BMI's Executive Summary

[TOP]

From Q108 we will be calculating the Commercial Banking Business Environment Rating (CBBER) for each of the countries surveyed by BMI. This will permit a more systematic and comprehensive comparison of the conditions within the banking industries of the various countries than was possible in the past. For each country, it will also facilitate a comparison of the conditions within the banking sector and conditions prevailing in other sectors.

Egypt's overall CBBER is 50.4. The equivalent figures for the USA and the eurozone are 84.8 and 81.4, respectively. Egypt's CBBER is approximately in the middle of all the countries we monitor in the Middle East and Africa.

Within the CBBER, the most important aspect is the (banking) market structure element of the limits of potential returns. This element accounts for 42% of the overall CBBER. Egypt's rating for this element – 53.8 – is higher than the overall CBBER and higher than the country structure element of the limits of potential returns – 42.9. Egypt has a sophisticated commercial banking sector, with relatively large total assets and expectations of relatively strong growth during the 2007-2012 forecast period. However, absolute growth in total lending is not expected to be as strong as other Middle East and African countries monitored by BMI. Nevertheless, the CBBER highlights the factors that are holding back Egypt's banking sector, one of which is the low level of per-capita GDP, another being the country's legal framework and bureaucracy.

In terms of the overall economy, momentum remains in place for a very impressive growth performance throughout the forecast period, although inflation is a risk.

Our economic forecasts remain largely unchanged as we move into 2008, although we have slightly revised up our projection for the year, from 5.3% to 5.9%. We see a small cyclical slowdown thereafter, due to base effects, taking real GDP growth to 4.9% in 2009, 4.7% in 2010, 3.8% in 2011 and 3.4% in 2012. Consumption and investment will remain the primary drivers of growth, with inflation and political instability the main risks to this outlook.

The investment picture in Egypt remains as buoyant as ever, with confidence still high. The country's benchmark stock index was setting new all-time highs at the time of writing, having risen by 29.2% over the first 10 months of 2007. While BMI's financial markets team is always wary of remaining bullish on an index which has had such a steep and sustained ascent, sentiment toward the country is buoyant, and as long as the upward trend channel remains in place we see scope for further gains. In addition the US$ Global 2012 bond issued in July 2007 has seen its yield fall from 9.5% in mid-August to 7.98% at the time of writing, another good sign of investor confidence in the country.