Impact of global economic trends on Egyptian businesses

How Global Economic Trends are Shaping Egyptian Businesses and Strategies for Success?

 

Introduction:

According to the IMF’s World Economic Outlook 2024, global economic growth is projected to stabilize at 3.1% in 2024, the same rate as the previous year, and rise by one point to 3.2% in 2025. Although the forecast for 2024-2025 is still below the 2000-2019 average of 3.8%, it reflects greater expected resilience in the United States and several emerging and developing economies. Inflation is falling more rapidly than expected in most regions despite supply-side issues and restrictive monetary policy. These global economic trends, coupled with the unique challenges faced by emerging markets, have significant implications for Egyptian businesses. Understanding these trends and developing strategies to navigate them is crucial for the success and sustainability of businesses in Egypt. This article explores how global economic dynamics influence Egyptian enterprises and offers strategic insights for thriving in this evolving landscape.

Global growth rates vary across regions and are affected by many risks, most importantly, the sharp rise in commodity prices due to global geopolitical and climate changes, the continued inflation rates, and the tightened monetary policy this requires. According to the IMF estimates for 2024, the growth rate of advanced economies is projected to decline slightly to about 1.5% in 2024, down one point from 2023, and then rebound to 1.8% in 2025. On the other hand, growth expectations in emerging and developing economies remain at 4.1% in 2024 and are projected to rise to 4.2% in 2025. The IMF also expects falling inflation rates from an estimated 6.8 percent in 2023 to 5.8 percent in 2024 and 4.4% in 2025.

On the Egyptian front, and according to the Ministry of Planning and Economic Development, the growth rate decreased during Q1 FY 2023/2024 (July-September) to 2.65%, a decline of about 9% from the previous quarter. The decline reflects the challenges facing the Egyptian economy, especially the shortage of foreign currency, the depreciation of the pound, and the rise in inflation and government debt.

The IMF expects the Egyptian economy to grow by about 3% in FY 2024, compared to 3.8% in 2023 and 6.6% in 2022, as a result of the shortage of foreign currency as well as the import constraints that hindered access to local production inputs and exports, consequently. This is in addition to the increasing risks to Suez Canal revenues and other sources of foreign currency.

 

Global Economic Trends and Implications for Emerging Markets

Global markets, such as the USA, UK, EU, and China, set the tone of the global economy and cast their shadow directly on emerging markets in all fields.  Emerging markets, such as Egypt, Brazil, India, South Africa, and Turkey, are widely affected by the dynamics in global markets.

Among the global economic trends that the world witnessed recently is that contrary to expectations, inflation rates in global markets didn’t decline, however, persisted in some countries such as the USA, which delayed the expected easing cycle.

Consequently, inflation rates in emerging markets kept turbulent and still quite high. Also, pressure on emerging markets’ currencies stay to be high due to local inflation rates and the high US interest rates.

The Egyptian local market is affected as well by global trends. The Egyptian external debt declined a bit as a result of some signed mega deals, such as Ras Al Hekma. Inflation rates started to show signs of decline due to monetary policy tightening, while economic growth is still trying to reach the previous levels.

 

Egypt’s Economic Climate

Egypt’s real GDP growth rate has been adopting a rising trend until 2018/2019, but has been declining throughout the past 4 years excluding 2021/2022; due to domestic and global challenges. The unemployment rate has been decreasing since 2017/18, though rising by the end of 2019/2020 due to the COVID-19 pandemic, then declined to stabilize at around 7%.

 

 

Egypt has been taking several steps and adopting different policies to alleviate the different challenges affecting its growth and to boost investment. In August 2023, Egypt joined the BRICS.  In October 2023, the Parliament approved a draft law establishing the Egyptian Export and Investment Guarantee Agency. In October, the CBE issued instructions to the banks to open and activate the maximum credit card limit for use abroad while setting a monthly maximum limit for the use of the credit card. During the same month, the Parliament approved a draft law amending the provisions of Law No. 121 of 1982 regarding the register of importers. In November 2023, the Minister of Finance issued Decree No. 518 of 2023, amending certain provisions of the Executive Regulations of the Unified Tax Procedures Law issued by Minister of Finance Decree No. 286 of 2021.

A detailed guide to industrial investment in Egypt, published by the Egyptian Centre for Economic Studies, details the regulations, opportunities, challenges, talent and much more about investment opportunities in different regions across Egypt, and can be a very good source for investors.

 

Challenges for Egyptian Businesses

According to a 2023 survey that was conducted by the Egyptian Centre for Economic Studies on Egyptian firms to identify the challenges facing the business community, inflation, exchange rates, and high production costs came on top of the challenges faced by the business community.

 

 

While the Egyptian government exerts efforts to provide sustainable solutions to those challenges, businesses have some great opportunities to thrive and invest.

According to the latest A.T. Kearney Business Process Outsourcing Index, Egypt came as one of the world’s most favorite countries for investors to outsource their services, especially because of the existence of a qualified talent pool.

Businesses have also great opportunities to benefit from through the adoption of more of digitalization. Cloud and AI technologies provide a myriad of economic and efficiency benefits.

In this regard, the Egyptian Ministry of Communications and Information Technology provides several free courses and trainings for upgrading youth skills. All SMEs can benefit from them. ITIDA’s Creativa Innovation Hub provides due support for businesses to help them thrive and overcome different challenges. Intellectual Property Rights is also being supported by ITIDA for businesses working in the digital realm.

All these opportunities can be precious additions for businesses to acquire and flourish.

 

Kreston’s Role in Supporting Businesses

Ahmed Mamdouh & Co. Kreston Egypt can be the right partner throughout your business growth journey. The team provides high-quality professional financial services, including financial advisory services, business restructuring and insolvency, tax services, accounting and outsourcing services, and audit and assurance services.

Contact us to secure a trusted partner for your successful business!

 

 

References:

https://mped.gov.eg/

https://www.imf.org/en/publications/weo

https://eces.org.eg/wp-content/uploads/2024/03/Business-Barometer-69-En-6.pdf

https://eces.org.eg/wp-content/uploads/2024/03/Egypts-Economic-Profile-And-Statistics-2024.pdf

https://eces.org.eg/wp-content/uploads/2024/04/Financial-Markets-Snapshot-Issue-4.pdf

https://eces.org.eg/en/your-guide-to-industrial-investment-in-egypt/

https://mcit.gov.eg/Upcont/Documents/Publications_1432024000_MCITYearbook2023.pdf

https://mcit.gov.eg/en/Media_Center/Latest_News/News

https://www.kearney.com/service/digital-analytics/gsli

https://creativa.gov.eg/