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Egypt: an attractive consumer market for investors

    Real household spending growth in Egypt

    • Household spending growth expectations in Egypt are supported by stabilizing inflation levels, with our country risk team forecasting headline inflation to reach 6.8% in 2020, down from 9.4% in 2019 and well below the rate in 2017, when the average was Consumer price inflation is 29.6%. In January 2020, the monthly consumer price index (CPI) grew by 7.2%, which is much lower than the 12.7% in January 2019.
    • Household spending growth will be further boosted by the conclusion of Egypt’s 2016-2019 IMF-led structural reform program, which prompted the government to raise prices, for example, gas and oil, as well as electricity and basic foodstuffs including bread and milk. In addition, the minimum wages and pensions were significantly raised in March 2019, with the public sector minimum wage now set at EGP 2,000 per month, which is 66% higher than the previous rate. We expect these wage gains to continue to feed into early 2020. We also expect the results of the large protests against government corruption in late September 2019 to lead the government to loosen its fiscal consolidation throughout 2020, which will be a boon for consumption growth.

    Real Household Expenditure Growth Rate in Egypt (2015-2024)

    The effect of inflation on the growth of household spending in Egypt


    Over the medium term (2021-2024), real household spending is expected to continue to expand, but on a slower path, at an average of 4.7% per year. This is a normal level after Egypt's recovery since 2016. We believe that continued growth expectations in consumer spending, along with the notable consumer fundamentals below in Egypt will lead to increased investment in the country's retail sector.

    Monthly CPI in Egypt (2015-2020)

    Data on the increase in demand in the local market in Egypt

    1. Population: Egypt boasts the largest population in the Middle East and North Africa (MENA) region, with an estimated 102.3 million people in 2020, providing a broad consumer base for retailers. For comparison, the populations of other Greater Middle East countries such as Iran, Algeria, and Saudi Arabia are 84 million, 43.9 million, and 34.8 million, respectively. Over the next ten years, Egypt's total population will grow at a compound annual growth rate of 1.9%, reaching 120.8 million by 2030.
    2. Youth: The largest demographic in Egypt is the youth (ages 20-39), who make up nearly a third of the population in the country. In 2020, we estimate that young people will make up 31% of the total population. Retailers view this age group as a target target group because they have a relatively high spending power and are more willing to purchase new and innovative consumer goods, as compared to the older generations.
    3. Rising middle class: In 2020, we predict that the majority of Egypt's population will live in low-income households, with 66.4% of households residing in the $1,000-5,000 per year disposable income bracket. However, over the next five years, we expect an even greater upward movement, with consumers moving out of this disposable income bracket into the $5,000-5,000 disposable income bracket, which we expect will expand from 28.4% of total households in 2020 to 48.1% in 2024. In 2024, 11.7% of households in the country will have a disposable income of more than US$10,000, which is an increase from 4.3% in 2020.

    Egypt leads the Middle East and North Africa region in terms of population

    As a result of the expectations of growth in consumer spending in Egypt, along with the country's consumer fundamentals, financial institutions expect to increase investment in the country's retail sector (particularly in the grocery and shopping mall sectors).

    Some evidence of this is already emerging.

    • UAE supermarket chain Lulu Group announced in August 2019 that it is seeking to invest $500 million in Egypt in the short term to establish six hypermarkets and four convenience stores to increase its presence in the country. All of the new stores will be based in Cairo, including Obour, New Cairo and 6th of October City.
    • Carrefour by Majid Al Futtaim plans to open three new hypermarkets and 24 supermarkets in Egypt in 2020. In addition,
    • Dubai-based Al-Futtaim announced in December 2019 that it was investing two billion Egyptian pounds (US$127.8 million) on the 22,140 square meter extension of the Cairo Festival City Mall extension. It will feature 80 retailers, 15 food and beverage outlets and the first international food court in Egypt.

    Population Prospects for the Middle East and North Africa Countries - (2030)

    While Egypt's young and growing population, a rising middle class, and stabilizing inflation bode well for the country's retailers, we highlight that there are some hurdles that could affect those prospects. Companies continue to face some legal and bureaucratic obstacles to operations in Egypt. Which the Egyptian government seeks to change through the new investment law and the application of e-government