Egypt
THE Egyptian economy is slated to grow by two per cent in the fiscal year ending June 2013. And despite the government’s hope for a 5.5 per cent growth next year, the outlook for 2014 is not flattering either. Earlier this year, the World Bank forecasted economic growth of 3.8 per cent for 2014, but recently, private economists have projected next year’s growth at three per cent.
The International Monetary Fund (IMF) has also revised its 2013 growth forecast for the Egyptian economy to two per cent, down from the three per cent it initially predicted last October. It forecasts the economy to grow by 3.3 per cent in 2014, contrary to the government’s estimates of 4.1 per cent.
A growth rate of two per cent effectively means zero growth in terms of GDP per capita (due to population growth), which means the Egyptian economy is in a state of stagnation. The government, on the other hand, predicts that the economy will grow 2.5 per cent in 2012-13 Economic activity in Egypt has slowed down since the popular uprising in 2011 that ultimately resulted in the ousting of long-time dictator Hosni Mubarak. Sectors like tourism and real estate had been the hardest hit by the uprising.
Meanwhile, uncertainty about the country’s political future, along with an ongoing security vacuum, has deprived Egypt of much needed investment. The government is seeking IMF’s seal of approval in the form of a $4.8 billion loan to restore confidence in the economy. The belief is that securing the loan would unlock investments, as many investors are waiting for the loan to have a clear view on the future of the country’s economy.
With the low growth rate, it is feared that unemployment will continue to rise. The IMF sees the jobless rate in Egypt grow to 13.5 per cent in 2013, reflecting the economy’s inability to create enough employment opportunities to accommodate the half million Egyptians that enter the job market every year.
Inflation, meanwhile, is expected to average 8.2 per cent in 2013, down from 8.6 per cent in 2012. In 2014, however, consumer prices are expected to grow by a sizeable 13.7per cent. Foreign reserves have dwindled, and the Egyptian pound has dipped. The constant chaos has also left the economy with two main lifelines: aid from allies, and remittances from Egyptians working abroad.
The IMF has blamed political instability for the subdued growth. Egypt needs political consensus to heal the economy. Meanwhile, the World Bank considers that the principal issue that needs to be tackled is cutting down the growing budget deficit, which is largely attributed to dwindling income due to the dip in tourism, vanishing of foreign direct investment, and an untenable subsidy programme. The subsidy programme stands close to 10 per cent of the country’s GDP.
Moreover, the austerity measures that the government plans to adopt to curb the budget deficit are likely to take a further toll on economic growth. The international lender has also highlighted the need for fiscal consolidation through cutting expenses and raising revenue, asserting that heavy government borrowing serves to raise interest rates, which in turn has a negative effect on growth.
The rising deficits have been financed almost entirely domestically, and public domestic debt rose from around 60 per cent of GDP in 2010 to 70 per cent in 2012. Egypt’s budget deficit for the 2013-14 fiscal year (beginning July 1, 2013) is forecast to be around seven per cent higher than the revised figure for the current fiscal year.
But the deficit is expected to amount to 9.5 per cent of GDP, down from 10.7 per cent estimated for the current fiscal year ending June 2013. If the economic recovery programme is successfully implemented, the government asserts that the budget deficit will fall to almost 7.7 per cent of GDP by the end of the 2014-15 fiscal year, and foreign currency reserves – which currently stand at $13.6 billion – will rise to $22 billion by the end of the current fiscal year.
Nigeria
THE World Bank has forecast a robust economic future for Nigeria – Africa’s number one oil producer – expecting it to grow seven per cent next year, from an estimated 7.2 per cent this year. Meanwhile, the IMF has added that demand for the country’s export is set to improve, as Europe emerges from a recession and growth in China fuels demand for commodities like copper, iron ore and oil from the region.
The region’s economy is expected to expand 6.1 per cent in 2014, higher than the previous estimate of 5.7 per cent, and the 5.6 per cent projected growth for this year. Nigeria’s finance minister is hopeful that the country would start experiencing positive results from steps taken by the new administration.
The government is projecting a 6.5 per cent growth for this year, compared to an average five per cent for other African countries. But Nigeria’s oil sector, which provides about 83.5 per cent of its export earnings, has continued to suffer from negative incidents. Oil production has been steadily declining due to widespread oil theft.
Weak global market sentiment and soft demand for oil have played key roles in the downward trajectory of oil prices. Three global oil forecasters have cut their oil demand forecast. If global oil prices continue to maintain their steady decline, with Brent crude currently trading at $99.47 per barrel (pb) and Bonny at $107pb, the impact on government revenue may be significant. The decline in oil prices and production point to the risks posed to Nigeria’s revenue framework, forex inflows and external reserves, forcing the federal government to make necessary fiscal, monetary and structural adjustments.
