Trouble in Egypt

A country that has fallen off many peoples radar is Egypt.  This used to be a top holiday destination and attractive investment area before Hosni Mubarak, the President for over 25 years was ousted by a public uprising.  Since then this country has slipped into the Abyss, continuing uncertainty and lack of structure within the country has led to many holiday makers and investors to stay away.

The two biggest income streams for Egypt are tourism and foreign investment, the land is rich with natural resources, hot weather and beautiful seas.  The political uncertainty has acted as a deterrent and with many business contracts that were put in place during Mubarak's reign under dispute it is making it less desirable for the overseas investor.  Subsequently Moody’s downgraded Egypt to Caa1, on par with the likes of Pakistan.   This on the face of it seems unruly, however if you delve a little further into the state of the economy you may understand why.

For years the people of Egypt have received significant subsidies for things such as oil and food, but as global costs rise this pressure has been passed onto the government.  Economic growth prior to 2011 was around 6%, an attractive level, however this has fallen off significantly as demand for Egypt has dissipated.  This economic weakness has been amplified by the weakening local currency.  This year alone the Egyptian Pound has fallen off 7% making those sought after imports such as fuel and food more expensive.  As such petrol shortages are now common throughout Egypt.  Price rises have been so severe many distributors are not buying the allowed quota as they fear the wrath of their customers when they see prices have risen so much.   Rolling blackouts throughout Cairo are not uncommon as during the midst of summer weather energy demand is in full throttle as people use air-conditioning. 

With many structural and political issues still to overcome there have been talks with the IMF about an emergency loan of around $5bn to keep things ticking.  The key importance is to make the country more stable and attractive for foreigners and generate demand again.  Political issues over business contracts certainly are not the way forward however, we may see heavy royalties inflicted on those already situated as a method for government income generation.

A number of companies operating in this area, such as Centamin (gold miner) are currently very cheap, however like many their mining contract is under dispute.  There are certainly  opportunities, however investors will most likely keep a close eye on over the coming months before jumping in.

The market is waiting for that bold statement, “We are ready for business”.