AFRICANGLOBE – Lagging behind South Africa by merely $2 billion, Egypt is a “whisker” away from overtaking South Africa as the “continent’s second largest economy in dollar terms,” the Financial Times reported on Tuesday.
The Times report published on the paper’s website cited investment bank Renaissance Capital as saying that Egypt’s gross domestic product (GDP) will reach $315 billion this year, which is a “fraction” behind South Africa’s $317 billion.
Egypt approaching South Africa both reflects an increase in Egypt’s GDP and a drop in South Africa’s over the past year, a shift which the Financial Times described as “a dramatic change.”
Last year, Egypt’s GDP was $286 billion, while South Africa’s was $350 billion, the Times said, citing the International Monetary Fund.
The continent’s southernmost country has since been overtaken by Nigeria.
The Financial Times cites “reasonable real GDP growth of 4-5 per cent in Egypt.” Meanwhile, South Africa’s economy “failed to grow in the first half of this year.”
Yet, one major factor that allowed Egypt to approach South Africa’s is the exchange rates of the Egyptian pound and South African rand.
The Times says the pound “now has the most overvalued currency with a current account deficit in emerging markets and South Africa is now the cheapest.”
Egypt has had to depreciate its currency twice this year and investment banks expect further devaluing before the end of 2015.
The Egyptian pound is currently selling for 7.73 pounds to the dollar in the offcial exchange auctions, held three times a week by the central bank and slightly higher in banks and exchnage shops, which are given leeway to add a few piasters to the official price.
Renaissance Capital’s analysis forecasts that Egypt’s pound will depreciate 20 percent in the next two years.
“If this happened, and the rand managed to stabilise, South Africa might once again pull away from Egypt in terms of its dollar GDP,” the Financial Rimes report said.
For now, however, it seems that the uncertainty that has clogged Egypt’s economy may be letting up, with the state trying hard to attract investors and their much needed cash inflows.
Charles Robertson, global chief economist at Renaissance Capital told the London-based newspaper that “there was a great deal of uncertainty from 2011 into 2014 where people were not investing and there is [now] a need for infrastructure to be built. Since [Abdel-Fattah al-]Sisi seized power, there has been greater confidence on the part of investors.”
Sisi’s administration has been heavily pouring efforts into attempting to improve the country’s economic condition after years of political turmoil took their toll on the economy.
He is trying to repair the economy through mega projects such as the “New Suez Canal.”
On August 5, 2014, Sisi launched a project to deepen the Suez Canal and dig a parallel canal to admit larger ships and reduce navigation time, thus reducing costs.
The digging was completed a year after the green light to start the project was signalled and Egypt hosted a widely promoted celebration in the summer.
Also last summer, Italian oil and gas company Eni announced the “largest gas discovery ever made in Egypt and in the Mediterranean Sea,” saying it “could hold a potential of 30 trillion cubic feet of lean gas.”
The north African nation’s most populous country took on a new mega project in 2015, building a new administrative capital. The first phase of construction is due to begin January 2016 and is slated for completion in two years.
Robertson touched upon the three developments, saying these factors underpin “renewed investor confidence in the country.”