Boston, MA -- (SBWIRE) -- 12/19/2012 -- 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.

The latest data from the Ministry of Economic Development support our view that 2012 will be a highly challenging year for Egypt's construction industry. Data for Q112 reveals that the construction sector underwent a 9.4% year-on-year contraction in real terms, providing the clearest confirmation yet of the industry's poor state of health. BMI notes that, despite a relatively swift resumption in construction activity following the revolution, H211 saw an increasing number of projects put on hold and contract awards drying up.

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Key trends and developments in the sector:

- Egypt's President, Mohamed Morsi, swore in a new cabinet on August 2 2012, and we believe the formation of a new government is a positive development for Egypt's underlying risk profile. In the near term, the odds of significant policy shifts or structural reforms being passed are low. However, risks remain elevated, with the unexpected decision by President Morsi to dismiss the country's top two generals on August 12 2012 indicative of the ongoing struggle between the Muslim Brotherhood and military, as both institutions seek to consolidate power in the post- Mubarak era.
- It was announced in August 2012 that plans to build a bridge connecting Saudi Arabia and Egypt across the Gulf of Aqaba have been revived. Egyptian President Mohammed Mursi has held discussions on the project with Saudi Arabia's King Abdullah, according to Egyptian Transportation Minister Mohammed Rashad. There have been indications that the project is back on the table, with technical details to be released in the coming months. The 32km causeway would be a significant undertaking; it is estimated to cost US$3bn and would take three years to complete, although we believe that these figures are somewhat ambitious.
- The Egyptian Government has made an annual budgetary provision of US$850mn for new city infrastructure projects, it was reported in July. The US$850mn figure was disclosed by the Egyptian Finance Ministry and represents the budget for the New Urban Committees Authority (NUCA), whose agenda covers the establishment of new cities in the Egyptian periphery. It aims to direct the population away from the overpopulated capital, Cairo.

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