CAIRO - 4 April 2020: With more than one million cases infected with the novel Coronavirus (COVID-19) so far, the world’s economic movement is crippled amid the suspension of aviation traffic and lockdowns that dominate most of the countries.
To mitigate the negative impacts of the pandemic on the world economy, hundreds of countries have taken emergency measures and approved economic stimulus packages. Being part of this world and a vital country in the Middle East, Egypt has also been affected by the global decisions and consequently adopted an urgent stimulus package.
Since the mid-February announcement of the first infection of coronavirus in Egypt, the number of infected people has increased to 985 as of April 3, including 296 who had recovered, while the death toll went up to 66, according to the latest figures by the Egyptian Ministry of Health.
The global effect of COVID-19 spread to the Egyptian economy, causing hardships to the sectors of tourism and manufacturing, and the stock exchange; unlike food and retail sectors which seem to be the biggest winners, while some analysts think that retail sector will be a winner only if it depends on electronic and delivery services.
Minister of Planning Hala al-Saeed has clarified that sectors of food and accommodation, household services, manufacturing, wholesale and retail trade, will be affected by the COVID-19 outbreak as the curve of customers’ overbuying will hike in the upcoming of few days ahead of Holy Ramadan, the ninth month of the Islamic Calendar where the Muslims fast from dusk to dawn worldwide.
“All economic sectors will be affected by the coronavirus crisis, especially sectors related to the external factors and countries, such as tourism, the Suez Canal, remittances of Egyptian workers abroad, exports, and of course imports,” Senior Economist Shimaa Emara told Egypt Today.
The global economy needs around 18 months to recover from the effect of coronavirus and the Egyptian economic sectors, especially automotive market, would also suffer as a result of the shortage in the supply chain due to the stoppage of several factories, Senior Investment Analyst at Financial Advice Corporate Transactions (FACT) Mohamed Sameh told Egypt Today.
Sameh added that other factories in some countries turned their lines to produce medical stuff, saying “for example, the Japanese Company Subaru stopped its production line for 3 weeks to curb the spread of the virus, and Ford Company which announced to produce ventilators.”
However, he clarified that COVID-19 crisis has its own positives for some sectors as e-commerce, noting that retail stores which have electronic transactions and delivery service will be benefited from the current situation. Pharmaceutical sector will be one of the top gainers in this period, he continued, adding that attention and support will go towards health sector and its investment.
Emara agreed with Sameh saying that the bright side is the possibility of exploiting this crisis as a driving force for the local industry and starting to resettle the industries that are most in need for the domestic economy like food and pharmaceutical industries. She added that it would also help in the gradual revitalization of other industries such as cars and their parts, mobile phones and other engineering industries.
Moreover, Chief Investment Officer at Advisable Wealth Engines Ayman Ismail Abouhend is of the belief that profit revision of sectors of tourism, import and export, manufacturing and heavy machinery industry need to be applied as they are the most affected ones.
“Food and beverage sector and health care sectors will be most benefited and the highest profit makers,” Abouhend stated in a video on his official Facebook account, noting that profits of the pharmaceutical sector will witness a substantial increase as people’s panic will push them to buy drugs.
Abouhend added that off-the-shelf or ready-made products sector will continue working normally with the activation of e-work amid expectations of high profits. He also expected the dependence on banks will hike during the coming period, depending on the incentives they will provide. He also expected that Central Bank of Egypt (CBE) will support banks during current period.
Tourism is the country’s third source of national income after non-oil exports with $17.1 billion, and remittances from Egyptians expatriates, which ranked first with $26.4 billion. Revenues of the sector climbed 28 percent at about $12.2 billion in the fiscal year 2018/2019, compared to $9.8 billion during the fiscal year 2017/2018.
However, with the spread of coronavirus worldwide and in a bid to curb it, the state decided to suspend aviation starting from March 19 until March 31, and then extended till April 15. Meanwhile, museums and archeological sites have been closed since March 22, 2020.
The suspension of aviation movement causes heavy loss of tourism revenues, which reaches $1 billion a month, Tourism Minister Khaled el-Anani said in a press conference. “We lost a lot of money, but the health of Egyptians is more important,” he added.
"Egypt will suffer great losses, especially in the national aviation sector, after suspending air traffic," Prime Minister Mostafa Madbouli said then.
