2018 10 18 Economist Intelligen Country Report Egypt October 2018 83243359

________________________________________________________________________________
Country Report
Egypt
Generated on October 24th 2018

Economist Intelligence Unit
20 Cabot Square
London E14 4QW
United Kingdom
________________________________________________________________________________
The Economist Intelligence Unit
The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing
operations across national borders. For 60 years it has been a source of information on business
developments, economic and political trends, government regulations and corporate practice worldwide.
The Economist Intelligence Unit delivers its information in four ways: through its digital portfolio, where
the latest analysis is updated daily; through printed subscription products ranging from newsletters to
annual reference works; through research reports; and by organising seminars and presentations. The
firm is a member of The Economist Group.
London New York
The Economist Intelligence Unit The Economist Intelligence Unit
20 Cabot Square The Economist Group
London 750 Third Avenue
E14 4QW 5th Floor
United Kingdom New York, NY 10017, US
Tel: +44 (0) 20 7576 8181 Tel: +1 212 541 0500
Fax: +44 (0) 20 7576 8476 Fax: +1 212 586 0248
E-mail: eiucustomerservices@eiu.com E-mail: eiucustomerservices@eiu.com
Hong Kong Geneva

The Economist Intelligence Unit The Economist Intelligence Unit
1301 Cityplaza Four Rue de l’Athénée 32
12 Taikoo Wan Road 1206 Geneva
Taikoo Shing Switzerland
Hong Kong
Tel: +852 2585 3888 Tel: +41 22 566 24 70
Fax: +852 2802 7638 Fax: +41 22 346 93 47
E-mail: eiucustomerservices@eiu.com E-mail: eiucustomerservices@eiu.com
This report can be accessed electronically as soon as it is published by visiting store.eiu.com or by

contacting a local sales representative.
The whole report may be viewed in PDF format, or can be navigated section-by-section by using the
HTML links. In addition, the full archive of previous reports can be accessed in HTML or PDF format,
and our search engine can be used to find content of interest quickly. Our automatic alerting service
will send a notification via e-mail when new reports become available.
Copyright
© 2018 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any
part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means,
electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The
Economist Intelligence Unit Limited.
All information in this report is verified to the best of the author's and the publisher's ability. However,
the Economist Intelligence Unit does not accept responsibility for any loss arising from reliance on it.
ISSN 2047-4679
Symbols for tables

"0 or 0.0" means nil or negligible;"n/a" means not available; "-" means not applicable
Egypt 1
Egypt
Summary
2 Briefing sheet
Outlook for 2019-23

4 Political stability
4 Election watch
5 International relations
6 Policy trends
7 Fiscal policy
7 Monetary policy
7 International assumptions
8 Economic growth
8 Inflation
8 Exchange rates
9 External sector
9 Forecast summary
Data and charts

10 Annual data and forecast
11 Quarterly data
12 Monthly data
13 Annual trends charts
14 Monthly trends charts
15 Comparative economic indicators
Summary
15 Basic data
17 Political structure
Recent analysis
Politics
19 Forecast updates
19 Analysis
Economy
23 Forecast updates
30 Analysis
Country Report October 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Egypt 2
Briefing sheet
Editor: Mohamed Abdelmeguid
Forecast Closing Date: October 18, 2018
Political and economic outlook

The president, Abdel Fattah el-Sisi, who won a second four-year term in March election, will
face little domestic opposition. However, this is likely to be his final term, and he could be
succeeded in 2020 by a figure from the business elite or a military candidate.
The momentum behind economic policy reform will be sustained throughout 2019-23, as the
current IMF bailout package, which will expire in 2019, is likely to be followed by further
multilateral financing deals (albeit with less stringent conditions).
With unemployment continuing to trend down and growth becoming increasingly broad-based,
along with the government's focus on healthcare and education reform, the risk of public
dissent over the high cost of living will diminish, in tandem with easing inflation.
The economic reform programme (agreed with the IMF) will ensure that progress is made on
fiscal consolidation, although business-related structural reforms will proceed slowly owing to
opposition from vested interests within state bodies.
The Economist Intelligence Unit forecasts that the fiscal deficit will narrow from 9.7% of GDP in
fiscal year 2017/18 (July-June) to 6.4% of GDP in 2022/23, on the back of rising tax revenue and
lower spending on subsidies.
The current account will record shrinking deficits in 2019-20 and move into surplus from 2021 as
export growth outpaces import growth, which will be slowed by rising domestic fuel
production.
Key indicators
2018a 2019b 2020b 2021b 2022b 2023b
Real GDP growth (%) 5.3 5.5 5.8 6.1 6.5 6.9
Consumer price inflation (av; %) 17.0 14.4 11.2 8.7 7.9 6.7
Government balance (% of GDP)c -9.7 -9.1 -8.5 -7.9 -7.2 -6.4
Current-account balance (% of GDP)d -2.0 -1.0 -0.4 0.2 0.6 1.5
Money market rate (end-period; %) 17.4 15.6 12.9 10.1 9.2 8.5
Unemployment rate (%) 10.7 10.0 9.4 8.5 7.7 5.5
Exchange rate E£:US$ (av) 17.85 17.74 17.53 17.25 16.94 16.23
a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts. c Fiscal year data ending
June 30th. d Ratio based on calendar year GDP; national accounts use fiscal year.

Egypt 3
Key changes since September 11th

The downward trend in inflation was briefly interrupted in September, when headline inflation
picked up to 16% year on year. As a result, we no longer expect the central bank to cut its
policy rates until the first half of 2019—followed by gentle loosening thereafter.
The month ahead

November 15th—Monetary policy committee (MPC) meeting: A pressing need to support the
currency and tame renewed inflationary pressures means that the central bank is likely to retain
its current policy rates at the next MPC meeting.
TBC—Gas deal talks between Egypt and Cyprus: Cyprus is seeking to export natural gas from
its 4.5trn-cu-ft Aphrodite field to Egypt, where it would be liquefied and re-exported to Europe.
The deal, if agreed, would cement Egypt's position as a regional energy hub.
Major risks to our forecast

Scenarios, Q3 2018 Probability Impact Intensity
Very
Negative net foreign assets lead to heightened local-currency volatility Moderate 15
high
Tension emerges between the regime and the judiciary, culminating in the Very
Moderate 15
overthrow of the president high
Concern about continued popular unrest slows pace of socially sensitive
Moderate High 12
reforms
Opaque legal proceedings deter investors Moderate High 12
Radical Islamists launch a sustained terrorist campaign Moderate High 12
Note: Scenarios and scores are taken from our Risk Briefing product. Risk scenarios are potential
developments that might substantially change the business operating environment over the coming two
years. Risk intensity is a product of probability and impact, on a 25-point scale.
Source: The Economist Intelligence Unit.

Egypt 4
Outlook for 2019-23

Political stability
The president, Abdel Fattah el-Sisi, secured a second (and final) four-year presidential term in the
March election, which will keep him in power until May 2022. His domestic policies, which largely
focus on economic development and tightening security, will be carried over into his second term.
The Economist Intelligence Unit expects his domestic policies to remain unchanged under the new
prime minister, Mostafa Madbouly, who was appointed in early June. Although unemployment is
on a downward trend, the risk of occasional (but brief) protests will not completely subside in the
early years of the forecast period as the president's popularity has significantly diminished since
the onset of tough economic reforms in 2016. Nevertheless, the kind of instability that prevailed in
the period between the toppling of the former president, Hosni Mubarak, in 2011 and the election
of Mr Sisi three years later will not be repeated. This is because Mr Sisi exercises strong control
over the military and the internal security apparatus, both of which are sufficient to ensure regime
survival during the forecast period. Given the low risk of regime change, the pro-business policy
direction under Mr Sisi will be maintained and reinforced, minimising the uncertainties facing
companies during Egypt's ongoing political and economic transition.
Egypt is home to over 100 registered political parties, although most are not represented in
parliament and do not enjoy grass-roots support. Indeed, the lack of a professional political class
constitutes the greatest downside risk to Egypt's longterm political outlook—especially once Mr
Sisi's second term ends in 2022. With this in mind, a candidate with a military background or a
business elite figure from Support Egypt—the largest political bloc in parliament—is likely to
succeed Mr Sisi in the 2022 election. They will maintain his pro-business policies, but gradually
loosen controls on political expression.
The most active opposition to the government will remain Sinaibased jihadi groups—as well as
the deposed Muslim Brotherhood and its militant offshoots: Hasm and Liwa al-Thawra. The latter
has carried out a string of attacks on state and security officials since the removal in July 2013 of
the Islamist president, Mohammed Morsi, by widespread protests—led by liberal political parties
and civil society groups—and, eventually, military intervention. Ebbing public sympathy for the
Brotherhood means calls by the Islamist opposition for collective public action against the
government will fail to spark any meaningful momentum. This reflects public fear that forceful
regime change could unleash greater political and economic instability, as well as a lack of
appetite for protests, which would be confronted by a robust security response.
Meanwhile, the sweeping anti-terrorism offensive launched in February is likely to inflict severe
damage on the terrorist infrastructure across the country and help restore the fortunes of Egypt's
vital tourism sector. The operation—named Sinai 2018—involves 60,000 troops and 52,000 police
officers and is the most comprehensive effort to date to deal with the security threat from jihadis
in remote areas across Egypt. Although eradicating terrorism is unrealistic given broader regional
turmoil, we expect the military operation to reduce the number of attacks and improve Egypt's
reputation as a tourism and investment destination.
Election watch
Egypt's presidential election took place on March 26th-28th. The turnout was just 40.5%, although
the turnout in the 2012 presidential election—arguably the most competitive poll in Egypt's
modern history, with 13 presidential candidates—was only marginally higher at 46%. When
Mr Sisi's second term comes to an end in 2022, his successor could very well be from the business
elite or the military, not least because of the lack of a viable charismatic alternative from the
broader political class. Municipal elections, the final stage of the country's political transition, are
likely to take place by end-2018. These are particularly important elections for corporates as local
councils will be responsible for implementing Egypt's new, streamlined investment regulations at a
municipal level.

