The Russian-Ukrainian war will negatively affect the Egyptian economy

Newsletter

28 Feb 2022

For our top talks today, we need to highlight that the Russian-Ukrainian war will negatively affect the Egyptian economy, as it led to a rise in global oil prices, to more than 100 USD a barrel, which will lead to a rise in fuel prices in Egypt, and consequently it will negatively affect all local sectors and increase the prices of all commodities, expecting an increase in the inflation rate in Egypt 1% over the next month. It is expected that the most affected sectors are tourism and trade exchange, but it will reduce the bill for Egypt’s imports of oil, noting that the rise in the price of oil is mostly accompanied by a rise in the price of natural gas, which supports Egypt’s gas export. The great impact of the war is expected to be on trade because Russia is one of the top 10 sources of Egyptian imports, and more than half of our imports from Russia are grains, especially wheat. It is worthy to mention that Egypt has a sufficient strategic stockpile of wheat that is sufficient for a period of 6 months, as it is a very strategic commodity first, and secondly, because we have experienced a strategic stock crisis before and we know how to deal with it. (Zilla Capital)

Moreover, the biggest beneficiaries of this crisis are oil exporters, since the oil supply is expected to decrease because Russia (the second largest oil producer in the world), and this is what we have already seen,
as the price of a barrel of crude rose to more than 100 USD for the first time in 7 years, after Russian President Vladimir Putin announced the start of military operations in eastern Ukraine. Unfortunately, the war will weigh on Egypt's oil import bill, but the bright side is that the rise in the price of oil is often accompanied by a rise in the price of natural gas, which supports Egypt's gas exports at the same time. Russia and Ukraine are among the most exporting countries for tourists in Egypt, as the volume of tourists coming from the two countries is expected to decline during the coming period, pointing out that the decline in tourism revenues will weaken foreign exchange in the Egyptian economy. (Zilla Capital)
On the other hand, there is a negative impact on the profitability of companies, but at the same time there are companies that will benefit, such as the oil and energy sector, pointing out that the most prominent beneficiary companies in the field are the Citadel Company, AMOC and Sidi Kerir.
The industries that depend on gas for their manufacture will be among the sectors benefiting from the crisis as well, such as the fertilizer and petrochemical sector, due to the fact that gas prices will rise globally, but Egypt will not be affected because we produce gas locally, which will contribute to creating new export opportunities for the fertilizer sectors and iron, in light of the rise in gas globally. It is expected that the crisis will make the government accelerate the lifting of subsidies on bread, as was previously announced. (Zilla Capital)
And now it is time to state some facts and numbers, Egypt’s exports to Russia grew 17.5% to stand at 449.5 million USD in the first 11 months of 2021, from 382.5 million USD during the same period in 2020.
Egyptian imports from Russia went up 10.4% to 2.9 billion USD in the 11-month period ended November 2021, from 2.7 billion USD in the same period the year before. Total trade exchange between Egypt and Russia rose 11.3% to 3.4 billion USD during the period from January until November 2021, from 3 billion USD in the first 11 months of 2020. Furthermore, Russian investments in Egypt skyrocketed to 24.8 million USD during the fiscal year (FY) 2019/2020, from 1.4 million USD in FY 2018/2019. (CAPMAS)
Also, the value of Egypt’s wheat imports declined by 16.2% to 2.4 billion USD in the first 11 months of 2021, from 2.9 billion USD in 2020.
Egypt imported 6.1 million tons of wheat during the period from January until November 2021, 48.4% down from 11.8 million tons in 2020. Russia topped wheat exporters to the most populous Arab country in the first 11 months of 2021, with exports worth 1.2 billion USD, followed by Ukraine whose wheat exports to Egypt recorded 649.4 million USD in the same period. Moreover, Romania was ranked third among top wheat exporters to Egypt, with exports worth 407.7 million USD during the January-November period of 2021, followed by Australia and France whose exports amounted to 105.5 million USD and 63.8 million USD, respectively. It is worth noting that Egypt’s General Authority for Supply Commodities (GASC) announced plans to buy cargos of 55,000 to 60,000 tons of wheat on February 28th. (CAPMAS & Arab Finance)