Most indicators are in favour of a rate cut. However, the threat of a revenue shortfall and widening fiscal deficit due to the decline in oil prices and production may tilt the balance in favour of maintaining the status quo once again. Attacks on oil workers and facilities, crude oil theft and lack of investment by operators arising from the non-passage of the Petroleum Industry Bill (PIB) are some of the challenges that are hindering the growth of Nigeria’s oil sector.
Meanwhile, despite the global financial crisis, the repercussions of which are yet to abate in Europe and the US, World Bank estimates has put offshore remittances to Nigeria at $21.0 billion (N3.3 trillion). The Central Bank of Nigeria reports a steady increase in remittance from $14.5 billion in 2005 to $20.6 billion in 2011, with the exception of a small dip in 2008 as a result of the global credit freeze.
The estimates also pointed out that remittances in 2012 were equivalent to 8.4 per cent of the country’s GDP. The World Bank numbers also showed that remittances were the second largest forex inflow in 2012, after oil revenues. But experts have called for more transparency from local banks that deal with remittances. They argue that the lack of transparency in the transactions makes the ultimate destination of the remittances unclear.
On the other hand, six years after Nigeria paid off its external debt and obtained a clean bill of health, the country’s external debt has again risen to $6.67 billion. Debt Management Office data shows that the debt increased by $143 million in the first quarter of 2013 to $6.67 billion, from $6.527 billion at the end of last year. Nigeria paid off its multi-billion dollar Paris Club debt in 2006, becoming the first African nation to do so. The country agreed to pay the Paris Club $12.4 billion, while the remainder of the over $30 billion in official debt was written off.
Inflation also continues to give cause for concern, despite reaching a four-year low at the beginning of 2013. The consumer price index rose to 9.5 per cent at the end of February, up from nine per cent in the previous month. Last December, inflation stood at 12.3 per cent. While the economy appears buoyant, fears are mounting that the central bank could opt to address the issue by lifting its key lending rate, which has stood at a steady 12 per cent since mid-2012. The bank’s governor warned that it would be difficult to keep rates unchanged for the remainder of 2013 if inflation continues to rise.
And while the IMF has praised Nigeria’s prudent macroeconomic policies, it has also warned that oil dependency represents a significant downside risk, and both short-term growth and the medium-term outlook could be cut if global oil prices fall significantly. The Fund also voiced concerns about the length of time Nigeria was taking to secure agreement for its major fiscal reforms. An overhaul of the country’s main hydrocarbons code has been stuck in parliament for a number of years, and after a lengthy gestation process, the privatisation of the electricity sector has only finally begun to bear fruit in 2013.
Meanwhile, external risks such as a possible decline in international oil prices, along with internal challenges, including security issues in the north of the country, could curb growth.
Libya
THE Libyan economy depends almost entirely on oil production. The combination of very large oil reserves and a small population have actually made the country one of the richest in Africa. But this is somewhat misleading. Due to high unemployment, and the country’s need to import almost everything else that it needs, the standard of living in Libya has remained quite low. While the government is making efforts to address the problems, there’s a long way for the country to go before they are solved. Until then, Libya will rely almost entirely on oil revenues to keep the economy going.
The biggest problem facing Libya is that it has almost no resources apart from oil. There is very little arable land, which makes the country heavily dependent on food imports. A great deal of investment is required to address the shortage of water in the country. And this lack of investment has forced the government to levy high taxes, and limit the items it can spend the money on, which has in turn slowed economic growth.
Despite the fact that Libya has a fairly high per capita income, most of its people are still quite poor. The main problem is the high rate of unemployment, especially among youngsters. Since oil production is the only viable industry, most of the country’s workforce is employed in this sector.
With proven oil reserves of 48 billion barrels in 2011, Libya accounts for 3.2 per cent of total world reserves — sufficient to last for 85 years at current rates of production. Meanwhile, its natural gas reserves are relatively smaller at 0.8 per cent of the world’s total.
In terms of the domestic economy, the hydrocarbon sector represents four-fifths of the country’s GDP. It generated about 95 per cent of the total fiscal revenue, and 98 per cent of export receipts in 2011-12. Libya’s economic recovery, which began in 2012, has continued in 2013, and is driven primarily by the oil sector.
By end-2012, oil production was nearly back to pre-war levels of 1.6 million bpd, which supported nearly a doubling of the real GDP. Strong growth is also expected in 2013: Libya’s central bank forecasts real GDP growth between 16 per cent and 18 per cent, compared to an IMF forecast of 20 per cent.
However, the country’s economy minister expects growth of three per cent this year, driven by resurgence in oil production. Last year, the IMF had said that Libya’s economy was poised to grow 17 per cent in 2013, and that the economy would grow by seven per cent on average between 2014 and 2017. The global lender believes that Libya’s economic activity would double this year from last year.
According to the African Economic outlook, Libya’s economy is expected to pick up as the political situation stabilises, with growth projected at 9.5 per cent in 2013. Libya has also adopted an ambitious 2013 budget of over LD65 billion. Much of the money is expected to be injected into recovery activities.