Egypt 5
International relations
The government's priorities will remain broadly unchanged during Mr Sisi's second term in office,
centred on maintaining cordial ties with the US and the EU, building relationships with Russia and
China, and seeking to secure maximum economic support from the Gulf Arab states. This strategy
worked well during his first term in office, with Kuwait, Saudi Arabia and the UAE providing more
than US$30bn in aid—mostly in the form of fuel donations—following the removal of the Muslim
Brotherhood from power.
We expect Egypt and Saudi Arabia to step up joint efforts against security threats from Islamist
groups (some of which receive support from Qatari entities and individuals). On June 5th 2017
Egypt joined its Gulf Arab allies—Saudi Arabia, the UAE and Bahrain—in a diplomatic and
economic boycott of Qatar, which entailed the closure of transport links to the tiny Gulf state and
the severing of diplomatic ties. The collective action was taken in protest at Qatar's support for
Islamists and, from Saudi Arabia's perspective, Qatar's budding relations with Iran. Relations
between Egypt and Qatar will therefore remain tense throughout the forecast period.
Importantly, relations with European suppliers of military hardware will remain a top priority in the
context of Sinai 2018 and rising geopolitical tensions in the gas-rich Eastern Mediterranean region.
Since the discovery of major natural gas reserves off the northern Egyptian coast in 2015, Egypt
has procured German, French and Italian defence systems and submarines to guard its natural gas
infrastructure and to deter any potential incursions by Turkey, which does not recognise the 2003
maritime border demarcation agreement between Egypt and Cyprus. (In February Turkish naval
vessels intervened to block exploration in Cypriot waters by the Italian energy major, Eni,
prompting sharp criticism of Turkey from the EU.)
Of equal importance are relations with Ethiopia, which is moving forward quickly with the
development of the Grand Ethiopian Renaissance Dam. The dam will severely constrain the flow
of the Blue Nile waters to Egypt, where water poverty is already a serious concern. As a result,
tensions between Egypt and Ethiopia could flare up and affect ties between Egypt and other
African nations that are politically aligned with Ethiopia—such as Sudan. However, we do not
expect a militarily escalation; instead, Egypt will work to address potential water shortages by
discouraging wasteful consumption domestically and investing in water desalination plants.

Egypt 6
Policy trends
Economic policy will remain focused on fiscal and business-related structural reforms throughout
2019-23. In November 2016 the IMF approved a three-year US$12bn extended fund facility (EFF)
for Egypt and has so far released three tranches of the loan worth a total of US$6bn. Given the
likely need for a prolonged period of reform to put the economy and the public finances on a
sustainable footing, the government may seek a follow-up programme with the Fund (albeit one
with less demanding conditions) once the current one expires. In addition, Mr Sisi's second term
in office will see an increased focus on healthcare and education—illustrated by ongoing efforts
to overhaul the public education system in line with the demands of the labour market. (In
particular, the healthcare focus may help to restore some of the president's popularity after two
years of socially tough economic reforms.)
Thus far, the government has shown firm commitment to economic policy reform—demonstrated
most recently on July 21st when increases of between 33.3% and 75% for prices of natural gas
were announced. Since mid-2016 the local authorities have rolled out a number of tough reforms,
such as the introduction of value-added tax (VAT), the adoption of a more flexible exchange-rate
policy (in November 2016) and a series of fuel subsidy cuts. These measures have been
accompanied by a slew of structural reforms to address deficiencies in the business environment.
A new investment law was passed and will ease the process of establishing companies and
obtaining licences considerably, although it will not fully overcome the difficulties facing
investors in land-acquisition procedures. As a result, although the law is an improvement on
earlier versions, it is likely to undergo future revisions, meaning that the legislative environment
for Egypt's business sector will remain subject to change, at least in the first half of the forecast
period. Moreover, weak institutional capacity and the influence of powerful interest groups within
government will slow the reform process—although some progress will be made to combat
corruption. Positively, the Central Bank of Egypt has relaxed most capital controls (first
introduced in 2011), owing to the growing availability of hard currency and Egypt's improved
access to foreign capital markets. As a result, convertibility and rollover risks facing firms have
eased—but will not completely subside in the context of global monetary policy normalisation.
Egypt is also consolidating its budding role as a regional energy hub. With the aim of
encouraging investment in the energy sector, the government has reduced its payment arrears to
international oil companies, from a peak of US$6.4bn in 2012 to about US$2bn at mid-2017. This
strategy has already unlocked major investments by two British companies, BP and BG Group,
and Eni. Eni announced in August 2015 that it had discovered a 30trn-cu-ft gasfield known as
Zohr; off the Egyptian coast, it is the largest discovered in the Mediterranean so far. Zohr is
potentially large enough to meet Egypt's entire domestic needs for a decade and could allow for
the resumption of natural gas exports as well. Our forecast does not assume that future oil and gas
discoveries will be made. However, if Egypt strikes new hydrocarbons deposits, this would result
in a real exchange-rate appreciation and improvements to our forecasts for real economic growth,
the external balance, the fiscal account and inflation—depending on when new discoveries come
on stream.

Egypt 7
Fiscal policy
Government policy will be focused throughout the forecast period on achieving fiscal
sustainability—as illustrated by the continued reduction of the budget deficit since the start of
the IMF-backed reform programme. In the forecast period the public finances will be strengthened
by rising tax revenue in tandem with higher real GDP growth. Meanwhile, the government will
continue to divert spending away from subsidies towards public services such as healthcare and
education. It is worth noting the mixed impact of fiscal consolidation on local businesses. The
government will rely primarily on VAT for tax revenue increases and is likely to leave the
corporate tax rate unchanged at 22.5% to encourage investment. Equally, the narrowing deficit will
reduce crowdingout and should allow local interest rate cuts—reducing the cost of corporates'
borrowing from domestic banks. However, forthcoming fuel subsidy cuts will continue to increase
firms' production costs—although the impact will be softened by rising natural gas production
from Zohr, which will help to stabilise domestic energy prices. We expect the fiscal deficit to
narrow gradually over the forecast period, to 6.4% of GDP in 2022/23. International sovereign
bonds—such as the €2bn (US$2.44bn) Eurobond in April—will finance the bulk of the deficits,
with the remainder likely to be covered by multilateral and bilateral borrowing.
Monetary policy
Monetary policy will be used primarily to target inflation, with the central bank announcing a
target of 8% by end2019. Inflation averaged close to 30% in 2017—following the pound's
flotation—but eased considerably in the early months of 2018, allowing the bank to cut rates by
200 basis points in the first four months of 2018. However, this comes after a rapid rise in interest
rates of 700 basis points in total between November 2016 and July 2017, and further loosening
until the first half of 2019 is unlikely. This is because the central bank is seeking to balance the
impact of easing inflation with the risks of further currency volatility as the US dollar gains
momentum on the back of fresh rate hikes by the Federal Reserve (Fed, the US central bank). The
outlook for the latter half of the forecast period is brighter, as the impact of a steady decline in
inflation to single digits and real currency appreciation (as gas exports pick up) is likely to more
than offset any pressures from Fed tightening during those years. Corporates will therefore face
tight credit conditions in 2019, followed by lower borrowing costs thereafter as lending rates
resume the downward trend.
International assumptions
2018 2019 2020 2021 2022 2023
Economic growth (%)
US GDP 2.8 2.2 1.3 1.7 1.9 1.9
EU28 GDP growth 2.1 1.9 1.7 1.8 1.9 1.8
World GDP 3.0 2.8 2.4 2.7 2.8 2.7
World trade 4.0 3.7 3.0 4.0 3.7 3.9
Inflation indicators (%)
US CPI 2.5 2.4 1.6 1.8 1.9 1.8
EU28 CPI 1.9 1.8 1.8 1.8 1.9 2.0
Manufactures (measured in US$) 6.8 3.5 3.0 2.4 4.0 3.0
Oil (Brent; US$/b) 73.2 72.3 70.0 74.8 77.4 79.5
Non-oil commodities (measured in US$) 3.3 0.2 1.7 1.3 1.3 0.9
Financial variables
US$ 3-month commercial paper rate (av; %) 2.1 2.9 2.5 2.6 2.9 3.1
Exchange rate US$:€ (av) 1.18 1.19 1.21 1.21 1.24 1.24

Egypt 8
Economic growth
Egypt's economy will continue to recover, expanding at an annual average rate of 6.2% in 2019-23.
However, in the early part of the forecast period, the main constraint on growth in the first half of
the forecast period will be high—albeit declining—inflation, which we expect will initially affect
the growth of consumer spending as well as the expansion of the manufacturing sector due to
higher input costs. The construction and energy sectors are the main engines of growth. In
partnership with private contractors, the government is pursuing various low-income housing
schemes, as well as the construction to the east of Cairo of a new (administrative) capital city,
which is on track to be completed in 2020. More importantly, production from the Zohr gasfield,
which started up at the end of 2017, will sharply reduce the need for costly fuel imports, although
this will be more than offset by the need for capital imports to support the country's infrastructure
projects.
Growing confidence in the availability of hard currency will provide a much-needed boost to
business sentiment and help to attract foreign investors. With growth becoming increasingly
broadbased—recorded unemployment dropped from 14% in 2014 to 11.8% in the final quarter of
2017—consumer spending should pick up more strongly in the second half of the forecast period.
We expect a slowdown in the US in 2020, but its impact on the Egyptian economy should be
minimal, given that the US is neither a major source of foreign direct investment nor an important
export destination. Overall, we forecast that GDP growth will pick up gradually from 5.5% in
2018/19 to 6.9% in 2022/23.
Economic growth
% 2018a 2019b 2020b 2021b 2022b 2023b
GDP 5.3 5.5 5.8 6.1 6.5 6.9
Private consumption 5.6 5.5 5.2 5.2 6.3 6.2
Government consumption 2.4 2.0 3.2 3.0 3.2 4.0
Gross fixed investment 10.5 8.0 8.5 8.0 7.3 10.5
Exports of goods & services 9.8 5.9 6.3 5.2 4.8 5.3
Imports of goods & services 11.0 5.3 5.0 2.9 4.1 5.1
Domestic demand 6.0 5.4 5.4 5.4 6.2 6.7
Agriculture 3.2 3.0 3.1 3.2 3.2 3.2
Industry 8.5 8.7 8.0 8.2 8.5 8.5
Services 3.9 4.1 4.8 5.3 5.8 6.4
a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts.
Inflation
Inflation will continue to decline in 2019 but remain high by historical standards at 14.4%, partly
owing to forthcoming fuel subsidy cuts and continued growth in non-oil commodity prices with
some knock-on effect on the retail prices of imported goods. Thereafter we expect inflation to ease
further, with currency stability (and appreciation) being the dominant factor. Overall, average
annual inflation should ease and eventually return to single digits as the pound appreciates
against the US dollar, falling to 6.7% in 2023.
Exchange rates
The exchange rate is determined by supply and demand. Following the 2016 flotation, the pound
weakened from E£8.88:US$1 to about E£17.9:US$1. There is potential for more real exchangerate
appreciation—reflecting a growing natural resource endowment and a downward trend in
inflation. The flotation has eliminated the black market and helped to restore confidence in the
pound, while also allowing the banking system to capture much of the dollar liquidity in unofficial
circulation. We expect the pound to strengthen gradually from an average of E£17.85:US$1 in 2018
to E£16.23:US$1 in 2023.

