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Building, construction sector major drivers of Egyptian economy growth: EFG Hermes - Daily News Egypt

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Building, construction sector major drivers of Egyptian economy growth: EFG Hermes

Growth will be around 4.5% this fiscal year, and the oil price will remain constant, says Ziada


The building and construction sector was the major driver of the economy in the last period, said Wael Ziada, Head of Research at EFG Hermes.

Ziada noted that he expects growth rates to reach the pre-2011 levels, which exceeded 7%.

Ziad further said, during the first session of the Cityscape Egypt real estate exhibition, that he expects the Egyptian economy to register a growth rate of about 4.5% during the current fiscal year (FY) 2015/2016.

There were a lot of investment contracts and developments in the Egypt Economic Development Conference (EEDC) in Sharm El-Sheikh that are currently being executed, regardless of the political changes, added Ziada.

Ziada described the government’s announcement that it is able to attract about $10bn in foreign direct investments as exaggerated. It did not achieve more than approximately $6.4bn during FY 2014/2015.

He said there are questions among investors regarding the current ministerial change and its impacts on the projects that were proposed at the EEDC. However, he ruled out any changes in the announced governmental economic plans.

He added that foreign investors still see good growth opportunities in the Egyptian economy. Some investors however raised concerns over the changes in the Chinese economic position and their impacts on the Middle East.

Ziada said that during the last period, the total investments in the real estate sector registered EGP 250bn, 45% of which was for the governmental sector.

He added that the budget deficit declined from 13% to 10% expected during this FY, while it is expected to decline more in the next years to reach about 8%, reducing the public debt rates.
He added that the tourism sector recovered 50% from its lowest level, and the remittances from citizens working abroad still provide a lot of foreign exchange for the cash reserves in Egypt.

Ziada further pointed to the challenge of the balance of payments deficit, describing it as the biggest challenge, saying that the real estate sector is able to attract plenty of foreign investments.

He added that the second challenge is the weakness in the international economy as a result of the Chinese recession, and the slowdown in the European markets and the Chinese economy, which relies on exporting. Consequently, the external demand decreased, which strongly impacted the Chinese economy in the last period, and has caused China to devaluate the yuan to support the exports.

However, according to Ziada, these challenges are opportunities for the Egyptian economy, which is beginning to experience growth, supported by the significant reductions in the prices of energy, materials, and basic commodities. He expected oil prices to remain constant during the next year, while some reports and international studies concluded that they could reach $20 per barrel in the upcoming years.

As for the policies of economic subsidies, Ziada explained that some economic schools believe that increasing subsidies means that the government does not intend to carry on reform, while other schools believe that neglecting subsidies leads to structural problems in societal development. As such, there must be a balance in the process of reducing subsidy, he said.

He added that some of the economic policies that were not executed yet, such as the value-added tax, the smart cards to rationalise subsidies, and other policies, could reduce the budget deficit.

He said that investors are optimistic about the economic reform policies, to which the real estate sector will significantly contribute, especially the housing projects directed towards low-income citizens, due to the social dimension these projects have. However, these projects have not been sufficiently developed.

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