Egypt

SEB MERCHANT BANKI NG – COUNTRY RI SK ANALYSI S December 16, 2008

important your attention is drawn to the statement on the back cover of this report which affects your rights.
Analyst: Jenny Nordgren. Tel: +46 8 763 96 05. E-mail: jenny.nordgren@seb.se

After several years’ of strong growth, the economy is now slowing due the global financial and
economic crisis while inflation remains high, albeit declining. Socioeconomic pressures have so far
been contained but the looming succession to the ageing President Mubarak is a risk to future
stability.

Country Risk Analysis

qÜÉ=ÖäçÄ~ä=ëäçïÇçïå=Üáí=íÜÉ=ÉÅçåçãóK==Tle Lgyplian economy las been groving
rapidIy during lle Iasl llree years recording an annuaI average GDI grovll of 7 °.
During lle firsl laIf of 2008, lle economy experienced some overlealing lendencies
incIuding slrong domeslic demand pressure fueIIing infIalion and a surge in
imporls. Since llis summer, lovever, economic aclivily las sIoved and grovll is
expecled lo faII lo aboul 5 ° in fiscaI year 2008/09 (ending Iune) in response lo lle
gIobaI sIovdovn vlicl is lilling exporls, lourism, Suez CanaI lraffic and infIovs of
IDI. As a resuIl, lle currenl accounl baIance is expecled lo move inlo a deficil in
2008/09 of around 1.5 ° of GDI vliIe IDI infIovs is sliII assumed lo fuIIy cover lle
deficil leIping Ieep inlernalionaI reserves slabIe around 6 monlls of imporls. Since
lle onsel of lle gIobaI financiaI crisis, lle CenlraI BanI las inslead reporledIy been
running dovn lleir sizabIe foreign currency deposils vill commerciaI banIs (dovn
from USD 12 biIIion in May lo USD 6 biIIion in Seplember) lo meel lle reversaI of
capilaI fIovs resuIling from foreign saIes of slocIs and bonds. LxlernaI debl remains
Iov around 30 ° of GDI, vliIe foreign accumuIalion of Lgyplian T-biIIs is parlIy
belind lle increase of slorl-lerm debl lo 25 ° of lolaI exlernaI debl increasing lle
vuInerabiIily lo gIobaI financiaI condilions.

fåÑä~íáçå=éÉ~âÉÇ=áå=^ìÖìëí=Äìí=êÉã~áåë=
ÜáÖÜK=Tle infIalion rale surged during
2008 as a resuIl of ligl gIobaI commodily
prices and slrong domeslic demand
pressure. Hovever, lle infIalion rale
probabIy peaIed in Augusl al 24 ° and is
expecled lo faII due lo a reversaI of gIobaI
commodily prices and ligller credil
condilions resuIling from slarp inleresl
liIes by lle cenlraI banI (275 basis poinls
in 2008) and lle gIobaI credil squeeze.
NeverlleIess, lle infIalion rale is expecled lo remain in doubIe digils.
Inflation
Source: Reuters EcoWin
02 03 04 05 06 07 08
P
e
r
c
e
n
t
0.0
2.5
5.0
7.5
10.0
12.5
15.0
17.5
20.0
22.5
25.0


SEB Merchant Banking Country Risk Analysis December, 2008

2
iççãáåÖ=ëìÅÅÉëëáçå=ÅçìäÇ=íÜêÉ~íÉå=ëí~Äáäáíó. Lgypl las onIy experienced llree
Iresidenls since lle revoIulion in 1952 and enjoyed a Iong period of slabiIily under
currenl Iresidenl MubaraI. Hovever, succession risI is nov increasing in viev of
lle ageing Iresidenl (age 80). NeverlleIess, lle Iong serving Iresidenl ÷ in pover
since 1981 ÷ las nol yel appoinled a successor and le slovs no sign of vanling lo
slep dovn ÷ some even expecl lim lo run in lle nexl presidenliaI eIeclions in 2011.
IopuIar specuIalion focuses on MubaraI's son GamaI and lle inleIIigence lead
Omar SuIeiman ÷ boll members of lle ruIing NalionaI Democralic Iarly (NDI).
NeverlleIess, lle IacI of cIarily regarding succession risI deIaying imporlanl
reforms and migll uIlimaleIy llrealens slabiIily al a lime of vorsening economic
condilions and socioeconomic pressure from lle rapidIy groving popuIalion llal lo
a Iarge exlenl sliII Iive beIov or jusl above lle poverly Iine (40 °).