Egypt 9
External sector
We expect the current-account deficit, helped by rising gas output, to narrow from 2% of GDP in
2018 to 0.4% of GDP in 2020, before swinging into a small surplus in 2021, as the weak currency
continues to give exports a competitive edge. Despite the start-up of gas production from Zohr in
December 2017, imports are likely to trend up in dollar terms in 2018 and remain close to this figure
thereafter, reflecting the steady inflows of capital inputs for infrastructure projects. Sources of
income such as official transfers, tourism, remittances and Suez Canal earnings are likely to be
affected by global growth. The deficit will be financed out of the central bank's foreign reserves,
which will be buttressed by inflows of loans—including central bank deposits from Arab and non
Arab donors—and foreign direct investment.
Forecast summary
Forecast summary
(% unless otherwise indicated)
2018a 2019b 2020b 2021b 2022b 2023b
Real GDP growth 5.3 5.5 5.8 6.1 6.5 6.9
Industrial production growth 8.5 7.5 8.0 8.5 8.8 8.8
Gross agricultural production growth 3.2 3.0 3.1 3.2 3.2 3.2
Consumer price inflation (av) 17.0 14.4 11.2 8.7 7.9 6.7
Lending rate (av) 16.5 13.5 12.0 11.5 10.9 9.9
Government balance (% of GDP) -9.7 -9.1 -8.5 -7.9 -7.2 -6.4
Exports of goods fob (US$ bn) 30.2 32.0 32.3 32.9 35.4 38.6
Imports of goods fob (US$ bn) 62.2 62.1 64.0 64.2 67.1 69.5
Current-account balance (US$ bn) -5.0 -3.0 -1.2 0.9 3.0 8.4
Current-account balance (% of GDP)c -2.0 -1.0 -0.4 0.2 0.6 1.5
External debt (end-period; US$ bn) 89.3 95.3 100.4 101.8 107.0 110.8
Exchange rate E£:US$ (endperiod) 17.80 17.64 17.39 17.10 16.59 15.88
Exchange rate E£:¥100 (av) 16.28 16.14 16.84 17.25 17.24 16.65
Exchange rate E£:€ (av) 21.12 21.07 21.26 20.83 20.96 20.08
a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts. c Ratio based on calendar
year GDP; national accounts use fiscal year.

Egypt 10
Data and charts

Annual data and forecast
2014a 2015a 2016a 2017a 2018b 2019c 2020c
GDPd
Nominal GDP (US$ bn) 300.8 316.8 269.1 194.5 230.1 269.1 314.4
Nominal GDP (E£ bn) 2,130 2,444 2,709 3,470 4,108 4,774 5,511
Real GDP growth (%) 2.9 4.4 4.3 4.2 5.3 5.5 5.8
Expenditure on GDP (% real change)d
Private consumption 4.4 3.1 4.7 4.2 5.6 5.5 5.2
Government consumption 8.4 7.0 3.9 2.5 2.4 2.0 3.2
Gross fixed investment 1.5 13.8 12.0 12.3 10.5 8.0 8.5
Exports of goods & services -10.9 0.0 -15.0 86.0 9.8 5.9 6.3
Imports of goods & services 0.1 1.0 -2.2 52.5 11.0 5.3 5.0
Origin of GDP (% real change)d
Agriculture 3.0 3.1 3.1 3.2 3.2 3.0 3.1
Industry 1.1 1.0 3.5 3.5b 8.5 8.7 8.0
Services 4.0 4.9 1.5 3.7b 3.9 4.1 4.8
Population and income
Population (m) 86.8 89.0 91.0 95.2 97.3 99.5 101.5
GDP per head (US$ at PPP) 11,009 11,328 11,708 11,869b 12,450 13,102 13,680
Recorded unemployment (av; %) 13.0 12.8 12.5 11.8 10.7 10.0 9.4
Fiscal indicators (% of GDP)d
Central government revenue 24.4 22.0 20.3 21.8b 22.3 22.7 22.6
Central government expenditure 35.7 33.0 32.7 32.2b 32.1 31.8 31.1
Central government balance -11.3 -10.9 -12.5 -10.4b -9.7 -9.1 -8.5
Central government debt 93.3 97.8 111.2 98.7b 94.1 90.3 87.3
Prices and financial indicators
Exchange rate E£:US$ (av) 7.08 7.71 10.07 17.84 17.85 17.74 17.53
Exchange rate E£:€ (av) 9.41 8.56 11.14 20.15 21.12 21.07 21.26
Consumer prices (av; %) 10.1 10.4 13.8 29.5 17.0 14.4 11.2
Producer prices (av; %) 4.3 -3.1b 13.8b 33.2b 21.1 11.9 8.9
Stock of money M1 (% change) 19.3 16.8 20.2 23.3b 14.5 11.7 11.4
Stock of money M2 (% change) 15.8 18.6 39.5 37.6b 16.4 10.3 9.6
Lending interest rate (av; %) 11.7 11.6 13.6 18.2 16.5 13.5 12.0
Current account (US$ m)
Trade balance -39,182 -38,551 -37,821 -37,006 -32,024 -30,109 -31,738
Goods: exports fob 25,269 19,031 20,021 23,337 30,182 32,011 32,277
Goods: imports fob -64,451 -57,582 -57,842 -60,343 -62,206 -62,119 -64,015
Services balance 12,353 8,182 3,635 9,166 9,085 9,258 10,343
Primary income balance -6,751 -5,003 -4,310 -5,344 -7,092 -6,821 -5,522
Secondary income balance 27,657 18,161 18,628 24,815 24,990 24,649 25,683
Current-account balance -5,923 -17,211 -19,868 -8,369 -5,041 -3,023 -1,233
External debt (US$ m)
Debt stock 41,827 48,459 67,214 77,398b 89,342 95,291 100,372
Debt service paid 5,927 3,781 6,574 5,022b 6,659 8,196 10,202
Interest 821 895 1,463 1,221b 1,576 2,049 2,120
International reserves (US$ m)
Total international reserves 14,445 15,493 23,204 35,887 48,697 52,300 55,709
a Actual. b Economist Intelligence Unit estimates. c Economist Intelligence Unit forecasts. d Fiscal year data
ending June 30th.
Source: IMF, International Financial Statistics.

Egypt 11
Quarterly data
2016 2017 2018
4 Qtr 1 Qtr 2 Qtr 3 Qtr 4 Qtr 1 Qtr 2 Qtr 3 Qtr
Output
Real GDP at 2011/12 prices (E£ bn) 855.8 876.0 904.4 877.0 901.0 923.3 953.2 n/a
Real GDP (% change, year on year) 3.8 4.3 5.0 5.2 5.3 5.4 5.4 n/a
Prices
Consumer prices (Jan 2010=100) 204.3 225.6 237.7 250.7 257.6 259.2 268.5 n/a
Consumer prices (% change, year on year) 18.8 29.8 30.3 32.2 26.1 14.9 13.0 n/a
Wholesale prices (2005=100) 131.5 145.4 147.8 161.2 171.2 180.3 190.2 n/a
Financial indicators
Exchange rate E£:US$ (endperiod)a 18.13318.04718.11517.64317.77217.66217.89317.848
Deposit rate (av; %) 13.7 14.8 15.7 18.7 18.8 18.2 16.8 16.8
Discount rate (end-period; %) 14.2 15.3 16.2 19.2 19.3 18.7 17.3 17.3
Lending rate (av; %) 15.4 16.5 17.2 19.2 19.7 19.6 18.2 n/a
M1 (endperiod; E£ bn) 625.7 613.0 707.4 738.5 n/a n/a n/a n/a
M1 (% change, year on year) 20.2 15.7 23.5 21.6 n/a n/a n/a n/a
M2 (endperiod; E£ bn) 2658.02751.3 n/a n/a n/a n/a n/a n/a
M2 (% change, year on year) 39.5 38.4 n/a n/a n/a n/a n/a n/a
EGX 30 stockmarket index (end-period; Jan 1st
12,34512,99513,39613,88915,01717,45016,34914,632
1998=1,000)
Sectoral trends
Crude oil production (m barrels/day) 0.67 0.69 0.67 0.68 0.68 0.68 0.66 0.67
Foreign trade (US$ bn)
Exports fob 5.19 5.55 5.73 5.84 6.22 6.76 7.02 n/a
Imports cif 14.78 14.89 14.65 14.75 16.06 16.01 16.29 n/a
Trade balance -9.60 -9.35 -8.91 -8.91 -9.84 -9.26 -9.27 n/a
Foreign reserves
Reserves excl gold (end-period; US$ m) 20,85824,83327,59532,69033,21438,61340,391 n/a
a Spot middle rate, NY close.
Sources: International Energy Agency, Oil Market Report; IMF, International Financial Statistics; Oil Market Intelligence;
Bloomberg; New York Times.

