cement was much better than steel, said Sadek. Sadek said, though, that analysts expected the second half of this year to be worse for steel anyways, since Ramadan and Eid Al-Adha would contribute to the slowdown. A new landscape If 2007 through the third quarter of 2008 was the "golden period of real estate, as Beltone analyst Khalid Khalil calls it, then the last 15 months has been about the industry trying to find its footing in the new economic landscape. Real estate was an industry poised to bear the worst of the economic slowdown. Developers had banked on a near-limitless appetite for housing. They bought up massive chunks of land stretching farther and farther into the desert. Over fears about how low the economy might sink, cancellations and defaults spiked in the fourth quarter of last year. But 2009 painted a different picture, as the real estate companies proved nimble in their ability to adapt to the changing times. Sixth of October Development and Investment (SODIC) and Palm Hills Development, according to Khalil, quickly changed strategy in order to reflect a diminished appetite for lavish spending. Without reducing prices per square meter, both companies launched phases of their developments that they carved into smaller lots. This began in the first quarter of 2009. SODIC's Allegria Phase IV reflected this mentality, and 90 percent of the smaller lots it offered sold out in six months. Talaat Moustafa Group announced that instead of focusing on sales in 2009, it would concentrate on delivering the houses to which it had committed. According to Khalil, though, the real estate bubble was inevitable. The economic slowdown simply hastened its arrival. "It was a matter of 'when,' he said. "But with what happened in the fourth quarter [of 2008], it happened more quickly. Khalil did note, though, that the slowdown cleared many of the destabilizing elements from the real estate market. "A lot of speculative buying halted, he said. The real estate market today is on solid footing. Beginning in the second quarter of this year, new contracts began exceeding cancellations, and the sector has shown its resilience and ability to rebound. Bank on it Banks, too, while suffering a downturn as a result of the economic crisis, seem to have found their footing amidst the storm. For the banking industry, the timing of the economic collapse seemed inauspicious. "Banks started to breathe in 2005 and 2006, said Hany Genena, director of research at Pharos Holding. Credit grew an astonishing 20 percent in 2007, creating something of a revolution in the industry. As the crisis struck, "banks diverted liquidity to the government, said Genena. In June, 2008, banks had a 13 percent exposure to government treasuries. By June of this year, that number was 25 percent. In September and October of this year, banks began to realize a massive pent up demand for loans. But the banks have been proceeding cautiously, tightening credit themselves, instead of relying on Central Bank policy to do so. The country's banking sector, characterized by high liquidity and a relatively low loan-to-deposit ratio, has been lauded for its resilience during the global economic crisis, which many attribute to reforms undertaken over several years. And despite the crisis, the banking sector is moving forward with reform. In October, Egypt's central bank announced that the focus in the coming period will be shifting to a Basel II capital adequacy framework, which aims to create an international standard for banking regulations, such as stipulating a minimum amount of capital banks need to allocate to guard themselves against operational risks. The upcoming reforms will also focus on specialized banks owned by the state and the development of financing for small and medium enterprises (SME). Microfinance has also taken off this past year as more and more banks realize the potential in the nascent market. The conventional wisdom dictated that Egypt, like most developing economies, would lag behind developed countries in terms of economic decline and recovery. While the effects of the crisis did hit Egypt later than they struck the west, the recovery, at the corporate level, seems to have been quick and robust.
