Lower Brent crude oil prices will likely have a positive impact on Egypt’s hydrocarbon bill, says a research by the Business Studies & Analysis Center (BSAC). The centre, which falls under the American Chamber of Commerce in Egypt (AmCham), recently undertook research focusing on the impacts of the ongoing coronavirus (COVID-19) pandemic on Egypt’s key sectors.
In the fiscal year (FY) 2018/19, Egypt’s petroleum imports were at $12.1bn when oil prices were in the range of $60 per barrel. BSAC’s research showed that, if oil prices remain depressed in the coming period, Egypt’s import bill is likely to decline by half.
The pandemic has led to a decline in global demand for energy, despite the decrease in both oil and natural gas prices, the research said. It added that, in light of the Saudi-Russia oil war triggered by the spread of the coronavirus, oil markets have been significantly stifled. This in turn has driven up global oil prices, leading to gas companies cutting back on their spending and projects.
Ministry of Petroleum facilities have reduced their workforce, whilst taking to rotating employees at field and production sites in shifts to keep production at the same levels. BSAC’s research also highlighted that the Ministry of Petroleum has set up an online platform allowing foreign companies to participate in its gold exploration tender. The ministry is accepting bids for gold exploration rights until 15 July, due to global travel restrictions.
Healthcare and pharmaceuticals impact
According to the United Nations Economic Commission for Africa, global health spending will increase up to $10.6bn as a result of the coronavirus outbreak. Soaring demand for surgical masks, disinfectants, ethyl alcohol and ethanol in Egypt has resulted in significant price increases and dwindling supplies, the research said.
Panic buying and commodity scarcity
The pandemic has spurred excessive demand for food commodities amid consumer fears of being unable to access stores or products. This has predictably translated into stock reductions in large-scale grocery outlets, also impacting businesses in the fast-moving consumer goods (FMCG,) retail and other commercial sectors.
Manufacturers have been operating at less than full capacity at their plants, which has impacted retail outlet stocks and shelf availability, as well as prices. Businesses that import production inputs have been hit by shipment delays, also reflecting on final product availability and retail outlet shelves.
To mitigate the impact on the supply of goods and production due to the curfew, the government has announced that targeted support is in the works for private businesses through sector specific measures.
The government has also reduced the price of natural gas used to industry to $4.5 per million British thermal units (MBTU) to stimulate production. This translates into a 25% price cut for cement companies that were paying $6.00 per MBTU, and an 18% cut for metallurgy and ceramic manufacturers (which were paying $5.50 per MBTU).
EGX movement following pandemic
The coronavirus has negatively affected all markets worldwide, with key indices recording double-digit retractions since the beginning of February, BSAC’s research said. It noted that global equity markets saw some recovery in the third week of March, following the US Senate‘s approval of a $2.2trn stimulus package after weeks of negotiations.
European indices also began recovering on the back of talks among leaders of the EU zone recovery package. The research noted that the Egyptian Exchange (EGX) began feeling the full effects of the global turbulence in the first week of March, erasing all the gains it had made since the beginning of 2020.
On 1 March, the EGX suffered its largest one-day trading loss since 2012, with the benchmark EGX30 tumbling just over 6%. The rapid decline triggered a circuit breaker to pause trading for the first time since September 2019 (when a brief weekend of protests sparked uncertainty).
The market reacted positively to the intervention, reverting its downward trend for three consecutive sessions. The EGX 30 joined the ranks of the world’s best-performing indices in the third week of March, climbing 14% from 19 March’s three-year low. The performance was boosted by the Financial Regulatory Authority’s suspension of EGX circuit breakers to encourage further upward movement.
Following the government’s announcement of a partial curfew, however, the EGX closed in the red on 24 March, down 2.8%.