Egypt 12
Monthly data
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Exchange rate E£:US$ (av)
2016 7.830 7.830 8.480 8.880 8.880 8.880 8.880 8.880 8.880 8.880 16.080 18.460
2017 18.690 16.980 17.720 18.090 18.090 18.110 17.910 17.750 17.640 17.640 17.670 17.810
2018 17.700 17.670 17.630 17.680 17.810 17.870 17.900 n/a n/a n/a n/a n/a
Exchange rate E£:US$ (endperiod)
2016 7.830 7.831 8.880 8.882 8.879 8.875 8.882 8.879 8.881 8.878 17.871 18.133
2017 18.723 15.843 18.047 18.050 18.094 18.115 17.902 17.638 17.643 17.655 17.681 17.772
2018 17.680 17.659 17.662 17.657 17.901 17.893 17.869 n/a n/a n/a n/a n/a
M1 (% change, year on year)
2016 15.9 15.9 15.4 16.0 16.0 14.8 15.1 17.2 16.5 18.1 20.7 20.2
2017 20.2 21.3 15.7 21.1 23.7 23.5 20.7 21.0 21.6 n/a n/a n/a
2018 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
M2 (% change, year on year)
2016 17.3 17.4 18.2 18.0 18.8 18.6 17.8 18.3 18.0 17.6 38.6 39.5
2017 41.5 36.6 38.4 38.8 39.4 39.3 38.7 39.6 39.8 n/a n/a n/a
2018 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
Deposit rate (av; %)
2016 9.3 9.3 10.0 10.8 10.8 11.3 11.8 11.8 11.8 11.8 14.5 14.8
2017 14.8 14.8 14.8 14.8 15.5 16.8 18.5 18.8 18.8 18.8 18.8 18.8
2018 18.8 18.3 17.7 16.8 16.8 16.8 16.8 n/a n/a n/a n/a n/a
Lending rate (av; %)
2016 11.9 11.9 12.5 12.9 12.9 13.4 13.8 13.8 13.9 13.9 16.0 16.3
2017 16.5 16.5 16.6 16.7 17.0 18.0 18.5 19.6 19.6 19.6 19.7 19.8
2018 19.9 19.7 19.3 18.2 18.3 18.2 17.6 n/a n/a n/a n/a n/a
3-month money market rate (end-period; %)
2016 11.4 11.3 13.2 13.4 12.9 14.0 14.3 14.0 14.8 14.6 17.7 19.0
2017 19.0 18.5 19.4 19.4 19.5 20.4 21.6 19.4 18.5 18.8 18.9 18.8
2018 18.4 17.7 18.0 17.7 19.2 19.4 19.0 n/a n/a n/a n/a n/a
EGX 30 index (end-period; Jan 1st 1998=1,000)
2016 5,987 6,147 7,525 7,773 7,484 6,943 8,031 8,158 7,881 8,386 11,453 12,345
2017 12,672 11,938 12,995 12,526 13,340 13,396 13,419 13,416 13,889 14,342 14,582 15,017
2018 15,042 15,473 17,450 18,296 16,415 16,349 15,580 n/a n/a n/a n/a n/a
Consumer prices (av; % change, year on year)
2016 10.1 9.1 9.0 10.3 12.3 14.0 14.0 15.4 14.1 13.6 19.4 23.3
2017 28.2 30.2 30.9 31.5 29.7 29.8 33.0 31.9 31.6 30.8 26.0 21.9
2018 17.1 14.4 13.3 13.1 11.5 14.4 13.5 n/a n/a n/a n/a n/a
Wholesale prices (a; % change, year on year)
2016 0.4 -0.5 5.4 7.2 10.1 14.9 14.4 17.9 15.8 18.2 24.6 36.2
2017 45.0 43.3 35.1 33.5 26.7 23.5 32.6 34.6 37.9 33.2 30.8 26.9
2018 25.0 22.9 24.1 24.0 28.1 34.0 30.4 n/a n/a n/a n/a n/a
Goods exports fob (US$ m)
2016 1,185 1,364 1,726 1,632 1,859 1,808 1,787 1,935 1,540 1,630 1,822 1,733
2017 1,695 1,764 2,088 1,876 2,076 1,740 1,919 2,160 1,760 2,022 2,117 2,077
2018 2,130 2,379 2,246 2,425 n/a n/a n/a n/a n/a n/a n/a n/a
Goods imports cif (US$ m)
2016 4,688 4,966 4,591 4,482 4,680 4,971 4,649 5,515 3,768 4,930 4,945 4,519
2017 4,725 4,361 5,572 4,616 5,330 4,108 5,276 5,065 4,396 4,974 5,477 5,566
2018 5,047 5,178 5,786 5,630 n/a n/a n/a n/a n/a n/a n/a n/a
Trade balance fob-cif (US$ m)
2016 -3,503 -3,602 -2,865 -2,851 -2,821 -3,163 -2,862 -3,580 -2,228 -3,300 -3,124 -2,786
2017 -3,030 -2,596 -3,484 -2,739 -3,254 -2,368 -3,357 -2,905 -2,636 -2,952 -3,360 -3,489
2018 -2,916 -2,799 -3,540 -3,205 n/a n/a n/a n/a n/a n/a n/a n/a
Foreign-exchange reserves excl gold (US$ m)
2016 13,224 13,010 13,066 13,457 14,011 13,888 11,739 12,762 15,774 15,363 19,539 20,858
2017 22,828 22,862 24,833 24,912 27,382 27,595 32,278 32,325 32,690 32,937 32,880 33,214
2018 34,234 38,545 38,613 39,998 40,183 40,391 40,496 n/a n/a n/a n/a n/a
Sources: IMF, International Financial Statistics; Haver Analytics; Central Bank of Egypt.

Egypt 13
Annual trends charts

Egypt 14
Monthly trends charts

Egypt 15
Comparative economic indicators
Basic data
Land area
997,739 sq km, of which only 5% is inhabited and cultivated territory
Population
91m (2016 CAPMAS)

Egypt 16
Main towns
Population (July 2007 official estimates)
Greater Cairo (capital; Cairo, Giza, Helwan, 6th of October & Qalioubia governorates): 18,440,076
Alexandria: 4,123,869
Port Said: 570,603
Suez: 512,135
Climate
Hot and dry, with mild winter
Weather in Cairo (altitude 116 metres)

Hottest month, July, 2136°C (average daily minimum and maximum); coldest month, January, 8
18°C; driest months, July, August, 0 mm average rainfall; wettest month, December, 5 mm average
rainfall
Language
Arabic
Measures
Metric system. Local measures are also used, especially for land area: feddan=0.42 ha or 1.04
acres; cereal crops: ardeb=198 litres or 5.6 US bushels; 8 ardebs=1 dariba; cotton: Egyptian
bale=720 lb (325.5 kg), qantar (metric)=50 kg (replacing the traditional qantar equivalent to 44.93
kg)
Currency
Egyptian pound (E£) = 100 piastres; E£17.84:US$1 (2017 average)
Time
Two hours ahead of GMT
Public holidays
The dates of Islamic holidays are based on the lunar calendar and are therefore approximate:
National Police Day (January 25th); Sinai Liberation Day (April 25th); Labour Day (May 1st); Eid
al-Fitr (June 14th 2018); National Day (July 23rd); Armed Forces Day (October 6th); Eid al-Adha
(August 21st 2018)

Egypt 17
Political structure
Official name
Arab Republic of Egypt
Legal system
Based on the new constitution approved in a referendum in January 2014
National legislature
Unicameral, following the passage of the amended constitution in January 2015. Members of
parliament serve a five-year term. There are 568 elected members in the new House of
Representatives, and 28 members appointed by the president to boost the numbers of
underrepresented minorities such as women and Copts
National elections
The most recent presidential election was held in March 2018, and elections for the House of
Representatives took place in 2015 over two rounds: the first on October 18th-19th and the
second on November 22nd-23rd. The next presidential election is scheduled for 2022
Head of state
President. Abdel Fattah el-Sisi won a second four-year term in the March 2018 election
National government
Council of Ministers headed by the prime minister, Mostafa Madbouly, who was appointed to the
role in June 2018

Egypt 18
Main political parties

Free Egyptians; Future of a Homeland; Wafd
Key ministers
Prime minister: Mostafa Madbouly
Agriculture: Ezzedine Abu Settait
Civil aviation: Younes el-Masry
Communications: Amr Talaat
Defence: Mohammed Zaki
Education: Tarek Galal Shawki
Electricity: Mohammed Shaker
Finance: Mohammed Maaitt
Foreign affairs: Sameh Shoukry
Health: Hala Zayid
Higher education: Khaled Atef Abdel-Ghaffar
Housing: Mostafa Madbouly (acting)
Interior: Mohammed Tawfik
International co-operation & investment: Sahar Nasr
Irrigation & water resources: Mohammed Abdel-Ati Khalil
Justice: Mohammed Hussam Abdel-Rahim
Labour: Mohammed Saafan
Local development: Mohammed Shaarawy
Petroleum & mineral resources: Tareq el-Molla
Planning: Hala Helmy el-Said Younis
Public enterprise: Hisham Tawfik
Social solidarity: Ghada Waly
Supply & internal trade: Ali Museilhi
Technical education: Tarek Shawky
Tourism: Rania el-Mashat
Trade & industry: Amr Nassar
Transport: Hesham Arafat Mehdi Ahmed
Central bank governor

Tareq Amer

Egypt 19
Recent analysis
Generated on October 24th 2018
The following articles were published on our website in the period between our previous forecast and this one,
and serve here as a review of the developments that shaped our outlook.
Politics
Forecast updates
High-profile Egyptian jihadi captured in Libya
October 11, 2018: Political stability
Event
On October 8th the self-styled Libyan National Army (LNA) announced that it had captured
Hisham Ashmawy, the Egyptian authorities most-wanted jihadi terrorist, during an operation in
Derna, in north-west Libya.
Analysis
The LNA operates mainly in eastern Libya, under the leadership of Khalifa Haftar, and has
received considerable support from the Egyptian security forces. Mr Ashmawy set up a base in
eastern Libya to be used as a launch pad for attacks on government targets in Egypt. Threats to
Egypt's national security will continue to underpin the country's close involvement in Libya and
ensure that relations with Mr Haftar remain particularly good.
Mr Ashmawy is a former soldier who had served in a special forces unit of the Egyptian army, but
was cashiered out of the armed forces in 2011 for spreading extreme ideology. After two years of
active jihadism abroad, he returned to Egypt in 2013 to take part in the sit-in at Rabaa Square, in
Cairo, along with other Muslim Brotherhood supporters who were demanding the reinstatement of
the group's leading figure, Mohammed Morsi, as president of Egypt. (Mr Morsi was removed from
power in 2013 after country-wide protests against Islamist rule broke out and eventual military
involvement to unseat him.)
Mr Ashmawy was reported to have been a leading figure in Ansar Beit al-Maqdis (ABM), a jihadi
group that launched an insurgency against the government in 2013 after the removal of Islamists
from power. Mr Ashmawy subsequently left the group and formed alMourabitoun—a group that
has been associated with al-Qaida.
A number of major car bomb operations are mentioned in connection with Mr Ashmawy's name.
In September 2013, a car bomb targeted Mohammed Ibrahim, a former interior minister, who
escaped unharmed; a second, in June 2015, resulted in the assassination of Hisham Barakat, the
state prosecutor. Mr Ashmawy was also suspected of having been involved in an attack on the
Farafra oasis in July 2014 that resulted in the death of 22 border guards, and in an assault on a
police convoy in the Western Desert in October 2017 in which at least 16 security officers were
killed.
Impact on the forecast

