Economic Analysis - New Law To Boost Fixed Investment - FEB 2018

BMI View: The implementation of Egypt ' s new investment law will further boost investor confidence, and drive fixed capital formation in the country. An uptick in investment will also create job opportunities, underpinning our view for fixed investment and private consumption to support the acceleration of GDP growth over the coming quarters.

The approval of executive regulations for Egypt's new investment law on October 25 supports our view for fixed investment to pick up in the country, as the business environment improves. The law, which was adopted on June 1, aims to cut red tape and simplify procedures for businesses, through the creation of a new investors' service centre tasked with issuing licenses. The law also introduces various tax incentives, including the restoration a number of free zones, and substantial tax breaks, especially for investments in the country's less developed areas.

With the investment law being part of a wider series of economic measures in the country, Egypt's positive momentum underpins our view for real GDP growth to accelerate to 4.9% in FY2017/2018 - following an estimated expansion of 4.1% in 2016/2017 - driven by higher private consumption and fixed investment. Egypt came back on the radar of foreign investors in November 2016 when it entered a USD12.0bn IMF programme, forcing the government to implement a number of structural reforms as a condition for the deal. The currency devaluation of that same month made the country a cheaper place to invest in, a trend which was later compounded with the aforementioned business environment reforms. Illustrating these improvements, Egypt's Purchasing Managers' Index rose steadily from 41.8 in November 2016 to 48.9 in August 2017, and we believe that the modest decline in September 2017 (47.4) will not be sustained.

Fixed Investment, Private Consumption To Drive Growth
Egypt - Components' Contribution To Real GDP Growth (pp)
f = BMI forecast. Source: Central Bank of Egypt, BMI

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