--˘--

=
bÖóéí=Ü~ë=ÉñéÉêáÉåÅÉÇ=ëÉîÉê~ä=óÉ~êëÛ=çÑ=ëíêçåÖ=ÖêçïíÜ=~åÇ=ã~ÇÉ=áãéçêí~åí=éêçÖêÉëë=
áå=ãçÇÉêåáëáåÖ=~åÇ=çéÉåáåÖ=ìé=íÜÉ=ÉÅçåçãóK=eçïÉîÉêI=ÉÅçåçãáÅ=~Åíáîáíó=áë=åçï=
ëäçïáåÖ=ÇìÉ=íç=íÜÉ=ÖäçÄ~ä=ÉÅçåçãáÅ=~åÇ=Ñáå~åÅá~ä=Åêáëáë=ÜìêíáåÖ=íÜÉ=Éñéçêí=ëÉÅíçê=~åÇ=
êÉîÉåìÉë=Ñêçã=íçìêáëã=~åÇ=íÜÉ=pìÉò=`~å~äK=^í=íÜÉ=ë~ãÉ=íáãÉI=íÜÉ=áåÑä~íáçå=ê~íÉ=
êÉã~áåë=ÜáÖÜI=~äÄÉáí=ÇÉÅäáåáåÖI=éçëáåÖ=ÑáëÅ~ä=~åÇ=ëçÅá~ä=ÅÜ~ääÉåÖÉë=íç=íÜÉ=ïÉ~â=éìÄäáÅ=
Ñáå~åÅÉëK=qÜáë=Ü~ë=íêáÖÖÉêÉÇ=åÉÖ~íáîÉ=ê~íáåÖ=çìíäççâë=Äó=ëÉîÉê~ä=ê~íáåÖ=~ÖÉåÅáÉëK=lå=
íÜÉ=éçäáíáÅ~ä=ÑêçåíI=íÜÉ=ä~Åâ=çÑ=Åä~êáíó=êÉÖ~êÇáåÖ=ëìÅÅÉëëáçå=íç=íÜÉ=~ÖÉáåÖ=mêÉëáÇÉåí=
jìÄ~ê~â=êáëâë=ÇÉä~óáåÖ=áãéçêí~åí=ÉÅçåçãáÅ=êÉÑçêãë=~åÇ=ÅçìäÇ=íÜêÉ~íÉå=ëí~Äáäáíó=~í=
~=íáãÉ=çÑ=~=ïçêëÉåáåÖ=ÉÅçåçãáÅ=ëáíì~íáçå=~åÇ=ëçÅáçÉÅçåçãáÅ=éêÉëëìêÉK=




hÉó=ê~íáçë OMMTLMU
GDI/capila ($) 2095
GDI (clange) 7.2°
InfIalion 18.3°
Curr accounl baIance/GDI 0.4°
Reserves/imporls (monlls) 6
Budgel baIance/GDI -6.8°
Governmenl debl/GDI 70°
qÜÉ=ÅäçëÉê=íç=íÜÉ=ÅÉåíêÉ=íÜÉ=ïçêëÉ=áë=íÜÉ=ëÅçêÉ>
0
2
4
6
8
10
ResiIience
Iiquidily
Informalion
Absence of evenl
risI
Macro baIance
Egypt Average EM
bñíÉêå~ä=o~íáåÖë
Moody's: Ba1, negalive
S&I: BB+, slabIe
Iilcl: BB+, slabIe
mÉÉêë
India
Morocco
TurIey
dê~éÜW Lgypl's risI profiIe is on mosl accounls veaIer
llan lle average for aII emerging marIel counlries,
parlicuIarIy regarding informalion and resiIiance. Il
lovever scores beller llen average on Iiquidily.






SEB Merchant Banking Country Risk Analysis December, 2008

3

Key data: 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10
GDP (bill.US$) 71 78 93 108 130 161 180 194
GDP/capita (US$) 1015 1095 1279 1453 1719 2095 2298 2436
GDP (change) 3.2% 4.1% 4.5% 6.8% 7.1% 7.2% 5.0% 5.2%
Investments/GDP 16% 17% 18% 19% 22% 23% 24% 25%
Budget balance/GDP -10.4% -9.5% -9.6% -8.2% -7.5% -6.8% -6.1% -5.8%
Govt debt/GDP 102.3% 101.5% 103.3% 90.3% 81.7% 69.9% 64.8% 61.3%
CPI inflation (%) 4% 11% 5% 8% 9% 18% 12% 8%
Money demand (%) 16% 3% 7% 7% 10% -4% 3% 4%
Stock prices (%change) 14% 35% 83% 21% 28% 8%
Interest rates 7% 10% 9% 10% 7% 9% 9% 8
Exch. Rate ($) 5.9 6.2 5.8 5.7 5.6 5.4 5.6 5.8
Trade/GDP (%) 51% 60% 63% 64% 68% 72% 69% 70%
Oil price (Brent) 29 38 54 65 73 96 50
Billion US $
Export of goods 16 22 28 32 41 54 56
Imports of goods 21 25 31 37 48 61 68
Other: 9.2 6.5 4.4 7.6 7.4 8.1 9.4 12.0
Current account 3.
%
53
61
75
7 3.9 2.1 2.6 0.4 0.7 -2.3 -2.1
(% of GDP) 5.2% 5.0% 2.3% 2.4% 0.3% 0.4% -1.3% -1.1%
FDI 0.2 1.1 5.3 9.9 10.9 10.4 10.1 10.9
Loan repayments 1.8 1.9 2.1 2.2 2.5 2.7 3.0 3.6
Net other capital flows -5.5 -6.2 -3.1 -10.9 -8.1 -10.2 -8.2 -8.2
Balance of payments 0.2 0.7 6.4 3.8 5.7 3.6 2.6 2.7
Reserves 13 14 21 24 30 34 36 39
Total debt 29 35 38 41 51 55 58
o/w short term debt 2 2 5 8 14 14 15 17
Rating histor
62
y
Fitch (eoy) BB+ BB+ BB+ BB+ BB+
Moody's (eoy) Ba1 Ba1 Ba1 Ba1 Ba2
S&P (eoy) BB+ BB+ BB+ BB+ BB+
Type of government: Autocratic regime
Next elections Parliamentary elections 2010. Presidential elections 2011.
Other:
Latest PC deal 1991
Latest IMF arrangements 1991
S o u r c e : R e u t e r s E c o W i n
0 3 0 4 0 5 0 6 0 7 0 8
U
S
D
/
E
G
P
5 . 2
5 . 3
5 . 4
5 . 5
5 . 6
5 . 7
5 . 8
5 . 9
6 . 0
6 . 1
6 . 2
6 . 3
U
S
D