Mr Ashmawy will probably be transferred to Egypt for interrogation and extraction of intelligence
to aid the Egyptian army's military campaign against terrorist groups in Egypt. We retain our view
that the campaign will severely damage the terrorist infrastructure in Egypt, although full
eradication of terrorists is unlikely.
Analysis
Russia set to strengthen its presence in Africa
Egypt 20
October 11, 2018
In 2018 Russia has quickly developed ties with the Central African Republic (CAR) through the
signing of a defence co-operation agreement and the hosting of talks between rival militias from
that country. Access to natural resources and potential sales of Russian weaponry appear to
explain Russia's actions. These developments fit in with Russia's willingness to reassert its
presence on the global stage, with the aim of equality with the US in this respect and, in Africa,
to provide a counterweight to traditional Western powers and to China.
In late August Russia and Sudan hosted talks in Khartoum, the Sudanese capital, between a
number of rival militias from the CAR. This resulted in the signing of a declaration of
understanding between those present, including three exSéléka rebel groups (mainly Muslim) and
the head of the largest Christian armed groups, the anti-Balaka. The agreement is believed to have
committed the groups to respect human rights and ensure the free movement of humanitarian
organisations. The agreement also endorsed the African Union (AU) mediation mission, which is
recognised by the UN and the CAR's government. The AU ran a parallel meeting at the end of
August to establish a framework for militias (at least 14 rebel groups are believed to be active in
the country) to engage with the CAR government. However, rival exSéléka factions are operating
almost independently and without a clear chain of command, weighing on the prospects of
achieving a lasting peace agreement.
Russia's involvement in the militia talks illustrates an increasing boldness in its relations with the
CAR, and Africa in general. This has developed rapidly during 2018. In December 2017 Russia
won an exemption from the UN arms embargo to provide small arms and ammunition to the CAR's
military. Russia delivered this assistance early this year, and five Russian military and 170 civilian
instructors were sent to train military personnel on the ground. Given that the UN's CAR mission,
MINUSCA, is overstretched and the CAR's national army (known by its French acronym, FACA)
is poorly trained and supplied, Russia has provided much-needed assistance. However, building
the capacities of the CAR's armed forces will take time, especially given the complex security
picture in the country.
Russia's role goes further than arms donations

In August Russia and the CAR signed a military co-operation agreement. This was described by
Alexander Fomin, the Russian deputy defence minister, as a framework agreement for co-
operation, including exchanges of delegations and education. Russian military personnel have
been deployed to the volatile cities of Sibut and Bangassou in support of the CAR armed forces.
They are escorting convoys to carry materials to build hospitals and are also guarding existing
Russian-donated hospitals.
Natural resources and selling Russian weaponry are the

motives
A significant motivation for Russia relates to natural resources and mining interests—including
timber, gold, diamonds and uranium—in the CAR. Russia has been explicit about this. After a
meeting in October 2017 between Sergei Lavrov, the Russian foreign minister, and the CAR's
president, FaustinArchange Touadéra, in Sochi, a Russian sea resort, the Russian foreign
ministry noted Russia's interest in "mutually beneficial development of Central African natural
resources". Vladimir Putin, the Russian president, met Mr Touadéra in the Russian city of St
Petersburg in May 2018; after the meeting, Mr Putin reiterated Russia's desire to boost bilateral
economic relations. Russia may be hedging this interest by conducting negotiations with rebel
groups, as these control some of the resource-rich parts of the CAR. This is despite the CAR's
preference for the AU-led negotiations; this strategy could prove a source of tension between the
CAR government and Russia.
Russia also is keen to provide Russian weaponry (as has been the case in Syria) to the conflict-
torn CAR, with the hope of future arms deals should the situation stabilise. However, there is a
risk that the weapons already supplied to the CAR under the UN exemption could contribute to
further instability. In August a UN panel of experts noted that the UN-approved supply of
weapons to the CAR military had led rebels to rearm by procuring more weapons in Sudan.
Counterbalancing Western and Chinese influence

Egypt 21
Russia's new interest in the CAR is indicative of Russia's willingness to increase its influence on
the African continent and to counterbalance the influence of traditional powers such as the US,
the UK and France. In addition, by filling a security and defence gap in African countries in
conflict or in those recovering from conflict, Russia is positioning itself for future economic gains
at a time when the West appears to be focusing on migration and security in its relations with
African countries. Finally, Russia also provides a counterbalance to Chinese influence, which has
increased in recent years owing to China's large-scale infrastructure Belt and Road Initiative. In
view of the construction since early 2018 of a Chinese base in Djibouti, and with the
announcement in September by the Chinese president, Xi Jinping, of US$60bn in financial support
to Africa, Russia appears eager to be seen as a serious alternative player in the region.
Not just about the CAR

Aside from recent military co-operation agreements with the Democratic Republic of Congo,
Ethiopia, Guinea, Mozambique and Morocco, Russia reached an agreement in late August to build
a logistics base in Eritrea. If it is built, such a base would give the Russian naval forces access to
the Red Sea. Russia has also renewed ties with Egypt, recently signing agreements to establish a
Russian Industrial Zone; to build a nuclear-power plant; and to supply helicopters and MiG-29
fighter jets. Russia has also offered military training to Sudan's armed forces. These developments
indicate Russia's interest—and, so far, its success—in bolstering its presence in Africa.
Legal action will prolong Qatar-Arab Quartet spat

October 15, 2018
Qatar has launched legal challenges at the World Trade Organisation (WTO) and the
Organisation of Islamic Co-operation (OIC) over what the Qataris described as intellectual
property (IP) violations by beoutQ, a satellite channel that pirates sporting broadcasts from
Qatar's state-owned beIN Media. Although Saudi Arabia has denied involvement, and the
evidence brought forward by Qatar appears inconclusive, third-party sporting associations have
questioned the involvement of the kingdom.
BeIN Media was spun off from Al Jazeera in 2014, taking on the Qatari state-owned broadcaster's
sports and entertainment assets. This left Al Jazeera to focus on news and also enabled Qatar to
develop an international sports and media brand that was not associated with the controversies of
Al Jazeera Arabic's coverage. BeIN has expanded beyond the Middle East and also operates major
sports channels in France, Spain, Australia and elsewhere and has a number of broadcasting
rights, particularly For European football. It made two major acquisitions in 2016: US film studio
Miramax (previously part-owned by Qatar Investment Authority), and Turkish pay-TV service
Digiturk, for around US$1.2bn. The latest legal actions have come alongside Qatar's efforts to
challenge airspace restrictions on Qatar Airways through the International Civil Aviation
Organisation (ICAO).
beIN and the boycott

Following the launch of the regional boycott in June 2017, the Quartet nations began to take
various actions against beIN. In one of the first moves, a week after the start of the boycott, Saudi
Arabia banned the import and sale of beIN receiver boxes, and also the sale and renewal of
subscriptions, although it did not require the cancellation of existing subscriptions. Similar bans
were implemented in the UAE and other countries.
Efforts were also made to hamper beIN's operations, both by the Egyptian government and
sporting figures. Production crews have been barred from entering boycotting countries to cover
events and Hossam El Badry, the coach of Al Ahly, one of Egypt's major football clubs, objected
to beIN's participation in a press conference during the team's involvement in the African
Champions League in June 2017. (The anti-Qatar sentiment runs deep not only at government
level in Egypt but also among the wider Egyptian public because of Qatar's ongoing support of
the Muslim Brotherhood, the militant offshoots of which—Hasm and Liwa alThawra—have
carried out frequent assassinations of state officials and military personnel since the 2013 popular
uprising that unseated the president at the time, Mohammed Morsi.) However, Mr Badry was
fined by the Confederation of African Football for this violation of its policies.
In any case, Egyptian courts imposed two separate antitrust fines of E£400m (US$22m) on beIN
Egypt 22
in rulings in January and March 2018. The first of these related to its package-deal system and had
actually been initiated in early 2017, prior to the boycott, by which time Egypt-Qatar relations were
already at a low ebb. The second fine was from a post-boycott case that accused beIN of abusing
a dominant position in the Egyptian market. Saudi Arabia has made similar accusations about
beIN and in July the General Authority for Competition filed a lawsuit against the company
accusing it of market monopolisation violations for charging subscribers for events such as the
UEFA European Championship in 2016.
Piracy allegations
The restrictions on beIN presented a problem for sports fans in the boycotting countries, as the
channel owned the regional broadcasting rights to many important sporting events—above all the
2018 football World Cup in Russia, which Saudi Arabia and Egypt participated in. Qatar alleges
that the response to this was beoutQ, a free broadcast sports channel that pirated beIN content,
including live events. The channel launched in August 2017, when satellite decoder boxes began
to appear in Saudi Arabia and neighbouring countries.
BeIN has claimed that beoutQ was launched with support from the Saudi government and that it
transmits via Arabsat, a satellite operator owned by 21 Arab states but controlled by Saudi
Arabia, which has a 37% shareholding and hosts the company's headquarters. However, Arabsat
has denied involvement and Saudi Arabia has repeatedly distanced itself from beoutQ, claiming
that it has confiscated thousands of its receiver boxes as part of its efforts to protect IP rights.
Adding to the mystery, beoutQ's website states that it is a partnership of broadcasting companies
from Cuba and Colombia, operating under the laws of those countries, and backed by investors
from the Gulf. BeIN commissioned an independent study by firms including US internet giant
Cisco Systems, which reportedly confirmed that the beoutQ broadcasts do originate from Arabsat.
Pressure has built up against beoutQ not just from Qatar but from the sporting organisations
whose content has been rebroadcast by the station, violating copyright laws and threatening their
business model, which relies on revenue from the sale of broadcasting rights. Complaints and
threats of legal action have been made by FIFA, UEFA, the English Premier League, the
International Olympics Committee, the Tennis Federations, Formula One and others. They have
been careful not to blame the Saudi government directly—not least because there is no evidence
yet to corroborate allegations of the Saudi government's involvement in the case.
Legal action
There were reports in early 2018 that Qatar and beIN were initiating legal proceedings in a number
of venues. On October 2nd two of these avenues formalised at the WTO and the IOC. Qatar
submitted a request for consultations with Saudi Arabia—the first stage of the WTO's dispute
settlement process—citing violations of the TradeRelated Aspects of Intellectual Property Rights
(TRIPS) Agreement. It had previously filed disputes against Saudi Arabia, UAE and Bahrain in
July 2017, which included sections on inhibiting IP rights through restrictions on Qatari
broadcasters. However, these were filed prior to the emergence of beoutQ, and therefore did not
mention it. Of the three cases, only the one against the UAE has moved ahead, with a dispute
panel formed in September 2018, an indication of how slow the process can be.
In the IOC arbitration case, beIN has claimed US$1bn in damages from Saudi Arabia over a host of
IP violations, including both blocking its operations and beoutQ's piracy violations. The case is
being brought under the OIC's agreement on investment protection, to which Saudi Arabia and
Qatar are both parties. Whether or not Qatar/beIN is successful in these cases, they serve to
further prolong the duration of the political spat between Qatar and its neighbours—as these legal
cases are likely to take years to settle.

