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Political turmoil’s affect on construction market is limited: Gleeds - Daily News Egypt

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Political turmoil’s affect on construction market is limited: Gleeds

Gleeds Construction Consultancy Egypt’s quarterly report highlights impact of recent political upheaval on economic sectors.

By Doaa Farid

The instability which followed 30 June has negatively impacted the construction sector and investor confidence, “but not as significantly as the period following the 2011 civil unrest”, according to a recent report.

The quarterly study, put together by Gleeds Construction Consultancy Egypt (GCCE), showed that the demand for construction materials dropped during Ramadan (which came in the middle of the quarter) due to reduced working hours and reduced productivity along with the civil unrest. Despite this, the report showed that “the usual increase in prices which takes place around Ramadan did not occur”, while prices of other item such as food rose, according to the report.

“The price of construction materials has remained relatively constant through this quarter,” read the report, referring to the period from July through September, which it said indicates that the majority of suppliers and specialist contractors appear to be holding their prices to protect their market shares and profit margins.

As for the stock exchange, the economic Q3 report indicated that the political changes have had a “positive effect” on the bourse and have buttressed a surge in the benchmark EGX 30 index, portraying an increase in confidence following losses it had suffered prior June 2013.

According to GCCE’s report, the main EGX 30 index gained strength in the third quarter following a 14% drop at the end of Q2. “After reaching 4500 points at the end of June 2013, the indicator gained strength to reach an average of 5700.”

The report also alluded to the value of the US dollar compared to the local currency. Financial aid from Gulf countries has caused a decrease in US dollar exchange rate, said the report, adding that the depreciation in the value of the Egyptian pound reached its lowest level in September, when the dollar stood at EGP 6.91.

Gulf countries, including the Kingdom of Saudi Arabia, the United Arab Emirates and Kuwait, pledged financial aid packages to help boost the economy after the ouster of former president Mohamed Morsi on 3 July. The aid included $5bn from Saudi Arabia, $3bn from the UAE and $4bn from Kuwait in the forms of cash grants, deposits and petroleum products.

However, GCCE stated that the pound’s value has continued to drop compared to euro and British pound in the last quarter. “Following the 5.2% increase in the euro exchange rate in Q2 2013, Q3 2013 saw another increase of 2.3% to reach an exchange rate at EGP 9.34 at the end of the quarter,” the report said. GBP exchange rate has increased by 4.3% to reach nearly EGP 11.2 in Q3.

The report also showed that exports in Q3 amounted to 2.08bn compared to 2.52bn in Q2, registering a 17.47% decrease, while imports increased by 2.74% to reach 5.07bn in Q3 compared to 4.94bn in Q2.

“There has been a sharp decline in the overall in levels of exports, which may in part be explained by seasonal factors, but the international reaction to the recent political changes in Egypt is likely to have been the main reason,” the report read.

In an attempt to encourage exports, the Ministers of Finance and Industry announced earlier in October that the legislation for exporting companies will be minimised and facilitated using five main criteria which were identified as: the size of the exporting corporation, the contribution to the national volume of exportation growth, innovation within this enterprise, the connection to other enterprises and other incentives, such as the products’ added value and the local components used in production.

The Monetary Policy Committee at the Central Bank of Egypt (CBE) decided in September to cut the overnight deposit rate, overnight lending rate and the rate of CBE’s main operation by 50 basis points to 8.75%, 9.75%, and 9.25%, respectively. The discount rate was also cut by 50 basis points to 9.25%. This is seen to have a positive impact on the country’s slowing economy, and aims to boost investors’ lending, according to analysts.

“CBE decreased interest rates twice during the quarter aiming reviving economic growth amid political unrest,” the report said.

GCCE has been operating in Egypt since early 1900s, and has continuously monitored the construction sector and overall economic factors for a number of years, publishing a regular monthly and quarterly report.

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