{"id":560558,"date":"2021-03-03T04:04:32","date_gmt":"2021-03-03T04:04:32","guid":{"rendered":"https:\/\/enterpriseam.com\/egypt\/hardhats\/egypts-construction-growth-slowed-in-2020-but-steady-recovery-sees-it-outperforming-regional-peers\/"},"modified":"2021-03-03T04:04:32","modified_gmt":"2021-03-03T04:04:32","slug":"egypts-construction-growth-slowed-in-2020-but-steady-recovery-sees-it-outperforming-regional-peers","status":"publish","type":"hardhat","link":"https:\/\/enterpriseam.com\/egypt\/hardhats\/egypts-construction-growth-slowed-in-2020-but-steady-recovery-sees-it-outperforming-regional-peers\/","title":{"rendered":"Egypt\u2019s construction growth slowed in 2020, but steady recovery sees it outperforming regional peers"},"content":{"rendered":"

<\/a> Egypt\u2019s construction growth slowed in 2020, but recovery sees it outperforming <\/strong>regional peers:<\/strong> Egypt\u2019s construction sector saw an overall pandemic-driven contraction in 2020, but is now well on the road to recovery, multiple sources indicate. Data shows a strong and sustained sector rebound, fulfilling expectations<\/a> of reversed contraction trends.<\/p>\n

And it\u2019s outpacing regional peers:<\/strong> Sector growth is expected to come in at 10% y-o-y in 2021, up from an expected 5.5% in 2020, a 1Q2021 Fitch report indicates. Egypt has the strongest construction sector growth outlook in the MENA region, with growth expected to come in at an average of 8.3% annually to 2029, Fitch states. By 2029, Egypt will account for 30% of the MENA construction market, Fitch predicted in June. GlobalData\u2019s October 2020<\/a> predictions saw MENA\u2019s construction sector contracting 4.5% in 2020, then growing 1.9% in 2021 and 4.1% in 2022.<\/p>\n

2020\u2019s pandemic slowdown prompted a downward growth revision by global agencies:<\/strong> Construction in Egypt was expected to grow 7.7% in 2020, down from 9.5% in 2019, according to October GlobalData projections. This shows a slight downward revision<\/a> from GlobalData\u2019s April projected growth of 7.9% for 2020. The data analytics company had already reduced the construction sector\u2019s 2019-2023 projected growth from an average of 11.3% per annum in 2019 to an average of 9.6% per annum the following year. Fitch also reduced<\/a> its 2020 growth forecast to 7.5% in an April 2020 report<\/a>, down from a previous forecast of 9.7%.<\/p>\n

And the Planning Ministry is keeping FY 2020-21 growth predictions modest: <\/strong>The construction sector expects profits of EGP 264.9 bn in FY2020-21, down from EGP 253.1 bn in FY2019-20 \u2014 with growth projected to come in at 6.4%, a Planning Ministry source tells Enterprise.<\/p>\n

But steady medium-term growth is expected:<\/strong> Fitch expects an average annual real growth rate of 8.3% y-o-y between 2021 and 2029. Sector value is expected to more than triple from its current USD 25 bn to USD 89 bn by 2029, Fitch predicted in June<\/a>.<\/p>\n

Gov\u2019t funding is driving the recovery: <\/strong>Construction is among the sectors most expected to recover quickly, according to a November 2020 joint note (pdf)<\/a> by the Planning Ministry and the International Food Policy Research Institute. Along with manufacturing, it\u2019s also the sector most likely to benefit from the government\u2019s public spending in FY2020-2021 \u2014 which comes in at EGP 281 bn<\/a>.<\/p>\n

As is a strong project pipeline: <\/strong>With work on the New Administrative Capital pressing ahead, new business and residential projects under construction, rising demand for infrastructure from a growing economy and population \u2014 particularly in terms of energy and transportation, momentum has continued in Egypt\u2019s construction sector, Fitch notes. Momentum is also being driven by wider adoption of public-private partnership (PPP) financing frameworks.<\/p>\n

2020\u2019s pause in construction activity was relatively brief, several reports say.<\/strong> While the pandemic temporarily halted work on key construction projects, including the New Administrative Capital, Samalout Thermal and Damanhour Combined-Cycle power plants, Cairo metro line 3, and Ain Sokhna and Safaga port projects, the government was keen for work to continue on major projects as soon as possible \u2014 with safety measures in place, the Fitch report notes. This approach is one reason Egypt will remain a regional outperformer, according to Fitch.<\/p>\n

And with growth, there\u2019s potential for more private sector participation:<\/strong> Government debt as a percentage of GDP stands at about 85%, so private capital will increasingly have a bigger role to play in funding construction projects, Fitch predicts. The Finance Ministry\u2019s PPP framework will spur this, as its success in making the tendering process more transparent \u201chas translated into greater certainty for investors and a rise in business sentiment,\u201d the report adds.<\/p>\n

Underpinning it all, Egypt\u2019s generally robust economic recovery:<\/strong> Egypt was one of only three Middle East and Central Asia economies not expected to contract in 2020, according to the IMF, which upgraded Egypt\u2019s overall 2020 growth forecast to 3.5% in October, from 2% in June, according to its World Economic Outlook (pdf)<\/a>. Growth was forecast for 2.8% in 2021, rising to 5.8% by 2025.<\/p>\n

Amid 2020\u2019s global FDI \u201ccollapse,\u201d Egypt remained Africa\u2019s top FDI recipient,<\/strong> according to an UNCTAD report (pdf)<\/a>. Though Egypt\u2019s inflows declined some 39% to an estimated USD 5.5 bn, they still account for over half North Africa\u2019s 2020 FDI, which stood at USD 9.4 bn. Greenfield projects often pave the way for future FDI, UNCTAD notes, and Deloitte\u2019s Africa Construction Trends reports show that Egypt has by far the most construction projects on the continent: 46 in 2018 (pdf)<\/a> and 49 in 2019 (pdf)<\/a>.<\/p>\n

This all contributes to construction growth forecasts far exceeding regional peers:<\/strong> The MENA construction sector was expected to contract 4.5% in 2020, before seeing 1.9% growth in 2021 and 4.1% in 2022, GlobalData\u2019s October projections indicate. This comes after covid-19 lockdown measures, other restrictions on activity, and budget revisions leading to megaproject spending cuts, particularly in the GCC, the company reports. Egypt\u2019s government infrastructure funding hasn\u2019t taken the hit of lower oil prices, as some regional peers have, Fitch notes.<\/p>\n

Without pro-private sector reforms, our growth trajectory isn\u2019t certain: <\/strong>Egypt could be putting too much emphasis on megaprojects to meet our infrastructure needs, where targeted investments in urban centers like Cairo would be more effective, the 1Q2021 Fitch report cautions. It warns that bureaucracy and insufficient private sector participation could hinder the delivery of large-scale megaprojects. And it notes that its own optimistic growth projections may have to be scaled back again if there\u2019s a need for more covid-19 restrictions.<\/p>\n

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