Boston, MA -- (SBWIRE) -- 07/21/2012 -- BMI View: Construction activity continues to suffer the effects of the ongoing political upheaval in Egypt and we expect the industry to face further uncertainty over the near term, at least. We believe that appetite for long-term Greenfield projects is likely to remain subdued, reinforcing our bearish outlook for the country's construction industry in 2012, with a real contraction of 6% forecast.
Data from the Central Bank of Egypt confirms our view that the construction sector has been a notable casualty of the 2011 political crisis and the subsequent uncertainty over the country's future policy trajectory. We believe the sector is yet to fully feel the effects of the Egyptian upheaval, although the modest 3.3% real growth in 2011 construction industry value does belie its poor state of health. Despite a relatively swift resumption in construction activity following the revolution, the second half of 2011 saw an increasing number of projects put on hold and contract awards drying up.
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Key trends and developments include:
- An expected 33% rise in natural gas and electricity prices will compound the already highly challenging market conditions that the sector faces. The price hikes will be applied to steel, cement and ceramics industries, and form part of a larger plan to reduce the budget shortfall by approximately EGP20bn (US$3.3bn). Compounding this is our expectation that inflation will head higher in 2012, with our country risk analysts projecting consumer price inflation to average 12.0% in 2012, compared to an estimated 10.1% in 2011.
- With government spending likely to remain restricted, we expect multilaterals, bilateral loans and other sources of international funding to provide some respite for the sector. This was illustrated in February 2012, with the World Bank's announcement that it will provide a US$240mn loan to the Egyptian government in order to finance the construction of a 1,500MW natural gas turbine power plant. The European Investment Bank (EIB) has also committed to lending US$900mn a year and supporting the country's use of PPPs.
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