The markets: What's down - Egypt Financial crisis cuts inflows from the US, Europe and GCC.
Growth at risk as foreign funds slow
ABU DHABI // Egypt looks likely to struggle to reach a goal of attracting US$10 billion (Dh36.7bn) in foreign direct investment by June after a decline in capital inflows. Foreign investment, a pillar of the country's growth plans, fell 35 per cent in the first half of the fiscal year, to the end of December, to $2.6bn from the same period of the previous year, the country's central bank said.
"We have been bearish about the macroeconomy in Egypt as foreign direct investment is coming from the US, Europe and the GCC, which have been under pressure during the financial crisis," said Tudor Allin-Khan, the chief economist and strategist at Al Futtaim HC Securities in Dubai. Companies operating within sectors reliant on foreign direct investment, such as telecommunications companies and energy firms, could be affected most, he said.
Egypt relies on foreign investors to help grease the wheels of its economy. The revenue from the Suez Canal and from tourism are the other main financial engines of growth. Of the three, however, only tourism was firing on all cylinders in the six months to the end of December, the central bank said. Levels of foreign direct investment into the Arab world's most populous nation have been lagging since the beginning of the global financial crisis. Investment fell 39 per cent in the fiscal year that ended in June last year, after climbing to more than $13bn in the same period of the year before.
The country's exports declined 15.3 per cent to $11.5bn, while its imports fell 17 per cent to $23.4bn. There were declines in all import categories, with the exception of consumer goods, the central bank said. Suez Canal revenue declined 16.7 per cent to about $2.3bn, while tourism revenue increased by 4.7 per cent to $6bn. GDP growth slowed to 4.7 per cent last year after having accelerated at about 7 per cent annually for three years. The government expects the economy to expand by more than 5 per cent in the fiscal year through to June.
This is likely to make one of the government's biggest challenges, creating jobs for its youth, even more difficult. @Email:email@example.com