(
b
i
l
l
i
o
n
s
)
1 2 . 5
1 5 . 0
1 7 . 5
2 0 . 0
2 2 . 5
2 5 . 0
2 7 . 5
3 0 . 0
3 2 . 5
3 5 . 0
3 7 . 5
4 0 . 0
F X r e s e r v e s ( l h s )
U S D / E G P ( r h s )
S t o c k m a r k e t ( C a i r o S E )
S o u rc e : R e u ter s E c o W i n
0 2 0 3 0 4 0 5 0 6 0 7 0 8
I
n
d
e
x
5 0 0
1 0 0 0
1 5 0 0
2 0 0 0
2 5 0 0
3 0 0 0
3 5 0 0
4 0 0 0
D o m e s t i c l i q u i d i t y M 2
c . o . p 1 2 m o n t h s
S o u r c e : R e u t e r s E c o W i n
0 2 0 3 0 4 0 5 0 6 0 7 0 8
P
e
r
c
e
n
t
1 1
1 2
1 3
1 4
1 5
1 6
1 7
1 8
1 9
2 0
2 1
2 2
2 3
2 4
P o l i c y R a t e s
O v e r n i g h t D e p o s i t R a t e
O v e r n i g h t L e n d i n g R a t e
S o u r c e : R e u t e r s E c o W i n
0 5 0 6 0 7 0 8
P
e
r
c
e
n
t
8
9
1 0
1 1
1 2
1 3
1 4




SEB Merchant Banking Country Risk Analysis December, 2008

4

=
=
aáëÅä~áãÉê=

`çåÑáÇÉåíá~äáíó=kçíáÅÉ=

Tle informalion in llis documenl las been compiIed by SLB Merclanl BanIing, a
division villin SIandinavisIa LnsIiIda BanIen AB (pubI) (“SLB¨).

Opinions conlained in llis reporl represenl lle banI's presenl opinion onIy and are
subjecl lo clange villoul nolice. AII informalion conlained in llis reporl las been
compiIed in good faill from sources beIieved lo be reIiabIe. Hovever, no
represenlalion or varranly, expressed or impIied, is made vill respecl lo lle
compIeleness or accuracy of ils conlenls and lle informalion is nol lo be reIied upon
as aullorilalive. Anyone considering laIing aclions based upon lle conlenl of llis
documenl is urged lo base lis or ler inveslmenl decisions upon sucl invesligalions
as le or sle deems necessary. Tlis documenl is being provided as informalion onIy,
and no specific aclions are being soIiciled as a resuIl of il: lo lle exlenl permilled by
Iav, no IiabiIily vlalsoever is accepled for any direcl or consequenliaI Ioss arising
from use of llis documenl or ils conlenls.

SLB is a pubIic company incorporaled in SlocIloIm, Sveden, vill Iimiled IiabiIily. Il
is a parlicipanl al major Nordic and oller Luropean ReguIaled MarIels and
MuIliIaleraI Trading IaciIilies (as veII as some non-Luropean equivaIenl marIels)
for lrading in financiaI inslrumenls, sucl as marIels operaled by NASDAO OMX,
NYSL Luronexl, Iondon SlocI Lxclange, Deulscle B∏rse, Sviss Lxclanges,
Turquoise and Cli-X. SLB is aullorized and reguIaled by IinansinspeIlionen in
Sveden: il is aullorized and subjecl lo Iimiled reguIalion by lle IinanciaI Services
Aullorily for lle conducl of designaled inveslmenl business in lle UK, and is
subjecl lo lle provisions of reIevanl reguIalors in aII oller jurisdiclions vlere SLB
conducls operalions.

SLB Merclanl BanIing. AII riglls reserved.