A multinational company’s decisions about Egypt today must be grounded in the country’s medium to long-term potential.
Multinationals’ optimism and eagerness to re-enter Egypt after mid-2014 have recently been replaced with frustration and disappointment. Egypt as a nation is facing a variety of challenges and this reality has a major impact on the way that foreign companies do business.
In Egypt, the majority of the population is discontent with the authoritarian tendencies of the current government but they are also fearful of the rising number of terrorist attacks by the Sinai insurgency. The government is playing a balancing act between reducing its budget deficit and also maintaining the purchasing power of the Egyptian people. The geopolitical and security risks are muting tourism revenue, while energy shortages and slowdown in global demand are delaying a recovery in exports, limiting potential improvements in unemployment. Five years after the uprisings that toppled former President Hosni Mubarak, it is difficult to argue that the goals of the revolution – bread, freedom and social justice – have been realized.
Multinationals aren’t immune to Egypt’s difficulties; they have been facing a variety of challenges including access to foreign exchange and a monetary policy that makes it difficult to predict the trajectory of the Egyptian pound. In addition, continuously changing regulations and sporadic energy shortages can limit B2B opportunities and disrupt local manufacturing operations for multinational companies. The lack of improvements on these issues over the past year is causing senior executives to question their enthusiasm for Egypt and to re-consider their investment plans. It is increasingly difficult for MENA-focused executives to make the case to headquarters for more resources for their Egypt business.
However, in light of the global and regional economic slowdown, multinationals benefit less from guiding investment plans for Egypt based on short-term challenges but more from considering the market for its long-term potential and comparatively within their MENA portfolio:
Consider Egypt’s medium to long-term potential
With almost 83 million people, Egypt is MENA’s most populous country, making it very hard to ignore in MENA, especially for consumer goods and healthcare companies. Although falling behind other North African markets due to years of upheaval, it has one of the most experienced manufacturing industries in the region. The country also has the potential to become more energy independent in the next five years (especially with the latest off shore gas discovery) despite being an energy importer currently.
International institutions (such as the World Bank) and key economic allies of Egypt (such as Russia, Saudi Arabia and recently China) are providing the country with the necessary financial assistance that is keeping the economy afloat, giving the government the room to implement tough fiscal and monetary reforms. And while Western multinationals remain hesitant, Gulf and other emerging market companies are investing in Egypt to utilize early mover advantage.
Evaluate Egypt within the diverse portfolio of MENA markets
Unfortunately, no country in MENA is immune to security threats or domestic instability in 2016. Many other countries in the region from Turkey to Tunisia, Morocco to Lebanon, are facing terrorism threats that are muting their tourism revenues. Domestic instability is hurting the economies of Lebanon, Iraq, Turkey and Tunisia while discontent simmers in Algeria and Saudi Arabia.
The oil exporting economies in MENA are entering a phase of fiscal restructuring and are already facing measures similar to that in Egypt such as subsidy removals and tax hikes. While the macro stability of oil rich Gulf markets are much more reliable than that of Egypt, multinationals that are looking to diversify their exposure to risk in their MENA portfolio will have to expand their footprint in the region beyond the Gulf and can consider Egypt as a long-term investment.
As FSG warned a year ago, Egypt’s transition was never going to be an easy one, and executives that plan ahead for the risks can not only manage corporate expectations about Egypt but also make strategic investments that position their business for long-term growth in the market.
FSG clients can use FSG’s latest Market Spotlight on Egypt to evaluate Egypt from a long term perspective and prepare for the upcoming operational challenges in 2016. They can also contact their client relationship director to commission a market opportunity assessment for their business in Egypt and/or to learn more about ensuring their Egypt as well as MENA strategy integrate scenario thinking and contingency planning to concrete management workflows.