Since the collapse of the government of Hosni Mubarak, Egypt has been in a period of political and economic uncertainty. Although the army (Supreme Council of the Armed Forces) assumed the leadership of the country in order to oversee a transition into a new democratic dispensation, there continue to be pockets of instability as some feel disillusioned with the army rule. Parliamentary elections were scheduled to take place this month, while presidential elections would take place in December. However, the parliamentary elections have been delayed until November.
When Egypt was arrested by political instability, investor panic extended across all Africa emerging markets, leading to a scramble for liquidity as the Egyptian stock exchange stayed shut. The prolonged political uncertainty in Egypt, which had one of Africa’s major and most liquid markets, continues to cast a shadow over other African markets.
Looking at some of the indicators, it seems that challenges still remain:
When political riots that led to the government collapse occurred in January, tourist visits slumped by over 80%, and stayed subdued for some time. Since then, a strong recovery has occurred, recording a growth of 250% from the lowest point.
However, foreign currency reserves continue to fall (down 26% since January, from USD 35 bn. to USD 25.5) as authorities continue to support the currency and keep the economy stable. The Egyptian Pound has only slipped 2.5% during this period, as authorities continue to sell dollars to support the currency.
Inflation has however started to show signs of retreat, recording 10.36% year-on-year in July from 11.79% in June, on the back of favourable base effects from last year. Had the currency been allowed to depreciate, inflation would have surged dramatically.
The Central Bank of Egypt noted that the current political transformation may continue to have ramification on both consumption as well as investment decisions, adversely weighing on key sectors within the economy. The Egypt economy contracted 4.2% in the first quarter of this year, above expectations.
As a result, the Egyptian equity market is down 35% since January, slipping 13% in the last month alone.
We expect that the Egyptian market, as well as other African markets, will continue to be subdued as Egypt continues to face political uncertainty, domestic growth challenges as well global economic uncertainty.
Xhanti Payi
Assistant Economist
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