Macroeconomic Drivers

Leading up to the recent political upheaval, the Egyptian economy had grown significantly over the last several years, the result of a set of ambitious economic reforms designed to attract foreign investment and boost GDP growth. In recognition of these measures, the International Finance Corporation ranked Egypt the top reformer in the MENA region in its 2009 “Doing Business Report.” Following the January 2011 Revolution, the prospect of political reform and genuine democracy in Egypt promises to bear real fruit as the country enters a new age.

Egypt’s projected contraction in real GDP for 2011 is between 2-4%. Revised estimates for Foreign Direct Investment (FDI) into the country in 2011 are in the USD 3-4 billion region, down from USD 6.8 billion in 2009/2010. The inflation forecast for 2011 has been revised from 9% to 12%.

Despite these short-term losses, Egypt is buttressed with the fundamentals that will allow it to recover in the long-run. Driven mostly by domestic demand, Egypt’s economy was largely shielded during the global economic crisis. Still relatively strong domestic demand, as well as systematic global recovery, should therefore fast-track growth and create investment opportunities. The country’s healthy banking sector and still ample FX reserves are also cushioning the short-term impact, and will support the recovery in the long-run, while government borrowing is likely to drive credit growth. Meanwhile, Suez Canal activity has been unaffected since the Revolution.

Post-Revolution, the move towards a transparent democratic system and the crackdown on corruption are expected to reduce political risk premium, thereby boosting the economic and investment climate in the country. Coupled with a national appetite for large-scale reforms and mega projects, this sets the scene for significant investment activities and rapid GDP growth.

Whilst the recent political events have somewhat depressed tourism levels in the country, Egypt is no stranger to dips of this kind, and following previous crises, tourism has always proved to be among the country’s most resilient sectors. After the global economic slowdown in 2008 and 2009, tourism in Egypt made a remarkable recovery that saw visitor arrivals rise to record highs in 2010 – 14.7 million tourists visited Egypt, up 17.6% from 2009, while the country surpassed its 2012 target of 14 million tourist arrivals two years ahead of time.

Egypt now offers exceptional value to holidaymakers compared to other Mediterranean destinations, and the Red Sea remains one of the most attractive year-round resort destinations in the region. We expect those who continue to travel for pleasure to seek out more value-for-money destinations such as Egypt, which has for a number of years now been attracting a subset of tourists that until recently were more likely to vacation at south European Mediterranean resorts. Egyptian resorts like Sahl Hasheesh, which can compete in terms of quality and service with European destinations, are therefore quite likely to retain the loyalty of this new set of customers.