Egypt’s infrastructure landscape in 2023: Another year of macro headwinds: After struggling in 2022 with cost pressures associated with rising commodity prices, inflation, import restrictions, and the devaluation of the EGP, infrastructure players grappled with many of the same headwinds in 2023. Throughout the past twelve months, infrastructure companies — particularly those in real estate and construction — lobbied the government for support as the sector struggled with liquidity issues and operational challenges.

Early on, it was clear that 2022’s problems were not a thing of the past: The EGP breached the 30 / USD 1 barrier in the first half of January for the first time since the Central Bank of Egypt (CBE) announced its decision to move to a “durably flexible” exchange rate in October 2022. The currency held steady at EGP 30.96 / USD 1 since mid-March, but an FX crunch meant infrastructure players faced increasing difficulties securing building materials, while a growing parallel market has pushed up prices in the local market.

As local conditions proved difficult, some companies looked beyond our borders: In a bid to bring in liquidity and foreign currency income amid a slowdown of projects in the sector, several local real estate developers began seeking out contracts abroad. This push was aided by a pickup in Egypt’s infrastructure diplomacy drive, particularly in Iraq, where Egyptian companies were being awarded contracts under an infrastructure diplomacy mechanism the two countries set up in 2020. A handful of firms also looked at markets such as Saudi Arabia and the rest of the Gulf, Libya, and African countries including Tanzania.

Real estate + construction players bore the brunt of the turbulence: The country’s real estate players began lobbying the government for support measures, including favorable lending terms and loosened rules for delivery times in a bid to help them withstand soaring inflation rates. However, as the year rolled on, many developers began devising ways to hedge against macro conditions and the devaluation of the EGP, including accelerating the implementation of projects and stocking up on more than a year’s worth of raw and building materials to cover the needs of ongoing projects. Some developers have also been withholding inventory to retain the option of selling units at a higher price later on.

The government took some steps to come to the sector’s aid, with the Madbouly government working on moving forward with mortgage lending, deferring the repayment of the outstanding installments on state-owned land and reducing the interest rate, as well as pushing back project deadlines twice — once in February and again in June.

FX schemes also gave things a boost: The Madbouly Cabinet signed off in March on new legislative amendments allowing non-Egyptians to acquire citizenship if they purchase assets state-owned or privately-owned assets in Egypt worth no less than USD 300k using USD from abroad, which industry players expected could unlock some USD 3-5 bn in inflows within a year. The government then followed up earlier this month with a potential plan that would offer unspecified incentives to Egyptian expats and foreigners who purchase real estate in Egypt using FX. The idea is to capture the c.USD 6-10 bn that circulate on the parallel market each year for real estate purchases and channel that FX into official banking channels. Cabinet also approved in July a decision to remove the cap on the number of properties foreigners can own provided that they pay for the properties in hard currency.

The upside: Sales + earnings performance painted a much rosier picture: The devaluation of the currency and rising inflation led consumers to pour their savings into real estate, spurring demand and encouraging further investment in the sector and its infrastructure. Over the course of 1Q 2023, private sector developers delivered a total of 17 projects worth a combined USD 1.3 bn, according to industry reports. Meanwhile, infrastructure players reported solid earnings at the beginning of the year, as the weakening local currency played in favor of companies with FX-denominated income, while others raised their contract prices to protect their margins.

In the midst of all these challenges, we took some steps forward on digitization + smart infrastructure: Demand for smart infrastructure solutions to develop smart cities — which take advantage of ICT to improve its sustainability, efficiency, and services by integrating operations — has been picking up as private sector real estate developers look to integrate smart infrastructure in their compounds. Developers are still broadly relying on importing fully-finished smart infrastructure solutions from specialized global companies, but some local companies — including Cisco — provide complementary services. Meanwhile, the government is spending on tech infrastructure, including EGP 5.6 bn earmarked in the FY 2023-24 telecommunications investment budget to extend fiber optics in rural areas.

Your top infrastructure stories for the week:

  • Egytrans takeover of NOSCO pushed back again: Transport and logistics company Egytrans will finalize its acquisition of 99.9% of the National Transport and Overseas Services Company (NOSCO) in early 2024.
  • Phase two of the New Administrative Capital is on the horizon: The Administrative Capital for Urban Development (ACUD) will start building the second phase of the new administrative capital in 2Q 2024 or 3Q at the latest.
  • Fresh funds for port development: The Export Development Bank (EBank) is leading a syndicate of banks that’s putting together a medium-term EGP 2-bn loan for Abdel Salam El Feky Sons to finance the construction of a breakwater at the Alexandria Port and other projects.
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