Business monthly March 07   EDITOR'S NOTE COVER STORY EXECUTIVE LIFE VIEWPOINT IN PERSON SUBSCRIPTION FORM IN BRIEF MARKET WATCH ADVERTISING RATES IN DEPTH CORPORATE CLINIC THE CHAMBER FEATURE Search Business Monthly | Back Issues

GEARED FOR GROWTH

Abstracts from “Business Barometer, January 2007”
Published by the Egyptian Center for Economic Studies (ECES)

ANALYSIS BY RÉHAB EL-BAKRY

Twice a year, the Egyptian Center for Economic Studies (ECES) publishes its Business Barometer, an independent study to assess the performance of the economy over the previous six-month period and provide projections for the upcoming six months from the perspectives of the business community. The study covers four main aspects: the level of economic activity including overall growth, production, sales, and inventory and capacity utilization; price and wages; investment and employment; and the constraints facing the surveyed firms. The majority of the sample – 320 large firms in the manufacturing, construction and tourism sectors – had favorable views of the economy for the second half of 2006 and voiced optimistic projections for the first six months of 2007.

“Regarding [their] own activities, a greater number of firms reported higher or stable production, sales, investment and employment. In general, the most favorable views were reported by the manufacturing sector. There was also a notable improvement in the views reported by tourism firms... Regarding expectations for the first half of 2007, the majority of firms anticipate higher (58 percent of respondents) or stable (35 percent) economic growth... Firms tend to have higher expectations for the overall performance of the economy than for their own activities.”

The increased optimism is a reflection of Egypt’s strong economic performance. Real GDP growth reached 7.1 percent during the first quarter of FY 2006-07. Yet the study notes that there are several issues the government will need to address if it hopes to sustain this optimism.

“[Reinforcing] this trend, however, will require the continuity of reform efforts as well as taking bolder reforms to resolve persistent problems. These include access to credit reported by sampled firms as one of the most limiting factors to business operations; and bureaucracy as another significant constraint on investment. Another priority area for reform is public financing and the government’s five-year fiscal consolidation plan is a welcome step in this direction. This positive trend would also need to be augmented by an effective communication plan to rally support from the main stakeholders of reform.”

As far as economic activities go, the majority of respondents reported stable or higher economic growth during the second half of 2006. Some 44 percent of surveyed firms reported higher production quantities, with 36 percent reporting stable production during the period, with manufacturing having the most favorable responses.
They also expect that this growth will continue to rise during the first half of 2007. A whopping 72 percent anticipate an increase in production, while 23 percent of firms expect production capacity to remain the same. The most optimistic views were reported by the construction industry, which has experienced a boom for much of 2006 due to the increased investment in the sector, particularly by companies from the Gulf region, and the implementation of the mortgage law, which has increased the real estate buying power of most segments of Egyptian society. Similar responses were given for both domestic and international sales.

“The majority of respondents reported higher (44 percent) or stable (35 percent) domestic sales during the second half of 2006. Firms in the tourism sector expressed the most remarkable improvement in sales... Regarding expectations, most firms anticipated higher (69 percent) or stable (25 percent) domestic sales. The most favorable views came from the construction sector followed by the manufacturing sector... The majority of firms reported higher (45 percent) or stable (31 percent) international sales during the second half of 2006. The most favorable views were reported by the manufacturing sector followed by construction... With respect to the next six months, most firms anticipated higher (71 percent) or stable (26 percent) international sales.”

The growth in sales can be attributed to a variety of reasons among which is the government’s increased support for firms in the industrial sector, along with a reduction of tariff rates on raw materials used by industry. Moreover, the better utilization of international agreements, such as the EU-Egypt Association Agreement and the Qualifying Industrial Zones (QIZ) Agreement, as well as new trade thrusts with China and Turkey, have helped boost the production output of industry and increase exports.

“The majority of firms reported stable (51 percent) or higher (41 percent) prices for outputs. Firms’ evaluation of input prices tends to be higher with most firms reporting higher (81 percent) or stable (17 percent) prices for inputs... Regarding expectations for the next six months, there is a rise in the percentage of firms anticipating a rise in prices of both inputs and outputs as compared to the previous survey.

Improved production figures have increased the likelihood that employment figures and wages will move up in the coming period.

“With respect to employment, the majority of firms reported stable (57 percent) or higher (26 percent) levels of employment... Expectations for the next six months are more favorable with 35 percent of the firms anticipating an increase in employment and 53 percent planning to maintain their level of employment... Although the majority of firms reported higher (62 percent) or stable (38 percent) nominal wages during the second half of 2006, fewer firms compared to the previous survey reported higher wages... Almost all firms expect higher (70 percent) or stable (30 percent) wages [in the next six months].”

Despite the overall positive findings, firms still pointed out that there were several constraints to the growth of their sector, citing weak demand, insufficient skilled workers, limited access to finance as well as inadequate access to imports as major hindrances.

Abstracts printed with permission of ECES

Submit your comment

Top