The Managing Director, Southern and Eastern Mediterranean at the European Bank for Reconstruction and Development (EBRD), Heike Harmgart
CAIRO - 17 May 2023: “Egypt has become increasingly competitive as a manufacturing hub,” according to the Managing Director, Southern and Eastern Mediterranean at the European Bank for Reconstruction and Development (EBRD), Heike Harmgart.
Harmgart expressed her eternal optimism with in particular, labor costs slow in and with declining exchange rate in big markets like Egypt.
She noted in a panel discussing the EBRD Regional Economic Prospects that the energy transition could be an opportunity and could actually be also fast track now.
The discussion covered the latest economic forecasts for the regions where the EBRD invests.
“The diversion away from Russian gas has also led in particular countries where the sun always shines and the wind blows quite hard to invest in renewable energy, and this has actually shown that not only will that help to green the energy systems in these countries,” Harmgart added.
She also referred to connectivity projects, saying that there are more and more big connectivity projects, and cables from Tunisia, to Italy, and from Egypt to Greece.
As a result, there will be more green energy being produced in the North of Africa, for example, and sold to Europe. This in itself is a big opportunity for these markets. But the biggest price on this is how much of the value chain can you actually keep in these markets, she noted during the panel.
“Egypt was really positioning themselves to be the plus one. They want to be the company that produces wind plants because they will also have huge wind parks where these wind plants don't have to travel miles and miles,” she highlighted.
According to Harmgart, the biggest opportunity is around the green energy transition, but also other manufacturing areas around transportation will become more competitive with a bit more diversification of the global value chain.
“We see even in a small scale industries such as lightning that is helping electrification in a number of areas that is the supply disruptions from China has have even told some Egyptian and Tunisian manufacturers to diversify to produce more components locally to benefit both from the from the favorable economic condition but also be more diversified against the global shocks,” she said.
Harmgart concluded this point by saying that they do see a lot of opportunities around relocating some of the industrial base to countries with lower labor force costs but actually good connectivity through the Mediterranean and for example the Red Sea in the case of Egypt.
The EBRD released its Regional Economic Prospects report during its annual meetings held in Uzbekistan, where it revised its forecasts for Egypt’s growth rate during the current and coming fiscal years.
As for the EBRD Regional Economic Prospects, It stated that growth in Egypt slowed to 4.2 percent year on year in July-December 2022 (the first half of fiscal year (FY) 2022/23), down from 9 percent in the same period the previous year.
The report attributed the slowdown to the deceleration in the manufacturing and construction sectors, which were affected by foreign currency shortages, as well as the impact of the war on Ukraine on Suez Canal and tourism revenues.
It also added that the Egyptian pound lost more than 50 percent of its value against the US dollar between March 2022 and April 2023, amid heightened external vulnerabilities and the central bank’s decision to shift to a flexible exchange-rate regime.
“This depreciation, coupled with elevated international commodity prices – Egypt is a net importer of food and oil – pushed inflation close to 33 percent, despite cumulative policy rate hikes of 1,000 basis points over the previous year,” it added.
Accordingly, the EBRD has revised its forecast for Egypt's real GDP growth for the current fiscal year to 4 percent, expecting it to rebound to 4.8 percent in the following fiscal year 2023/2024.