Egyptian firms expect lower investment and employment in 2011

Ahram Online, Monday 18 Jul 2011

A 'business barometer' for 2011 indicates that lower economic growth, production and sales will lead to lower investment and employment among firms

Egyptian factory
6TH OCTOBER CITY, EGYPT - MAY 29: Egyptian workers assemble vehicles at a BMW factory on May 29, 2011 in 6th October City, Egypt.

Egyptian firms are anticipating low investment and employment between April and December on the back of lowered growth predictions and reduced production and sales figures, according to a Q1 report published by the Egyptian Centre for Economic Studies (ECES). 

The ECES' Business Barometer surveys 474 public and private firms for their assessment of economic growth and the effect of unrest on their operations in the first quarter of 2011.

It also measures their expectations for overall future economic performance as well as their own activities for the remainder of 2011. 

Firms surveyed are from a variety of sectors, including manufacturing, financial services, construction, transportation and tourism.

Economic growth expectations for large firms fell well below pre-revolution figures, with 39 per cent of the firms expecting to witness economic growth against almost 50 per cent before 25 January.

But the report suggests that the significant improvement of economic growth forecasts are generally due to the poor performance of Q1 which brought the benchmark down, not a function of improved outlook.

The most optimistic expectations were from firms in communications and financial services, followed by tourism. 

The report explains such forecasts in the light of prospects of improved security and a pick-up in economic activity after parliamentary and presidential elections.

Firm size also affected beliefs in the prospects for the last nine month of 2011. 

Small and medium firms (SMEs) expected to take a longer time to recover from the revolution-inspired economic downturn. According to the report, SMEs are more reluctant to increase production until the economy shows stronger signs of recovery.

Employment and investment expectations were similarly modest.

The report indicates that, in additions to lower growth prospects, expectations of higher inflation will adversely affect domestic demand as it erodes real income and undermines private consumption, leading to a drop in investment forecasts.

Companies' expectations stood in contrast to those of ECES, with the vast majority expected their product prices to stabilise.

ECES, on the other hand, expects higher infation given rising international prices, the depreciation of the pound and the wide fiscal deficit in the 2011/2012 budget.

Only 7 per cent of large firms foresee growth in employment while 88 per cent expect employment to stay stable till the end of 2011. SMEs reported similar employment forecast figures.

Insufficient demand was the most severe business constraint reported by large firms while difficulty to interact with government agencies was the biggest concern reported by SMEs.

As for wages, more than 60 per cent firms -- both large and SME - expected them to stay stable.

Manufacturing firms show the most confidence of an increase whereas telecoms have only modest expectations, in line with lower output prices anticipated for the sector. 

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