Previous Quarterly Editions
Expropriation Risk: 44 43 45 44 Political Violence Risk: 48 50 47 45 Terrorism Risk: 65 63 61 59 Exchange Transfer and Trade Sanction Risk: 54 52 55 53 Sovereign Default Risk: 49 48 52 52
TREND ▼ OUTLOOK ►
Early and decisive action by the government has been effective in containing COVID-19. Confirmed cases reached 85,000 in mid-July 2020, with 4,000 fatalities among a population of more than 100 million. As the rate of new infections began slowing, the government responded by easing lockdown restrictions. By the start of July 2020, cafes, mosques and gyms had reopened and select resorts, hotels and historical sites were available to foreign visitors as national carrier EgyptAir resumed international flights. However, the damage to the economy is substantial as the tourism sector, which contributes 14% of GDP and is a major employer, has been heavily affected. At the same time, remittances from Egyptians working abroad and revenues from the Suez Canal have both fallen sharply. FDI flows have dried up and foreign investors have pulled money out of the economy. With global gas prices falling, one major LNG project has already been postponed because of falling demand. Egypt has obtained loans totalling eight billion USD from the IMF and has raised another five billion USD in Euro bonds to meet the estimated ten billion USD needed to cover a shortfall created by increased spending on education and infrastructure and now COVID-19 related needs. Despite the problems, Egypt should still grow in 2020-21 but unemployment is likely to rise sharply at a time when the issues that led to the Arab Spring a decade ago are still present. So far, the government is largely seen as having handled the situation well, but it has maintained its crackdown on the domestic media and international reporting from the country. Legislative elections are expected to go ahead in November 2020, and changes to the election law will allocate half the seats in the new parliament to party lists, a sign that President El Sisi feels confident that the opposition is no longer a threat and that he will have enough support in parliament to ensure that it does what he wants. Two legislative amendments in July 2020 have also strengthened the role of the military in government, with all governorates now required to have a 'military adviser' with a team of assistants. Meanwhile, regional issues remain a concern. The president has said that any move by the Government of National Accord (GNA) in Libya and its Turkish ally beyond a “red line” running from Sirte to Jufra would lead to Egyptian intervention. Cairo is particularly worried that Syrian militias brought into Libya by Turkey will link up with other militants in camps close to the Egyptian border. Although authorised by parliament in July 2020, any Egyptian move into Libya would be a last resort and would probably be limited to the movement of a substantial force just over the border to show that it means business. Realistically, however, Egypt will have to accept that its investment in General Haftar has failed and it will now need to work with other groups in Western Libya. Tensions with Ethiopia over the Grand Ethiopian Renaissance Dam (GERD) are also heating up. Egypt has been campaigning hard in the UN and the African Union to persuade Ethiopia to make essential concessions before it starts filling the dam later this year. Before the COVID-19 crisis, El Sisi appeared interested in pursuing a more active regional and international role, but COVID-19 will force him to focus primarily on the domestic impact of the virus and retaining good relations with Saudi Arabia and the UAE. He will keep a close eye on any move by the Israeli government to annex part of the West Bank and the potential repercussions within Egypt.
Although low oil prices are pulling down gas prices, the government still expects Egypt’s gas sector to deliver significant revenues over the next three years as new offshore fields come on-stream and Israeli gas flows through Egypt to foreign buyers. FDI in the gas sector should rebound quickly from a COVID-19-related drop, which is important given Egyptian hopes that major investment in the sector will allow it to meet domestic demand while still increasing the volumes available for export. In the short term, domestic demand from the power sector, which has been spurred by a government price reduction in April 2020, could also help offset the fall in global gas demand.
In response to the events in Libya, the domestic crackdown on the Muslim Brotherhood is likely to intensify, as the government sees the Brotherhood as having links with Turkey, and so Cairo is having to accept that Turkey and its GNA proxy will not be dislodged from Western Libya. As a result, Cairo will need to find a more reliable ally than General Haftar to ensure that the border zone is kept trouble free. Egyptian rivalry with Turkey will intensify, not least over their separate ambitions for developing gas fields in the eastern Mediterranean. However, neither will want a military confrontation, and Egypt can still rely on support from its allies which include Russia, Saudi Arabia, and the UAE. Though some form of military operation to deter Ethiopia from filling the Renaissance dam cannot be ruled out, they remain highly unlikely and would not be effective.
Security forces killed seven militants in April 2020 in an operation against a terrorist cell planning to attack Coptic Christians in Cairo. Occasional terrorist attacks in the capital remain likely. There have been further but relatively minor attacks on security forces in Sinai, where the campaign to isolate the militants from the tribal population in conjunction with greater investment in north Sinai appears to have reduced support for the terrorists and the frequency and scale of their attacks.
Egypt entered the COVID-19 crisis with a well-managed economy. Growth should remain positive for 2020-21, although its still much lower than original expected growth of 6%. The value of the Egyptian pound has been stable after a small drop in May 2020 but would be undermined by a resurgence of COVID-19. Unemployment is expected to rise from about 8% just before the pandemic crisis and could double if the virus persists or returns in a second wave. Inflation has fallen slightly to around 5%, having been over 30% as recently as 2017.
TREND ► OUTLOOK ▲
International credit rating agencies have not revised their ratings for Egypt, a sign of confidence in the economy even though the debt-to-GDP ratio had risen to 74% before the pandemic as the government spent heavily on infrastructure. Foreign exchange reserves fell to 37 billion USD in May 2020, down from 45 billion USD in February 2020 despite an intervening bond issue worth five billion USD.
Return to contents Next Chapter