Egypt overall deficit rose during the first 7 months of the current fiscal year 2021-2022 to 4.7% of the gross domestic product, compared to 4.4% for the same period of the last fiscal year, under pressure from increased expenditures, especially debt interest and government support.
It is expected that the total deficit in Egypt will record 7.4% by the end of the current fiscal year without taking into account the Ukrainian crisis so far. In addition, the Egyptian government expects to reduce the total deficit in the budget for the fiscal year 2021-2022 to 6.7% from 7.4% a year ago, and to increase economic growth to 6.3-6.5% compared to 3.3%, and the fiscal year in Egypt begins on the first of July until the end of June. (Egyptian Ministry of Finance)
Egypt was ranked second among the world's top targeted markets for merger and acquisition (M&A) deals in 2021, after the US, the Middle East News Agency (MENA) reported.
Total number of merger and acquisition deals in the Egyptian market surged 49% year-on-year (YoY) to 233 in 2021. Moreover, total value of M&A deals skyrocketed 486% YoY to 9.9 billion USD in 2021. The highest value of deals was recorded in December 2021 at around 653.8 million USD, while October saw the highest number of deals at 31. Egypt’s healthcare sector was the most attractive for M&A deals, as a total of 1.6 billion USD deals were closed in the sector in 2021. (Egyptian Cabinet Information and Decision Support Center (IDSC))
Moving to our investments talks, Egypt’s transport ministry has reached an agreement with a consortium of companies on all technical and financial aspects of the high-speed railway project.
The consortium consists of Germany’s Siemens Mobility and Egyptian companies Orascom Construction PLC (ORAS) and Arab Contractors. Contracts of the project are set to be signed in March, the ministry pointed out, adding that the project aims at connecting the 6th of October with Aswan, as well as linking Luxor to Hurghada via Qena and Safaga. It is worth noting that the high-speed railway project includes three main lines at a total length of 1,730 kilometers (km). (Arab Finance)
French multinational technology company Schneider Electric has entered into an agreement with the US technology conglomerate Cisco to build Egypt’s national smart grid.
Under the agreement, Schneider Electric will install network control centers, as well as 4,000 smart ring main units that will detect and resolve network faults to maintain availability and stability of energy. Meanwhile, Cisco will provide IP and security infrastructure, including routers and switches, along with a plethora of cyber security equipment and tools. (Arab Finance)
Egypt’s Micro, Small, and Medium Enterprise Development Agency (MSMEDA) and the World Bank launched a 50 million USD venture capital (VC) fund to support entrepreneurship projects.
The fund will be also used to fund specialized training programs for employees in several financial institutions to educate them about funding. Egyptian trade minister and MSMEDA’s Executive Director Nevine Gamea said that the VC program paves the way for investments in African markets. Gamea highlighted that MSMEDA “collaborated with numerous international and donor agencies to build incubators and business accelerators in line with international norms.”. (Arab Finance)
And for our EGX and companies talks, e&, the UAE-based telecom operator formerly known as Etisalat, is considering new deals in Egypt’s fintech sector, according to the group’s CEO Hatem Dowidar.
Dowidar said that e& mulls over expansions in African, European, and Asian markets, including Pakistan, in areas other than telecommunications. The Emirati group is considering a set of options, including joint ventures (JVs), acquisitions, and listings of subsidiaries, adding that the group will remain in control of all of its units. Dowidar revealed that e&'s total revenue grew 3% in 2021, while e& enterprise grew 17%, noting that the group’s growth is projected to accelerate. Earlier in February, Etisalat Group announced a new brand identity, e&, that will include four sections: e& telecoms, e& life, e& enterprise, and e& capital. (Reuters)
GB Auto (AUTO) has recorded a consolidated net profit attributable to the parent company of 1.47 billion EGP in 2021.
This marks a growth from the consolidated net profit of 916.95 million EGP recorded in 2020. Meanwhile, the company has generated consolidated operating revenue of 31.43 billion EGP last year, up from 23.31 billion EGP in 2020. On the other hand, the company has incurred a standalone net loss after tax of 2.41 billion EGP in 2021, declining from 9.03 billion EGP in 2020. (EGX)