Audi Bank: Stability Will Boost Egypt’s Economy

Audi Bank cited that Egypt’s real GDP is estimated to have slowed to 1.2% in FY 2011, against 5.1% in FY 2010 as per IMF figures. In parallel, the consumer price index rose by 11.1% due to the impact of rising international commodities and food prices coupled with the depreciation of the Egyptian pound.

Regarding sectors most hit by the political unrest, namely tourism, trade, financial and business services, telecommunications and manufacturing. Defensive sectors such as pharmaceuticals and fertilizers were mildly affected and Suez Canal revenues showed a significant deal of resilience. Consumer spending maintained its positive growth though slowing down within the currently politico-security unrest, while investment is estimated to have dropped significantly within an overall cautious investor mood and with circa US$ 15 billion worth of projects being suspended.

Measured by total assets of banks operating in Egypt, banking activity almost stagnated in US Dollar terms (a mild 2.0% increase in local terms). The Central Bank reported NLPs at 11.0% of total loans as at end-September 2011, yet with loan provisions covering 93.7% of NLPs. Subdued lending activity, coupled with downward pressures on non-interest income (mirroring a deceleration of private spending) and rising provisioning levels, lead to contractionary pressures on bottom lines.

Within the context of large domestic currency conversions, Egyptian FX reserves reached US$ 15.6 billion in February 2012, the equivalent of 9.1% of Money supply against a peer country average of 30%.

While the Egyptian Exchange was the worst performer in the MENA region in 2011, but revived during the first two months of 2012, posting an impressive pick-up in prices of 47.7%, as local and foreign investors found a good opportunity in buying beaten-down stocks.

The report concludes with saying that the uncertainty over the political transition process means that recovery will be slow. Therefore, currency stability and decreased political risks together with an ambitious externally backed economic adjustment program will ensure economic recovery.