Egypt battles structural issues

27 February 2025

Commentary
John Bambridge
Analysis editor

The suggestion by US President Donald Trump to relocate Gaza’s population to Egypt and other Arab countries has sparked concern, particularly in Cairo. Egypt has strongly denounced the idea, citing national security risks and potential economic instability. This proposal could disrupt peace efforts in the region and further strain Egypt’s economy, which has already been impacted by the Gaza conflict and a decrease in Suez Canal traffic.

Despite the challenges, Cairo has managed to attract foreign investment from the Gulf states, multilateral financing from Europe and loans from the IMF – all of which is helping to offset the state’s current account deficit. Bolstered by this and the gradual recovery of Suez Canal revenues, Egypt’s economy is showing signs of improvement, while its better fiscal position has allowed a return to the international debt capital market. The heightened inflation rate is also expected to decrease, while GDP growth is projected to gradually accelerate again.

Concerns nevertheless persist regarding the government’s need to implement structural economic reforms and remedy the country’s perennially weak external finances. Political stability is also crucial for Egypt to attract foreign investment, and this continues to be rattled by events next door in Israel-Palestine. Despite Cairo’s pushback against the unhelpful suggestions of Trump, the country has continued to receive military aid from the US.

Beyond the structural challenges for Egypt’s economy there are also growing infrastructure gaps. Investments in the energy sector aimed at turning the country into a net energy exporter have fallen largely flat, with demand outstripping production, leading to an energy crisis and extra gas import costs. Cairo has clearly lost its focus on maintaining momentum in the sector and the result has been a drop in the value of gas projects in Egypt since the beginning of 2019.

The country’s power sector is enjoying a better time, with a total value of awarded contracts that doubled in 2024, led by a slew of renewable energy project awards. There are an estimated $42bn-worth of projects, including components of the El-Dabaa nuclear power plant project, in pre-execution.

The construction industry is also expected to see substantial growth, despite a decline in awards in the sector in 2024, with a projected annual average growth rate of 7.6% in 2025-28. This is being bolstered by the $24bn Ras El-Hekma project, which is supported by Abu Dhabi investment vehicle ADQ and has the UAE’s Modon Holding as master developer. With UAE financial backing, the project has attracted local and international firms to vie to deliver the infrastructure and other projects connected with the scheme.

Together, the rise in inbound investment, the expected recovery in Suez receipts and the launch of new schemes should shore up the economy again.

 


This month’s special report on Egypt includes: 

> GOVERNMENT: Egypt is in the eye of Trump’s Gaza storm
> ECONOMY: Egypt’s economy gets its mojo back
> OIL & GAS: Gas project activity collapses amid energy crisis
POWER & WATER: Egypt’s utility projects keep pace
> CONSTRUCTION: Coastal city scheme is a boon to Egypt construction

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John Bambridge
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