The Central Bank of Egypt’s (CBE) decision on 21 May to raise interest rates by 200 basis points (2%) is a “slap” for investment in Egypt in general and the construction sector in particular, according to the executive director of Construction and Design (CONSTEC), Ashraf Abdel-Hakam.
The Monetary Policy Committee (MPC) headed by CBE’s governor, Tarek Amer, issued a decision to increase the overnight deposit rate, overnight lending rate, and the main operation rate to 16.75%, 17.75%, and 17.25%, respectively.
Abdel-Hakam added that the decision will push capital owners to prefer depositing their money in banks and get high risk-free returns instead of investing in other options that have higher risks. This, he added, will negatively affect all economic sectors.
Abdel-Hakam noted that the spread of unemployment will increase the burden on the government, pointing out that the EGX will also be affected by this decision as investors will deposit their money in banks.
He added that construction companies will face many problems following the decision, as there are companies that received bank loans for projects that have already commenced, but with the sudden decision to raise the interest rate, the financial burden will increase. Moreover, companies wishing to expand and get new business through banks’ loans will be prompted by that decision to reconsider and delay expansion plans.
CONSTEC’s executive director said that profit margins of contracting companies range between 4% and 5%. The increase of the interest rate by 2%, along with the instability of the prices of building materials and construction costs, will lead to losses in the sector and the inability of many companies to complete their activity in the market.
“The coming period may witness a rise in the prices of raw materials and building materials, especially as most of the factories have bank loans and will automatically resort to load the new burdens on companies,” said Abdel-Hakam. “I expect an increase in prices of housing units during the next phase, as companies will resort to load price increases to customers.”