BMI View: Egypt's economic growth will gather steam over the coming quarters on the back of political stability, pent-up demand and a weaker currency . While this will be good for the country's exports, it does mean that the country's domestic consumer demand for imports of container goods - whether transported by air or in intermodal containers - will falter. However, support in this regard will come from the steady improvement in the tourism sector, where increasing political stability and a weak currency will encourage returning visitors, with their own demand for goods imports.
We expect growth in the Egyptian economy to pick up steam in the coming quarters with fixed investment becoming the key contributor. We retain our expectation for real GDP growth of 3.0% in FY2015 (fiscal year running from July 2014 - June 2015) and 4.1% in FY2016, from an estimated 2.2% in FY2014. Our forecasts are a notable uptick compared with previous years; however, economic expansion on par with the early 2000s at 5-6% is off the cards until 2017 at the earliest. Growth will be increasingly driven by fixed investment as consumer and government spending remain weighed down by fuel subsidy reform. Over the longer term, we see increasing potential for Egypt to sign an IMF Stand-By Arrangement. It has already undertaken some of the required reforms such as cutting energy subsidies and widening the income tax base, and while we do not expect an agreement to be reached in 2015, any positive signals from negotiations over the coming quarters could bolster investment activity next year. This more positive outlook is reflected in our outlook for economic growth and trade, and also, as a result, the freight transport sector.
We forecast that road freight volumes will return to growth in 2015, following two consecutive years of declines. The mode will remain the most important in Egypt's freight transport mix, accounting for the bulk of volumes transported. Ongoing investment in the network will ensure continued expansion.
Road freight transport is vital to Egypt's economy and the mode is overwhelmingly the most important in the country. Indeed, in 2015 our forecast for road freight volumes of 66.23mn tonnes to be transported by road haulage is over 10-times our forecast for rail freight volumes (4.5mn tonnes). This would represent growth of 3.7% on the 63.9mn tonnes that were transported on the road network in 2014. If realised, our forecast will mark a return to growth following two consecutive years of declines in 2013 and 2014.
Mining and agribusiness will drive growth in Egypt's rail freight volumes in the coming years. Although growth will be fairly tepid in the near term, we expect it to pick up over the course of our medium-term forecast period, peaking at 3.7% in 2018. We forecast growth of 2.7% in rail freight volumes in 2015, which would take the year-end handling figure to 4.45mn tonnes. Over the medium term we expect growth to pick up moderately, averaging 3.0% annually over the period and accelerating to 3.6% in 2019. However, in the near term we believe that ongoing investment concerns over political stability in the country - following the ouster of long-serving President Hosni Mubarak in 2011 and the subsequent years of economic turmoil - will keep growth in volumes relatively sedate.
According to our forecasts, growth in air freight volumes in Egypt will outpace that of all other freight modes over the medium term. As the political situation on the ground stabilises, we expect that tourism will pick up once more, and this is a major driver of air borne freight volumes in the country. To this end, investment in tourism airports will further support growth in air freight volumes. We forecast an expansion of 2.8% in gross tonnage handling at Cairo International Airport in 2015, followed by 3.3% in 2016, and project that growth will average 3.5% annually over the course of our medium-term forecast period to 2019. This is greater than the average rate of 3.3% and 3.0% we forecast for road and rail freight over the same period, respectively.
Key BMI Forecasts
We forecast total road freight volumes will rise by 3.7% in 2015 to reach 66.23mn tonnes.
We forecast total rail freight volumes will rise by 2.7% in 2015 to reach 4.45mn tonnes.
We forecast total air freight volumes at Cairo International Airport will rise by 2.8% in 2015 to reach 398,220 tonnes.
We forecast total trade value to rise by 6.8% in nominal terms to reach USD118.23bn in 2015.
The top trade partners will be China, the US and Italy.