While last year ended with a note of "cautious pessimism for Egypt's prospects, 2009 demonstrated that the country can rely on its own domestic market to drive growth and that its expanding economy and population appeal to investors even in tough financial conditions. This year was not as bad as we expected, though the question remains whether relative stability post-crisis will matter in the long run. Magdy Sobhy, economic expert with the Al-Ahram Center for Strategic Studies, said, "The Egyptian economy still relies heavily on external conditions, which were not good, to say the least. But managing to come through 2009 as well as we did demonstrates the real growth of the economy in last three years, entailing at least a modest shift away from total dependence. In September the goods market, as measured by gross domestic product, (GDP), was determined to have grown 4.7 percent. In May, Investment Minister Mahmoud Mohieldin called Egypt's 4.3 percent growth in the third quarter of the fiscal year "a breakthrough, reversing the downward trend that saw growth fall from 5.8 percent in the first quarter to 4.1 percent in the second quarter. Growth for 2010 is projected to top 5 percent. According to a Business International Monitor report, "In terms of GDP by industry, only two sectors saw output contract in the first nine months of the year: Suez Canal activity declined by 1.5 percent, and oil refining fell by 3.2 percent. All other sectors saw positive growth, with construction and communications outperforming, expanding by 11.6 percent and 15.0 percent, respectively. For Egypt to absorb the swelling population and 600,000 new job seekers annually - it must grow at pre-global economic crisis rates of at least 7 percent. Earlier this month, Minister of Investment Mahmoud Mohieldin said economic growth is set to meet official forecasts of a 5-5.5 percent in fiscal year 2009/10. The budget deficit could be well below the officially forecast 7 percent of GDP, he added. The money market, as measured by inflation and interest rates, experienced high levels of vigilance. After repeatedly cutting interest rates since February to boost growth, the Central Bank of Egypt (CBE) finally kept them at 9.75 percent in November for lending and 8.25 percent for deposits. In Sobhy's opinion, the hasty shift in monetary policy proved reckless: "The government saw that inflation had gone down for two months and immediately stopped cutting interest rates. Now inflation is up again and the cost of staple items is up and the average Egyptian is suffering for it. Inflation as measured by CPI (Consumer Price Index), registered 13 percent. Urban inflation, the price indicator watched most closely, hovered slightly higher, reaching 13.3 percent in November after months of decline from an all-time high in late 2008. Officials predict, however, that inflation will finish off the fiscal year between 6-8 percent. In October the government began to publish the core inflation rate, which strips out more volatile items such as food, a move to increase transparency. As of December, the labor market, as measured by unemployment, was at 9.37 percent, although some experts argue that it is much higher, particularly in terms of under-employment. Foreign direct investment in Egypt will reach its $10 billion target for fiscal year 2009/10, Mohieldin said. Foreign Direct Investment (FDI) inflows came to a fairly healthy $5.2 billion in the July-March period, down sharply from the $11.2 billion recorded in the same period of fiscal year 2007/08. According to BMI, "The single largest source of FDI over recent years has been the US, but flows have slowed considerably, as that economy has contracted. Flows dropped to $0.664 billion and $0.836 billion in quarter two and quarter three, compared with $2.066 billion and $1.418 billion in the same period of the previous year. "The Gulf states are important investors as well, but here too inflows have fallen, on the back of a renewed focus on domestic economies by GCC governments and sovereign wealth funds, in the wake of the oil price collapse. If you're a glass half-empty type, you'll look to The Economist 2009 Intelligence Unit, which predicts an average growth of real GDP per head of 4.4 percent for the next 20 years, a figure that is insufficient to provide for increases in population and labor market. For the optimists however, the Unit did mention that "a faster pace of economic reform, including measures to increase labor market flexibility could potentially "raise productivity and lift Egypt s growth to much higher levels. Strong GDP growth - the strongest, in fact, of 2009-2010 in the mainstream Europe, Middle East and African (EMEA) region - earned Egyptian equities an "overweight rating by Credit Suisse, as well as Egypt's "solid external position and low currency risk. All in all, 2009 brought a combination of pleasant surprises and not-unexpected challenges. 2010 will begin with more hope than its predecessor, although experts suggest a continued mentality that "we're not necessarily out of the woods yet.