Egypt 23
Economy
Forecast updates
Damietta arbitration case could be settled with gas supplies
September 12, 2018: Policy trends
Event
Spain's Naturgy announced on September 3rd that a World Bank-affiliated arbitration panel had
ruled that the Egyptian government must pay it compensation of US$2bn, including interest, for
having stopped supplies of natural gas to a liquefied natural gas processing (LNG) plant in
Damietta in which it is a major shareholder.
Analysis
According to the UK-based Financial Times, the compensation is likely to be paid in the form of
future supplies of natural gas. Italy's Eni, which has a 50% stake (Naturgy owns the other 50%) in
Union Fenosa Gas (UFG), the company that lodged the arbitration suit, is the largest gas producer
in Egypt.
According to Naturgy, the International Centre for the Settlement of Investment Disputes (ICSID)
ruled that in stopping gas supplies to the LNG plant the Egyptian authorities had not granted UFG
"fair and equitable treatment", and that their actions contravened Egypt's bilateral investment
protection treaty with Spain.
The 5m-tonne/year Damietta LNG plant started up in 2005. However, as Egypt's natural gas
production started to decline steeply after 2010, the government decided to prioritise gas supplies
for domestic consumption, and the Damietta plant has been dormant since 2012. Its operator is
Spanish Egyptian Gas (Segas), in which UFG holds 80%, with the remaining equity shared
between the Egyptian Natural Gas Holding Company and the Egyptian General Petroleum
Corporation. The suit was registered by ICSID in February 2014. ICSID stated that the case was
closed in July 2018, but has not yet published details of the award. There was also no immediate
comment from either Eni or the Egyptian government.
Settling the case with LNG shipments should not threaten Egypt's energy security. Since 2015
Egypt has covered its natural gas shortfall through importing LNG. Moreover, owing to new fields
brought on stream since late 2016, including Eni's Zohr field, the largest discovery thus far in the
Eastern Mediterranean, Egypt is likely to achieve self-sufficiency in natural gas within a few
months. This would allow for the Damietta plant to resume operations, potentially with discounted
gas supplies offset against the ICSID settlement.

The settlement is an important development and helps end negative publicity related to this case.
Our policy trends and growth forecast are unchanged, however, and we continue to forecast
further oil and gas investments in Egypt, owing in part to government efforts to settle outstanding
arrears and legal disputes with foreign partners.

Egypt 24
Banks, developers and embassies bid for land in new capital

September 14, 2018: Economic growth
Event
Dozens of banks have applied to build premises in Egypt's new administrative capital, east of
Cairo, alongside commercial and residential developers, embassies and services providers,
according to the company that is overseeing the project.
Analysis
Ahmed Zaki Abedin, the head of the Administrative Capital for Urban Development (ACUD), said
in early September that during 2020 most government operations will shift to the new capital, with
the anticipated completion of a new presidential palace, a parliament building, a cabinet office and
several ministries. The ACUD is a joint venture between the armed forces and the New Urban
Communities Authority, an arm of the Ministry of Housing. According to ACUD's spokesman,
Khaled elHosseini, a total of E£130bn (US$7.3bn) has been allocated for developing the
infrastructure for the city's first phase, covering a total area of 40,000 feddans (16,800 sq metres).
The ACUD aims to recoup a significant part of the initial development costs through selling land
to developers.
There are early indications that the planned capital is attracting interest. The ACUD said that
30 banks had applied to purchase plots in the new capital, and that land had been allocated to 16
of them. About 40 embassies have made initial offers for space in the designated diplomatic
quarter, and 27 plots of land had been handed to companies aiming to set up offices or
educational facilities in a mixed-use zone. Real-estate developers have also started work on
projects in residential zones, and Dubai-based Majid Al Futtaim, which has developed a number
of malls and hypermarkets in Egypt, has applied for land to build a shopping centre.
However, there has been one case of a real-estate company withdrawing from a contract.
Novus Stanza issued a notice in July stating that it had decided not to proceed with its planned
residential investment in the new capital. Nonetheless, stringent conditions are being applied for
such withdrawals; in order to get back their 20% down payment, companies would have to cover
ACUD's administrative costs for the transaction, reimburse off-plan buyers and certify that they
had not raised loans on the back of new capital land contracts.

The recent bids for land allocations in the new administrative capital are in line with our view that
the government will pursue with the project until its completion. We retain our forecast that real
GDP growth will strengthen throughout our 201822 forecast period—partly on the back of strong
construction activity.

Egypt 25
Cyprus gas deal paves way for revival of LNG exports

Event
On September 19th the petroleum minister, Tareq el-Molla, signed an agreement with his Cypriot
counterpart, Georgios Lakkotrypis, which will allow for natural gas to be pumped from offshore
fields in the exclusive economic zone of Cyprus to liquefied natural gas (LNG) export plants on
Egypt's Mediterranean coast.
Analysis
The first field to be covered by this agreement would be Aphrodite, in which a consortium led by
Noble Energy of the US made a significant gas discovery in 2011, but Mr Lakkotrypis said that it
could apply to other fields as well. The agreement, which builds on a Memorandum of
Understanding that was signed in 2015, represents an important step towards realising the
commercial potential of offshore natural gas reserves in Cyprus, as well as in Israel. Unlike Egypt,
these two countries have a limited domestic market, and gasfield operators have been weighing up
various options to secure export markets. One of these has been to exploit Egypt's LNG export
infrastructure, which has been largely idle since 2012 owing to the sharp decline in Egyptian
production. Since 2016 Egypt's output has recovered strongly, but local demand is also rising fast.
With the start-up of a new phase of the Zohr field, in Egyptian waters close to the maritime border
with Cyprus, and with additional output coming from BP's West Nile Delta project, Egypt's natural
gas production is set to climb to a record 6.75bn cu ft/day in October. This is sufficient to meet
domestic demand and to allow for limited exports of LNG.
The details of the Cyprus pipeline project will have to be worked out between the various
companies involved. It is not clear yet whether the pipeline will go to the Idku LNG complex,
operated by the Royal Dutch Shell Group, or to the Damietta plant, whose foreign partner is a joint
venture between Spain's Naturgy and Italy's Eni. Idku was designed to process gas from fields
operated by Shell (a legacy of its takeover of BG Group), but production has declined in recent
years, while Damietta was not linked to specific fields. Shell has a 35% stake in Aphrodite, along
with Noble (35%) and Israel's Delek (30%). Aphrodite is set to come on stream by 2022, and is
expected to produce about 700m cu ft/day.

We had already expected this deal to be signed as part of Egypt's efforts to become a regional
energy hub. Our growth forecast is unchanged.

Egypt 26
Egypt-Israel gas pipeline deal signed

Event
The consortium developing Israel's major offshore natural gasfields, together with a state-owned
Egyptian company, announced on September 27th that they are acquiring control of East
Mediterranean Gas (EMG), the Israeli-led company that owns the existing pipeline between Israel
and Egypt.
Analysis
The deal will facilitate the implementation of a 15-year contract, signed in February 2018, to supply
Israeli gas to Egypt. The acquisition is being undertaken by EMED, a new company registered in
the Netherlands and 50% owned by East Gas, a state-owned Egyptian company, with the other
half split equally between US-based Noble Energy and Israel's Delek Group. The latter two are the
major stakeholders in Israel's Tamar—a mediumsized field in production since 2013—and the
much larger Leviathan field, under development and scheduled to begin production in 2019.
EMED will buy 39% of EMG, which built and operated a 90-km pipeline from the Israeli port of
Ashkelon to El Arish in Egypt's Sinai. This was used for transporting Egyptian natural gas to
Israel until 2012, when the Egyptian government closed it after repeated acts of sabotage by Sinai
militants. Noble and Delek will each pay US$180m and East Gas the rest of the US$518m cost. East
Gas already holds 10% of EMG and will now significantly increase its stake, becoming the largest
shareholder.
The acquisition is much more important than its modest price tag indicates. On the commercial
side, it virtually ensures that the undertaking to supply Israeli gas to Egypt can proceed, much
sooner and with much less upfront investment than would otherwise have been necessary. It
thereby assures the viability of the Leviathan field and will catalyse its development in both the
immediate and longer term. From the Egyptian side, it is a further and important step in the process
of Egypt becoming a regional energy hub.
Underlying the business aspects are wide-ranging geopolitical considerations. The deal had been
in discussion for months but was announced just hours after a rare meeting between the Israeli
and Egyptian leaders in New York during the UN General Assembly meeting, highlighting the
strong political support for it. In addition to joint military interests, both countries recognise that
they can each achieve far more in the energy sphere by co-operating.

The deal confirms our existing growth and external forecasts of Israeli gas exports by the middle of
the forecast period but reduces uncertainty over its commercial viability and Egypt's role in the
process.