Madbouli added that the losses of the National Aviation Company, EgyptAir, would reach LE 2.250 billion as a result of the decision, explaining that the state will bear these losses. He noted that all tourist facilities and hotels in Egypt will be sterilized during the suspension period, in order to prevent the outbreak of the virus.
Tourism experts said that preventive measures taken by Egypt and other countries would lead to a sharp drop in tourists to Egypt.
Supporting Tourism Sector
The CBE decided, on March 24, to grant tourist utilities two-year loans, in addition to a grace period of 6 months to pay the salaries of employees and their obligations towards suppliers and maintenance work.
CBE allocated around LE 50 billion to finance companies and tourist facilities that want to replace and renew hotels and tourism transportation fleets at a rate of 8 percent. “A new article was added to the initiative includes the provision of credit facilities for a period of two years.”
By the end of 2019, the CBE announced the largest financing plan to support the tourism industry, increasing the value of its initiative to renovate and develop hotels from LE5 billion to LE50 billion.
“This procedure will contribute to the payment of salaries, wages and obligations existing with suppliers and maintenance work for tourist activities, especially hotels for residence and tourism projects, except for those for sale, travel agency services, reservations, and tourist trips, land tourist transport, restaurants and recreational activities in tourist areas, air transport for passengers,” CBE clarified in its statement.
“Beside tourism and aviation sectors, oil and gas and all industries that depends on fuel will be badly affected,” Sameh noted.
The current war of oil prices will put pressure on Arab purchases on the stock exchange, in addition to the decrease that will occur in the ’remittances of the expatriates. “The more uncertainty the situation is, the more the risk increases,” he referred.
The Stock Exchange
The Egyptian Exchange lost around LE 134.1 billion of its market capitalization, starting the month at LE 667 billion, and reached LE 532.9 billion by the end of March. The benchmark EGX30 declined 26.25 percent or 3,415 points, to reach 9,593.94 points.
The small and mid-cap index EGX70 dipped 17.72 percent, or 214.32 points, reaching levels of 994.95 points, and the broader index EGX100 lessened 21.37 percent, or 280.16 points, to record 1,030.92 points. Moreover, the equally weighted index EGX 50 decreased 23.91 percent, or 423.78 points, to reach 1,348.44 points.
Aiming to support the EGX, the government decided to reduce the stamp tax on non-residents to 1.25 per thousand instead of 1.5 per thousand, and on residents to 0.5 per thousand instead of 1.5 per thousand, until the capital gains tax is applied to them at the beginning of 2022.
It was also decided to reduce the price of the dividend tax on companies listed on the Stock Exchange from 50 percent to 5 percent.
The government decided to completely exempt the immediate operations on the shares from the stamp tax to activate the volume of transactions and increase the depth of the Egyptian market, as well.
In addition, it was decided to exempt the non-residents from the capital gains tax (CGT) once and delay this tax on the residents until 1/1/2022.
Despite the above-mentioned tough decisions, the bourse only responded to President Abdel Fatah al-Sisi announcement of allocating allocated LE 20 billion by the CBE to the Egyptian Stock Exchange as part of measures taken to curb the effect of coronavirus on the state’s economy.
Moreover, the EGX cancelled a mechanism to temporary suspend trading in case of the hike of the indices. This decision comes in line with the global stock markets as the EGX made a study of international markets and reviewed a report of the World Federation of Exchanges (WFE) studying markets reactions to severe market fluctuations.
Sameh said that the current oil prices will put pressure on Arab purchases on the stock exchange, in addition to the decrease that will occur in the ’remittances of the expatriates. “The more uncertainty the situation is, the more risk increase,” he referred.
He clarified that this time is for long term investment, which is not less than two years.
The Monetary Sector
The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) decided Thursday, April 2, to keep overnight deposit rate, overnight lending rate, and the rate of the main operation unchanged at 9.25 percent, 10.25 percent, and 9.75 percent, respectively since mid-March.
Upon this decision, the discount rate was also kept unchanged at 9.75 percent.
In an unscheduled meeting on March 16, the Monetary Policy Committee decided to cut the overnight deposit rate, the overnight lending rate, and the rate of the main operation in an emergency meeting by 3 percent or 300 basis points. This decision comes as a part of actions and measure took by CBE to curb the effect of the virus outbreak, extending the loan maturities for the major companies 6 months without any fines.
