Is the Money flooding back to Egypt?

Despite continued political tensions in the country, Egypt’s economy is enjoying modest recovery as it prepares to welcome international investors to Sharm El-Sheikh.

The resort will host the Egypt Economic Development Conference (EEDC) this weekend. It’s an attempt to put Egypt back on the world map for investors and trumpet the reforms that have coincided with improving economic data.

Net foreign direct investment into Egypt was close to $2 billion in the third quarter of 2014, according to the Egyptian central bank, a sharp turnaround from the outflows seen in 2011 at the height of the country’s instability. Annual gross domestic product (GDP) growth is also projected to return to 5 percent in the next few years, according to analyst polls from Reuters.

“They’ve certainly made significant progress,” Firas Abi Ali, head of Middle East forecasting for research firm IHS, told CNBC via email.

Egypt has received the financial support of Saudi Arabia, Kuwait and the United Arabs Emirates and tourist numbers too are also showing a pickup. The BMI Research group – part of the Fitch Group – estimated in January that 2015 should see the “continuing recovery of Egypt’s tourism market.” A Financial Times report in November quoted statistics that showed tourist arrivals had shot up by nearly 70 percent in the third quarter of 2014 compared to the same period in 2013.

While these data points might be promising, analysts like Abi Ali expect current tensions between the state and the Islamists to continue for the foreseeable future and curb economic growth.

“One of the areas of concern is that the insurgency is now explicitly targeting the economy, and, from its perspective, the logical conclusion would be to target tourism in order to prevent an economic recovery that would weaken it,” he said.

Regime changes

Egypt, a country of 90 million, has seen a tumultuous four years. In 2011, the country was plunged into mayhem during the Arab Spring uprising in the region which saw former Egyptian President Hosni Mubarak ousted from power. Mubarak was replaced by Mohamed Morsi, a leading member of the now-banned Muslim Brotherhood organization.

Morsi was later ousted by the Egyptian military in 2013 as more secular Egyptians complained increasingly about Morsi’s perceived restrictive and religious policies. The current President of Egypt, Abdel Fattah Al-Sisi, was the former head of Egypt’s armed forces at the time and was an instrumental figure in the government that took over power. In June 2014, he won the subsequent presidential election.

The violence hasn’t stopped, however, withAl-Sisi speaking to CNBC in January of a war on terror and extremism despite a current air of optimism. News reports from the region have included the emergence of an affiliate of the Islamic State of Iraq and the Levant, known as Isis. There has also been an rise in attacks in the run up to EEDC, with the Financial Times – citing diplomats and security experts – saying that it’s more likely to be the work of “lone wolves” rather than established jihadi groups.

Redistribute benefits?

Zeynep Kosereisoglu, a Middle East analyst at advisory firm Frontier Strategy Group, told CNBC via email, that the Egyptian government has made progress in stabilizing the economy but still needs to ensure Egypt is on a sustainable growth trajectory.

“Inflation, unemployment, and the budget deficit are still very high. These need to start falling before we can confidently say Egypt’s economy has turned a corner,” she said.

Abi Ali, meanwhile, believes that key for Egypt is going to be redistributing the benefits of economic growth, and ensuring that the poor and middle class are also benefiting. Failing to do this will make it easier for the insurgency to support its narrative that the Mubarak-era elite are now back in control of the economy, he added.

This weekend’s economic event comes just days after the announcement of a cut to Egypt’s top tax rate. The event is being billed as a key milestone for the government’s medium term economic development plan and will feature names such as Christine Lagarde, the managing director of the International Monetary Fund (IMF). Bob Dudley, the group chief executive of BP, will also be in attendance after the oil major announced a $12 billion investment in the country.

Source: CNBC