Egypt 27
Share prices lifted by major IPO and acquisition news

October 3, 2018: Economic growth
Event
The EGX30 stockmarket index clawed back some ground in recent days, after a sharp fall in share
prices since the start of September.
Analysis
The partial recovery came amid a strong response to an offering of shares in a real-estate
developer, as well as news of acquisition plans by Orascom Investment Holding (OIH), a
telecoms-based company that is seeking to diversify its activities. September saw the biggest
monthly fall in the EGX30 index in more than three years, although share prices had been slipping
during the previous few months amid a net outflow of foreign portfolio investment. Between
September 4th and September 20th the index of the 30 largest companies fell by 11.6% from 15,923
to 14,083. This was 23% below the high point of 2018 towards the end of April, when the index
reached 18,363. During the first part of September the market appeared to have been affected by
broader global financial market anxiety about emerging markets in light of developments in Turkey
and Argentina. This was compounded by the adverse local market reaction to news on
September 15th that several prominent financiers, including the two sons of the former president
Hosni Mubarak had received arrest orders in connection with a share-dealing case dating back
more than ten years.
The partial recovery of the EGX30, which settled at 14,393 on October 2nd, was helped by a
decision by the monetary policy committee of the Central Bank of Egypt in September 27th to keep
interest rates unchanged, following market speculation about the possibility of a rate rise in the
face of higher headline inflation and a fall-off in foreign investment in Treasury bills. There was
also a positive response to a share offering by Cairo Development and Investment, a real-estate
company. The offering, which was heavily oversubscribed, raised E£1.24bn (US$69m),
representing 37.8% of the company's capital.
Another indication of increased corporate activity was the announcement by OIH (which is
headed by the well-known Egyptian businessman Naguib Sawiris) that it has appointed a financial
adviser for its planned acquisition of the Nile Sugar Company. OIH has recently announced a new
strategy, including investment in the food industry.

The stockmarket recovery will have no immediate impact on real economic growth, although it
reflects improving investor sentiment towards the Egyptian market. This is in line with our outlook
for the Egyptian economy—which remains unchanged.

Egypt 28
Prices tumble in solar power tenders

October 4, 2018: Economic growth
Event
The New and Renewable Energy Authority (NREA) has set a cap of 2.7 US cents per kWh for bids
that it will invite from 18 pre-qualified companies and consortia for a contract to build and operate
a 600-MW solar energy park in the western Delta.
Analysis
The new bid is based on the lowest bid received in August for a 200-MW solar project in Kom
Ombo, in Upper Egypt, and reflects the rapidly falling costs for such projects globally. The
government launched its solar power programme in 2014 with a feed-in tariff of 14.3 US cents/kWh
for an initial phase of 50-MW plants to be built at Benban, north of Aswan. Many prospective
investors dropped out owing to concerns about guarantees and financing, but there was a
stronger response to a second phase with a set tariff of 8.4 US cents/kWh. There are about 32
projects under way in Benban, with total capacity of 1,650 MW. They first came on stream in early
2018, and most of the remainder are scheduled to start up during 2019.
The investors are mix of Gulfbased, local, Asian and European companies—signalling
strengthening interest from foreigners in the country's renewables sector. Most of the finance for
the Benban projects has come from the International Finance Corporation and the European Bank
for Reconstruction and Development, which also helps unlock private investment—particularly in
projects where co-financing takes place between a multilateral organisation and a private investor.
For the Kom Ombo project, the bidding was highly competitive, with six offers ranging from
2.73 US cents/kWh to 3.5 US cents/kWh. The lowest was a price quoted by Saudi Arabia's
ACWA Power, which is carrying out three projects in the Benban scheme. The NREA is expected
to announce the winning bid soon. Most of the Benban investors are also among the pre-
qualifiers for the Delta project, for which technical and financial bids are to be invited soon. The
selected developer will sign a 25-year power-purchase agreement with the Egyptian Electricity
Transmission Company.

We retrain our view that Egypt's energy sector will remain a strong attractor of foreign direct
investment in the country—helping drive real economic growth. Our forecast is unchanged.

Egypt 29
Current-account deficit falls sharply in second quarter

October 8, 2018: External sector
Event
The current account showed a deficit of US$642m in the second quarter of 2018, the lowest
quarterly shortfall in more than four years.
Analysis
The shrinking of the current-account deficit has resulted mainly from the strong increase in
remittances since the end-2016 flotation of the local currency. Other factors have included a
recovery in tourism income, a tapering down of liquefied natural gas (LNG) imports and modest
rises in exports and Suez Canal revenue. The main feature of the capital account in the second
quarter was a significant net outflow of portfolio investment, reflecting the reduction in foreign
holdings of Treasury bills.
We have calculated the figures for the second quarter of calendar 2018 on the basis of balance-of-
payments data announced on October 2nd by the Central Bank of Egypt for the 2017/18 (July-
June) fiscal year and quarterly breakdowns up to end-March 2018 in the central bank's monthly
bulletins.
Remittances from Egyptians working abroad rose sharply after the flotation from an average of
about US$4.5bn per quarter to more than US$6bn. The main reason was the attraction of
transferring funds through official channels at a market-based exchange rate. The rise in
remittances could also be attributed to stronger demand for external support from families in
Egypt, whose living standards had been hit by the surge in inflation after the flotation of the local
currency. Remittances rose slightly in the second quarter of 2018 to US$6.8bn, compared with
US$6.5bn in January-March.
One of the most notable changes in the current account was the sharp fall in the petroleum trade
deficit to US$336m in the second quarter from US$1.2bn in the first. This reflected higher oil
prices, which boosted export revenue, and reduced volumes of LNG imports, following the rise in
domestic natural gas production.
The capital-account surplus fell sharply as a result of a US$2.8bn net outflow of portfolio
investment, compared with a US$6.9bn inflow in the first quarter. If the US$2.1bn in global bonds
issued in April are excluded, the portfolio outflow was almost US$5bn in the second quarter.
Foreign banks have reacted to wider concerns about emerging-market risk by reducing their
holdings of Egyptian T-bills.

The total current-account deficit for the first half of 2018 came in at US$2.6bn and we are likely to
make a small downward revision to the estimated shortfall of US$6bn for the full year—with little
knock-on impact on 2019-23.

Egypt 30
Government steps up screening campaign for hepatitis C

October 12, 2018: Policy trends
Event
The government has launched an extensive screening campaign for hepatitis C, a debilitating
illness for which Egypt has the highest incidence rate in the world.
Analysis
The national screening effort comes after a series of initiatives over the past five years that have
resulted in a dramatic increase in treatments for the disease, which the government is aiming to
eradicate by the early 2020s. Egypt's success in tackling hepatitis C has encouraged similar
initiatives across the developing world. Earlier government efforts focused on people showing
advanced symptoms, whereas the underlying infection can remain undetected for several years.
The origins of Egypt's high incidence of hepatitis C date back to the 1960s, when a campaign was
launched to combat schistosomiasis, a water-borne parasitic disease that was endemic in the Nile
Delta. The widespread re-use of needles in that campaign led to the transmission of hepatitis C.
This connection was only discovered in the late 1980s, by which time the highly infectious virus
was deeply embedded in the population. In 2015 around 7% of the adult population was infected,
according to a World Bank study, and the disease accounted for 7.6% of deaths in the country.
The development of a new treatment in 2013 by Gilead Sciences (US) provided an opportunity for
Egypt to tackle the disease. The treatment was prohibitively expensive, but Egypt negotiated a
substantial discount and the way was left open for the development of cheaper generic versions.
The original Gilead price for the 12-week treatment was US$84,000; Egypt secured a price of
US$900, and the cost of the treatment has since come down to US$100, with patients only required
to pay a US$2 treatment fee. The World Bank has provided US$129m in financing for treatment so
far, and has allocated US$131m for the screening programme. The screening for hepatitis C is part
of a campaign called "100 Million Healthy Lives", which aims to examine up to half of the entire
population during October and November.

The president, Abdel Fattah el-Sisi, had pledged that his second four-year term (which runs until
2022) would focus on healthcare and education (alongside continued economic policy reform).
We had already factored this into our policy trends forecast, which remains unchanged. The
healthcare focus may also help to restore some of the president's popularity after two years of
socially tough economic reforms.
Analysis
Fruits of reform at risk from emerging-market volatility
September 19, 2018
The Egyptian government has recently set a number of economic targets for the next five years,
including a rise in real GDP growth from 5.8% in fiscal year 2018/19 (July-June) to 8% in
2022/23. This anticipated boom is presented as a reward for the sacrifices that the Egyptian
public have made as part of the IMF-backed policy adjustment that has entailed floating the
currency, raising interest rates to counter the ensuing inflationary surge, increasing the tax
burden and cutting subsidies. However, reaching the optimistic targets will depend to a large
extent on maintaining the confidence of foreign investors amid the current emerging-market
sell-off.
With investor sentiment towards emerging markets rapidly worsening, Egypt's policymakers and
businesses face a cluster of risks, including pressure on the exchange rate and fresh hikes in
interest rates. The prospect of higher world prices for oil and wheat, as well as anticipated
increases to US interest rates, only serves to compound the problems.
External debt has surged since onset of reforms

Egypt 31
Egypt's vulnerability to external shocks is apparent in its high external debt stock and in its large
current-account and fiscal deficits (although the deficits two are on a downward trend). The
structural reforms enacted over the past three years have to some extent addressed these
weaknesses.
External debt has risen from US$53bn in September 2016 (on the eve of the flotation) to US$88bn
in March 2018; as a proportion of GDP the scale of the increase has been greater, from 17% to
37%, reflecting the fall in the dollar value of nominal GDP as a result of the pound's depreciation.
However, this increase in external borrowing has enabled the Central Bank of Egypt to build up its
foreign-exchange reserves to more than US$40bn, compared with an average of about US$15bn
between 2011 and mid-2016. Moreover, most of the debt is long term on concessional terms: more
than half of the total is owed to international and regional organisations or Gulf Arab
governments; the main exposure to international commercial creditors is in the form of about
US$15bn in bonds with maturities ranging from five to 20 years.
Egypt affected by capital outflows

The series of four international bond issues that Egypt has undertaken since the start of 2017
make up only part of the exposure to global financial markets. Another important component has
been foreign portfolio investment in Egyptian pound government securities. These portfolio flows
increased rapidly in the wake of the flotation and the subsequent hikes in interest rates, and was
reflected in the strong inward net indirect investment inflows in the central bank's balance-of-
payments data. The total net portfolio inflow between the start of 2017 and end-March 2018 was
US$30.7bn, of which about 60% was in the form of investments in Treasury bills, with the
remainder accounted for by bond issues. Liabilities entered in the debt security column of the
central bank's international investment position table rose from US$5.7bn at end-2016 to
US$33.8bn in March 2018.
The next quarterly updates of Egypt's external financial position are likely to show a significant
net outflow of portfolio investment during the second and third quarters (even allowing for the
impact of a €2bn bond in April). Bankers estimate that about US$6bn has been withdrawn from
Egypt by portfolio investors between March and July. The effect of these outflows was evident in
the exchange rate, which has weakened to about E£17.90:US$1 from E£17.65:US$1 in March, as
well as in the rise in yields on Treasury bills from about 17.5% (for three-month securities) to 19%
in September.
But risks remain contained

