International investment institutions expected Egypt to witness a significant economic improvement starting next year in terms of foreign investment inflows, especially in the oil and gas, real estate and consumer product sectors. They also forecast inflation rates to fall sharply in the Egyptian markets followed by a sharp cut of interest rates by the Central Bank of Egypt, from nearly 20 percent now to around 10 percent by the end of 2019.
In a report on the Egyptian economy, Renaissance Capital, an investment firm specialized in emerging markets, predicted that in the coming period Egypt would witness an increase in inflows driven by the new discoveries of oil and gas fields, especially after the Egyptian government solved the debts crisis with the international oil companies and paid the largest share of dues. The real estate, retail and consumer product sectors come next on the list of foreign investors’ interests.
Renaissance Capital said more than 50 percent of foreign direct investment that flowed into Egypt in the fourth quarter of 2016 ($ 4.1 billion) went to the oil and gas sector. The firm pointed out that Britain, the United States and Belgium are among the biggest contributors to foreign direct investment in Egypt, while the UAE is the largest contributor among the Gulf Cooperation Council countries. It also noted that Britain has always been the largest contributor to foreign direct investment in Egypt, as its investments during the first quarter of 2017, acquired 55 percent of the total foreign direct investment of $1.8 billion, followed by the United States by 14 percent and $482 million.
The report showed that with many multi-national companies operating in the Egyptian market in the food sector, the retail sector may see significant investments in the coming years, as Egypt is still in the early stages of growth in the modern retail sector. The banking sector is also witnessing great opportunities due to the operations of mergers and acquisitions taking place in the country.
London-based Capital Economics, expected the Egyptian central bank's monetary policy committee to smoothen the monetary policy by the end of the year by cutting interest rates more than expected.
In a report issued on Sunday, it said the decision of the policy committee at its meeting last Thursday not to change the lending and deposit rates (18.75 percent for deposits and 19.75 percent for overnight lending) came with the possibility of a sharp drop in inflation over a period of six to nine months. It also expected interest rates to fall to 12.75 percent by the end of 2018 and 10.20 percent by the end of 2019.
Capital Economics said that the Central Bank's decision to fix the interest rate came despite the significant increase in inflation in the past month on an annual basis, since the Policy Committee had not found any need for more policy restrictions. The last raise in interest rate was 200 basis points last month, which came in anticipation of the recent increase in inflation.
Capital Economics predicted that inflation in Egypt would begin to fall more quickly than expected, pointing out that inflation in Egypt had peaked, and that its decline promises a large financial recovery that would help the Egyptian economy.