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Egypt economy grows 1.1% in Q1 as power shortage takes toll

Economists divided on whether Egypt will achieve the government's growth forecast

Ahmed Feteha, Tuesday 18 Nov 2014
Workers stand in a factory
Workers stand in a factory belonging to Ezz Steel, at an industrial complex in Sadat City, 94 km (58 miles) north of Cairo, April 17, 2013 (Photo: Reuters)
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The Egyptian economy expanded by 1.1 percent in the quarter to September 2014 compared to the previous quarter as energy shortages slowed down industrial activity.

It registered a 6.8 percent growth rate in annual comparison as weak economic activity in the same quarter last year inflates the growth figure, Minister of Planning Ashraf El-Araby said.

Egypt's economy has been hit by political instability and militant violence since a 2011 popular uprising ousted president Hosni Mubarak. It grew by 2.2 percent in the fiscal year which ended last June, just below the population's growth rate.

"This quarter was very bad, especially from mid August to mid September," Hany Genena, chief economist at Pharos Holding, said. "Most of the companies we cover were operating at 60 or 70 percent capacity because of the energy shortage."

Companies such as steel producer Ezz Dekheila and Suez Cement saw profits tumble in the first quarter of the current fiscal year, starting July, as their operations were hit by the lack of power.

Expectations, Scepticism

The quarter's growth rate means that the economy could expand by 3.8 percent in the current fiscal year which ends 30 June 2015, El-Araby said. This is slightly higher than the International Monetary Fund's prediction of 3.5 percent.

The government's forecast is "reasonable," according to Genena, driven by recent announcements of new investments in Egypt, combined with state stimulus.

The government has promised to repay its debts to foreign oil and gas companies which might encourage upstream expansion, he said.

The oil and gas sector made up about a quarter of Egypt's gross domestic product in the 2013/14 fiscal year, according to central bank figures.

Other analysts such as Omar El-Shenety, managing director at Multiples Investment Group, voiced scepticism that such growth rates would be achieved.

"We need to grow well above 4 percent in the coming three quarters to achieve this 3.8 percent in the whole year," he said in a phone interview. "We are in the middle of the second quarter of the fiscal year and we don't see any major foreign investments or aid pledges."

An international economic conference, which Egypt hopes will attract investment, was pushed back from February to March 2015, meaning that "any projects announced then wouldn't affect growth in the current fiscal year," he said.

Egypt received $10.6 billion in cash grants and oil products from its Gulf allies in the previous fiscal year, the finance minister said earlier in November.

"With all the aid we received last year, we achieved 2.2 percent growth," El-Shenety said. "It would be great if we just achieve three percent this year."

 

 

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