The MPC affirmed that reducing the rates was taken as an exceptional measure, which contributes to supporting economic activity in all sectors, taking into account the future expectations and consistency of inflation with achieving the target inflation rate of ± 9 percent (± 3 percent) during the fourth quarter of 2020.
Egypt’s annual consumer price inflation recorded 4.9 percent in February 2020, compared to 13.9 percent in February 2019, according to the Central Agency for Public Mobilization and Statistics (CAPMAS).
In addition, Egypt’s annual core inflation rate, which discounts or strips out certain categories that are considered more volatile, decreased to 1.9 percent in February 2020, down from 2.7 percent in January 2020.
To clarify, Egypt targets an inflation rate of 10.5 percent in fiscal year of 2019/2020 and was targeting 13 percent in 2018/2019 budget.
The MPC added that it will not hesitate to take the necessary steps regarding interest rates and will not deviate from the central role assigned to the central bank, which is to maintain price stability in the medium term.
“Our financial and monetary conditions are strong, and “we make sacrifices to support the Egyptian economy,” said Governor of CBE Tarek Amer.
He explained that the rate cut will strongly support companies operating in the economy, whether the private or government sector or the public business sector, adding that it will help companies preserve profits, and reduce the burden on the shoulders of the Ministry of Finance "to give it a space and save its pumping in different sectors of the economy in these circumstances."
On March 23, Minister of Finance Mohamed Ma’it announced the state allocated LE 100 billion for March and April to pay arrears for exporters affiliated with the investment initiative the government announced in October 2019.
“In light of the initiative, settlement agreements have been inked with 77 export enterprises and 10 percent of exported entitlements have been disbursed for the third time during 2020 to stimulate investment and boost national manufacturing to increase production, expand exports, boost sustainable growth and enhance the structure of the national economy to achieve better living standards and better services quality," Ma’it said.
This decision came after the cabinet announced lowering natural gas prices for the industrial sector and provide LE 1 billion for exporters.
The decisions also included reducing natural gas prices to $4.5 per million British Thermal Units (mmBtu) for industry, and lowering electricity prices by ten piasters for heavy and average-use industries.
The government said it would keep power prices for other sectors unchanged for the upcoming three to five years.
Meanwhile, an outstanding property tax on factories and touristic institutions will also be postponed for 3 months, and it will be paid following that period in monthly installments for 6 months.
In his first televised remarks on the virus outbreak, President Sisi announced economic measures to counter the effect of coronavirus on Egypt. Among the decisions are reducing electricity prices for the industrial sector by 10 piastres ($0.0064), decreasing natural gas prices for this sector by $4.5, and providing LE 1 billion ($63.9 million) to exporters during March and April, to pay part of their dues.
Sisi announced adjourning the payment of the real estate tax imposed on factories and tourist facilities for three months, and stopping administrative seizure against taxpayers, in return for 10 percent of the tax due on them.
The decisions also include decreasing the interest rates of the Central Bank of Egypt by 3 percent, while providing the credit limits required to finance the share capital, and also adjourning credit entitlements of the small, medium and micro businesses for six months.
The economic plan exempts foreigners from capital gains taxes forever and postpones the payment of these taxes imposed on residents until 2022.
It also includes providing necessary support to the sectors that are most affected by coronavirus, launching an initiative to back workers impacted by losses in the tourism sector and funding hotels by up to LE 50 billion ($3.2 billion).
According to the President, the government decided to include the five bonuses due for pensioners by 80 percent of the basic wage, in addition to granting the annual periodic bonus to pensioners to be 14 percent as of next fiscal year.
It was also decided to extend the moratorium on the tax law on agricultural land for a period of two years.
The President announced LE 100 billion ($6.39 billion) to fund a comprehensive coronavirus strategy, LE 50 billion ($3.2 billion) to fund real estate development for middle-class people through banks, and LE 20 billion ($1.28 billion) from the Central Bank to fund the Egyptian Bourse (EGX).
According to the decisions, there will be no additional fines on late payment.
In case you missed it…
CAIRO - 22 March 2020: Egyptian President Abdel Fattah al-Sisi on Sunday announced in full the country's economic plan, in face of the novel coronavirus, as he read out loud a number of economic decisions, while marking the national Women's Day. This is considered to be Sisi's first public comments on coronavirus, since it started in Egypt.