Though Egypt faces high inflation and its currency, the Egypt’s pound, depreciated almost 50 percent against the USD since March 2022, the country offers interesting investment opportunities. The EGX 30 index from the Cairo stock exchange has appreciated by about two-thirds over the past year.
Egypt's potential for growth
Egypt is the most populous country in the Middle East and the third largest African economy, and though there are shortcomings, especially in economic freedom and the judiciary efficiency, the country shows solid chances to be the economic tiger of the region as the analysis by Golden Brokers indicates.
Egypt's economy is the 41st largest in the world, and its gross domestic product is expected to reach $378 billion this year, according to the IMF. The gross domestic product per person (according to purchasing power parity) here is less than 17 thousand dollars, which ranks Egypt 93rd in the world. “On the other hand, the lower is the basis the higher the opportunities to grow are” said Ariff Azraei Bin Mohammed Kamal, financial analyst of Golden Brokers.
Egypt's GDP Dominated by Tourism Services
Services account for the largest share of GDP, around 55 percent. The overwhelming majority are services in the tourism industry. Roughly one third of Egypt's GDP is made up of industry, and the remaining 12 percent is accounted for by agriculture.
External Shocks and Inflation
Until the outbreak of the covid pandemic, the Egyptian economy showed solid growth of around 5 to 6 percent per year. Covid then caused Egypt's economic decline by about 3.5 percent in 2020 and another three percent in 2021. Only last year brought some economic recovery to Egypt. At the same time, due to the outbreak of the war in Ukraine, Egypt experienced another external shock.
Since March 2022, Egypt's pound has depreciated by nearly 50 percent against the US dollar. An acute dollar shortage has suppressed imports and caused a backlog of goods at ports, with a knock-on effect on local industry. Annual inflation rate surged to 25.8 percent in January, the highest level for five years.
Economic Reforms Promise Opportunity
However, Egypt's relatively poor economic situation presents a number of opportunities for its economic development. Especially if the government implements the reforms it promised the International Monetary Fund last year. „In March 2022, the government said it had begun talks for its latest financial package from the IMF, eventually confirming a $3 billion loan linked to reforms that include reducing the footprint of the state in the economy,“ according to Reuters.
Egypt offers the possibility to invest on the stock exchange in Cairo. The main index of the exchange is the EGX 30 index, which includes shares of 30 companies. The largest share (32.3 percent) is held by the Egyptian Commercial International Bank. Other banking companies, or their Egyptian branches, such as Abu Dhabi Islamic Bank or Credit Agricole, are also traded on the stock exchange. But we can also find telecommunications or industrial companies there. The EGX 30 index has appreciated by about two-thirds over the past year.
Egyptian bonds offer high yields
In addition, bonds, both government and corporate, are traded on the Cairo Stock Exchange. There are many types of government bonds to choose from based on maturity. The lowest appreciation is offered by overnight bonds, just over 18 percent p.a., while the highest yield is offered by bonds with a maturity of one to five years, at around 25 percent p.a. The ten-year government bond bears interest at a rate slightly below 24 percent annually.