A military-led economy eager for reform

The Egyptian economy is set to accelerate to +3.5% GDP growth in 2025 and +4.2% in 2026, an improvement after a slow 2024 due to the carry-overs of the currency crisis, impacted by the wars on all of its ground borders, including the revenue drop from the Suez Canal levies. This is in the context of high population growth and slow economic dynamism due to the high presence of the military in the economy. Yet, reform momentum and increased investment (domestic and foreign) in infrastructure, construction and other profitable sectors from the liquid-rich UAE and Saudi Arabia present opportunities to dynamize the economy.

In March 2024, the free floating of the Egyptian pound, agreed with the IMF as part of its concessional loan, depreciated the currency by almost 40%. Subsequently, inflation soared above 40% y/y. Since then, CPI has come down to 24% (as of November 2024). We expect inflation to remain a concern throughout 2025, ending the year at 16.2%, followed by 11.2% in 2026. Maintaining the free-floating mechanism remains a high priority for the IMF and investors, who fear a return to a managed exchange, taking Egypt back to multiple currency markets. As painful as the fall of the Egyptian pound has been for the purchasing power of Egyptians, it has also translated into higher competitiveness for Egyptian companies.

With liquidity issues at the central bank mostly behind, thanks to a USD35bn transfer from the UAE converted into Egyptian pounds, and an IMF program providing up to USD8bn in concessional loans, Egypt’s main challenge is now achieving sustainable mid- and long-term economic growth. Under the 2030 plan, Al-Sisi’s government has taken several steps to maintain the inflow of FX and promote domestic activity. A growing tourism industry, foreign investments in newly privatized firms and the selling real estate in the Mediterranean and Red Sea coasts should keep the FX coming in. In parallel, selected industries have received significant public and private investments, including agriculture, energy and chemical industries, as well as manufacturing.

Egypt’s main challenge remains sustainable growth in the mid and long term to provide employment and prosperity to a population projected to almost double by 2050. Cairo is expected to grow by 10mn people in the next 25 years. Under the current 2030 plan, the Egyptian leadership has defined energy, both renewable and natural gas, as well as agriculture and manufacturing as the top economic drivers. Regarding energy, Egypt has been working with European partners to become a regional energy hub. A gas pipeline linking Greece to Egypt is under study and could be ready by 2030. An agreement with Turkey was also reached in 2024 to supply the country with higher amounts of LNG. In parallel, Egypt has also collaborated with the UAE to obtain investments in its renewable energy industry, mainly to supply European markets. Italy and Egypt are currently studying a potential electricity interconnector to provide up to 3GWs to the peninsula.

In the manufacturing sector, Egypt has heavily invested in military-controlled corporates in the textile industry to modernize its weaving and spinning industry in northern Cairo to increase export output. Egypt is an important exporter of clothing to the US, with whom it enjoys a no-tariff regime for its knitting industry. In the agriculture sector, Egypt is undertaking an ambitious plan to reclaim 6mn square meters of land from the dessert to increase food production in the Nile basin, an initiative that faces significant challenges, given rising temperatures and ongoing water disputes with upstream Nile basin neighbors.

The Egyptian president maintains tight control over institutions, backed by the army, but the autocratic governing system poses an underlying risk of social unrest. Going forward, rising social discontent related to high youth unemployment, low purchasing power, the currency depreciation and disagreements with the leadership might trigger revolts seeking institutional change. Security risks related to latent conflict in the Levant, Libya, Sudan and the horn of Africa also weigh on the downside.