The adjustment in the exchange rate and the Treasury-bill yields has been sufficient to stabilise
the market for the time being, and there was no immediate sign of contagion from the recent
financial crisis in Turkey. The Turkish central bank's decision on September 13th to raise interest
rates by 625 basis points could have a marginal impact on Egyptian monetary policy, however, as
it will further limit the scope for reducing domestic rates. The central bank eased rates by 200 basis
point in total in February and March 2018, in response to falling inflation, but it has held rates
steady since then. (Headline inflation picked up to 14.2% year on year in August, as a result of
increases in prices of subsidised fuel and electricity, but core inflation has dropped to single
digits since June, after peaking at 33% in September 2017.)
Nonetheless, the combination of higher borrowing costs and rising oil prices makes it harder for
the government to bring down its overall fiscal deficit, which reached an estimated 9.6% of GDP in
2017/18. However, as long as the government manages to maintain a primary budget surplus, there
is little risk of a major breach with the IMF. Egypt is set to receive a further US$4bn from the IMF's
US$12bn extended fund facility by the end of 2019, which will provide a measure of insulation
against the turbulence in emerging markets.
Another area of vulnerability is the current account. The recent performance has been
encouraging, with the quarterly deficit coming down below US$2bn since mid-2017, compared
with US$5bn on average in 2016. This has reflected a rise in non-oil exports, a recovery in tourism
income and a surge in remittances in response to the flotation. However, import costs are set to
increase with the rise in oil prices and looming rises in wheat prices following the poor harvests
across the main producing areas in 2018. There is also a question over whether the high level of
remittances (which reached US$23bn in 2017) can be sustained, particularly if Gulf Arab states
Egypt 32
persist in policies aimed at reducing reliance of expatriate labour. Equally significant, the broader
weakening in emerging-market currencies means that Egyptian exporters will need to compete
more aggressively with others to remain market share for agricultural and other types of exporters.
All of this suggests that the lingering effects of the current emerging-market turmoil on Egypt will
take time to subside—possibly spilling over into 2019.
Pipeline deal consolidates Egypt's role as energy hub

October 4, 2018
A new joint Israeli-Egyptian venture, EMED, has acquired a stake in a pipeline that will transport
natural gas from Israel to Egypt. The US$518m deal to buy a 39% stake in the pipeline operator,
the East Mediterranean Gas Company (EMG), was announced in Israel on September 27th by
Delek of Israel and its US partner, Noble Energy, the main shareholders in Israel's Tamar and
Leviathan offshore gasfields. The deal paves the way for the export of up to 7bn cu metres/year of
gas from the two fields to Egypt as part of a ten-year sales agreement with Dolphinus, a Virgin
Islands-registered entity with Egyptian principals, that was announced by Delek and Noble in
February 2018. The gas is likely to be processed by Egyptian facilities for onward re-export. The
recent deal is likely to strengthen Egypt's potential to act as a regional energy hub.
Mohammed Shoeib, a former chairman of the state-owned Egyptian Natural Gas Holding Company
(EGAS), is listed as the director of the majority partner in EMED. As part of the deal, a series of
arbitration suits against the Egyptian government brought by EMG shareholders claiming
damages over the closure of the EMG pipeline (due to repeated sabotage by Sinai militants),
which previously pumped Egyptian gas to Israel, have been waived. Transit revenue from the
pipeline will be used to restructure a loan provided by National Bank of Egypt to EMG, according
to a statement issued by Delek.
Deal marks fresh start for EMG

EMG was set up in the early 2000s by Hussein Salem, a businessman with close ties to the
Egyptian security establishment, and Yossi Meiman, the head of Israel's Merhav Group. Mr Salem
subsequently sold significant portions of his stake to Thailand's PTT and to ventures controlled
by Sam Zell, an Israeli-US businessman, and Ali Evsen, an Azerbaijan-based businessman. In 2016
Mr Salem reached a reconciliation agreement with the Egyptian state over legal claims against him,
and handed over a large portion of his assets.
EMED, the venture that has bought EMG, is a special purpose vehicle registered in The
Netherlands in which Cyprus-registered affiliates of Noble and Delek will hold 25% each, with the
remaining 50% held by Sphinx, a Dutch-registered company described as a wholly owned
subsidiary of the East Gas Company (also known as Sharq). Sharq was set up in the 2000s as the
Egyptian partner in a gas pipeline to Jordan. Mr Shoeib is the director of Sphinx. Delek and Noble
will pay US$185m each to the sellers of a 39% block of shares in EMG (held by three arms of
Mr Meiman's Merhav/Ampal group and Mr Zell's EGI-EMG), and Sphinx will pay the remaining
US$148m. It is not clear why the Egyptian partner in EMED is not required to pay in proportion to
its shareholding in EMED. The venture will acquire an additional 2% share in EMG from the
Mediterranean Gas Pipeline Company (MGPC) in exchange for dropping all claims against Egypt.
Delek said that, to the best of its knowledge, MGPC is controlled by Mr Evsen. In a separate deal,
Sphinx is to acquire a further 9% of EMG from MGPC, whose stake in the company will drop to
17% from 28%. There is no reference in the published documents to any residual stake held by
Mr Salem.
Following the deal, which is to be concluded by June 2019 at the latest, Egyptian interests will
hold 38.5% of EMG, through Sphinx's indirect and direct stakes and through a 10% stake held by
the state-owned Egyptian General Petroleum Corporation (EGPC). EMG will grant EMED the
exclusive right to lease and operate the pipeline for the duration of the contract with Dolphinus.
The first gas flows could start in early 2019, Delek said, although given previous delays to
developing the Leviathan gasfield, we expect some delays.
Deal has strategic importance for Egypt and Israel

The prominent role of Mr Shoeib highlights the strategic importance that the Egyptian authorities
attach to the project in the context of plans to turn Egypt into a regional energy hub and of
Egypt 33
economic and security co-operation with Israel. Mr Shoeib has connections to the Egyptian
authorities; he had a lengthy career in the petroleum sector, and became chairman of EGAS in 2011
before moving to the private sector the following year. He was under consideration for the post of
petroleum minister following the removal of Mohammed Morsi from the presidency in July 2013,
but the post eventually went to Sharif Ismail, under whose tenure Egypt's natural gas industry
started a strong recovery, which has culminated in the recent regaining of self-sufficiency in gas.
The EMG pipeline deal comes as Egypt is gearing up to resume natural gas exports after a hiatus
of more than five years. The start-up of new phases of the Zohr and West Nile Delta offshore
projects has lifted Egypt's production to about 6.75bn cu ft/day (191m cu metres/day), which is
sufficient to cover domestic demand and allow for a modest level of exports via the country's two
liquefied natural gas (LNG) terminals at Idku and Damietta and through the pipeline to Jordan. The
Ministry of Petroleum has also signed an agreement with Cyprus to allow gas from offshore
Cypriot fields to be pumped to Egypt. The gas arriving from Cyprus and Israel could either be sold
on the domestic market or processed through the LNG plants for onward export to European and
other markets.
Egypt's annual natural gas production is likely to range between 70bn and 75bn cu metres over
the next 2-3 years. Whether it continues to increase will depend on the rate of decline of mature
fields and on the scale of any new discoveries. Consumption reached 56bn cu metres in 2017, and
is increasing rapidly as several major new gas-fired power stations come on stream. The Idku and
Damietta LNG plants have the capacity to process about 16bn cu metres/year of natural gas, and
the Jordan pipeline could transport up to 2.5bn cu metres/year. This means that the existing Egypt
infrastructure has the capacity to absorb the kind of volumes that are envisaged in the agreements
with Israeli and Cypriot suppliers. If further major discoveries are made either in Egypt or in its
Mediterranean neighbours, there is scope for adding trains to the Idku and Damietta export
terminals.

2018 10 18 Economist Intelligen Country Report Egypt October 2018 83243359

Enviado por

Dados do documento

Direitos autorais

Formatos disponíveis

Compartilhar este documento

Compartilhar ou incorporar documento

Opções de compartilhamento

Você considera este documento útil?

Este conteúdo é inapropriado?

Direitos autorais:

Formatos disponíveis

2018 10 18 Economist Intelligen Country Report Egypt October 2018 83243359

Enviado por

Direitos autorais:

Formatos disponíveis

________________________________________________________________________________

Generated on October 24th 2018

Hong Kong Geneva

This report can be accessed electronically as soon as it is published by visiting store.eiu.com or by

Symbols for tables

Outlook for 2019-23

Data and charts

Country Report October 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Political and economic outlook

Country Report October 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Key changes since September 11th

The month ahead

Major risks to our forecast

Country Report October 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Outlook for 2019-23

Country Report October 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Country Report October 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Country Report October 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Country Report October 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Country Report October 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Country Report October 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Data and charts

Country Report October 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Country Report October 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Country Report October 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Annual trends charts

Country Report October 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Monthly trends charts

Country Report October 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Comparative economic indicators

Country Report October 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Weather in Cairo (altitude 116 metres)

Country Report October 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Country Report October 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Main political parties

Central bank governor

Country Report October 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Impact on the forecast

Russia's role goes further than arms donations

Natural resources and selling Russian weaponry are the

Counterbalancing Western and Chinese influence

Not just about the CAR

Legal action will prolong Qatar-Arab Quartet spat

beIN and the boycott

Country Report October 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Impact on the forecast

Country Report October 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Banks, developers and embassies bid for land in new capital

Impact on the forecast

Country Report October 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Cyprus gas deal paves way for revival of LNG exports

Impact on the forecast

Country Report October 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Egypt-Israel gas pipeline deal signed

Impact on the forecast

Country Report October 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Share prices lifted by major IPO and acquisition news

Impact on the forecast

Country Report October 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Prices tumble in solar power tenders

Impact on the forecast

Country Report October 2018 www.eiu.com © Economist Intelligence Unit Limited 2018

Current-account deficit falls sharply in second quarter

Impact on the forecast