View of the recently-constructed Al-Sahaba mosque in the Egyptian Red Sea resort city of Sharm El-Sheikh. Egypt's private sector activity slowed down marginally in September as demand weakened. AFP / Mohamed el-Shahed
View of the recently-constructed Al-Sahaba mosque in the Egyptian Red Sea resort city of Sharm El-Sheikh. Egypt's private sector activity slowed down marginally in September as demand weakened. AFP / Show more

Economy

Egypt's private sector activity contracts marginally in September as demand weakens

Confidence about 12-month outlook improves

Deena Kamel
Deena Kamel

October 03, 2018

Egypt's private sector activity declined marginally in September for the first time in three months as demand weakened and output dropped, according to a new survey of companies.

Non-oil business activity fell to 48.7 points in September from 50.5 in August, the Emirates NBD Egypt Purchasing Managers’ Index showed. Readings above 50 signal an expansion and below indicates contraction.

"Approximately 18 per cent of panellists registered a decline in output, which they widely linked to weak underlying demand and unfavourable market conditions," according to the report. "That said, the rate of contraction was modest."

Egypt, North Africa's largest economy, is implementing an economic reform programme backed by a $12 billion (Dh44bn) loan from the IMF since late 2016. Under the programme, the country made deep cuts to energy subsidies, introduced new taxes and floated the currency with the intention to overhaul the economy, boost investor confidence and restore stability to capital markets.

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New business orders placed with firms declined in September for the first time in three months because of weak market demand but the rate of decline was "modest", the survey showed.

New export orders also declined due to reduced international demand for Egyptian goods but the rate of decline was marginal.

Companies reported a rise in purchase prices mainly because higher fuel costs drove purchase costs, the report said.

However, the rate of input cost inflation dropped from July's recent high and was below the historical average levels.

Still, firms are optimistic about the outlook for the next 12 months as they hoped the volume of output would be stable. However, the latest reading remains below the historical average, indicating that optimism is subdued among private sector firms.

The survey is sponsored by Dubai's biggest lender, Emirates NBD, and produced by IHS Market.

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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