Egypt: Energy ambitions, systemic flaws | Analyst Picks | RiskMap 2020
Energy ambitions, systematic flaws
This year Egypt has been praised as a top emerging market destination for international investors. This praise is well-earned. Since 2015, President Abdul Fatah al-Sisi has implemented a range of economic measures and other initiatives to make the operating environment more conducive for foreign business. Alongside a three-year USD12bn IMF loan, Sisi has overseen subsidy cuts and tax hikes to curb public spending. The government also put in place legislation, including a new investment law, and a bankruptcy law, and restarted a privatisation programme to lure foreign currency.
Nowhere has the renewed business focus been clearer than in the energy sector. Egypt will continue to prioritise this sector, aiming to be energy self-sufficient by the end of 2020. To help achieve this goal it has recently signed gas export deals with Israel, increased exploration of offshore natural gas blocks, and has allowed private companies to access hydrocarbon infrastructure previously only reserved for state-owned companies. Efforts are being made in the renewable energy sector too, with plans to derive 20% of all energy from renewables by 2022, with various incentives for operators, and the creation of the largest solar farm in the world.
Whilst things look good on paper, challenges persist. Payment delays will remain a concern for foreign companies, as Egypt seeks to balance debt obligations to multilateral and other lenders, as well as private companies – and these obligations will increase over the coming year. Recent large-scale protests also hint at growing public dissatisfaction with the pace of reforms, corruption amongst the political elite, and limited room for political activism. These socioeconomic issues are unlikely to be solved over the coming year and although we expect Sisi to remain in power, his position is likely to become increasingly tenuous throughout 2020. Indeed, the combination of slow economic growth, forecast at 5.4% next year, combined with significant youth unemployment (approximately 34% of the 10% unemployment rate), and ongoing political corruption will provoke occasional spikes in unrest. Though an Arab Spring 2.0 is unlikely next year, companies can expect to face occasional travel and business disruption from protests, which are likely to become more frequent and larger as 2020 progresses.