Egypt Construction Market Report 2Q 2024
Construction market overview
Introduction
The Egyptian construction market, a cornerstone of the nation's economy, stands at a crossroads. While recent currency devaluations have presented significant challenges, the industry boasts inherent strengths and ongoing opportunities.
Fuelled by the government's unwavering commitment to infrastructure development, a growing population and the persistent demand for new housing and commercial spaces, the construction sector has substantial growth potential. However, realising this potential requires a multi-faceted approach that includes ensuring exchange rate stability, focusing on domestic production and adopting innovative construction methods.
Development activity
This past quarter has witnessed relative stability in exchange and interest rates. This stabilisation, coupled with the start of the summer season, has encouraged developers to pursue projects and targets, maintaining the momentum witnessed since the beginning of 2024.
Following the deal between UAE investors and the Egyptian government for Ras Al Hikma, the construction market is witnessing an increased interest in exploring potential opportunities in this and neighbouring areas.
Beyond the bustling activity in residential, retail and commercial development, Egypt's real estate market is experiencing a surge in hospitality and leisure projects fuelled by a multitude of factors, including strong interest from both developers and operators. Developers see an opportunity to capitalise on the country's rich cultural heritage, burgeoning tourism industry and growing domestic demand for high-end leisure experiences. Operators, on the other hand, are attracted by the potential for healthy returns, a favourable investment climate fostered by recent government initiatives and the growing influx of tourists seeking unique travel experiences. This surge in hospitality and leisure projects signifies a maturing real estate market in Egypt, catering to a more diverse range of needs and contributing to the overall economic growth.
Damac Park Avenue Phase 1,2, Cairo — Gleeds provided Project Management and Quantity Surveying/Cost Management services.
Foreign currency fluctuations
The Central Bank of Egypt’s May 2024 press release reported Net International Reserves (NIR) at a robust US$46.1 billion, compared to US$34.4 billion in March 2023. This significant increase indicates the CBE's improved capacity to manage foreign currency availability for import needs, easing some of the challenges the construction sector faces.
Improved access to foreign currency is boosting contractor confidence, as evidenced by more competitive bids on tenders. Bidders are presenting more attractive offers, reflecting lower risk allowances in their pricing. This shift appears to be a response to the Central Bank's efforts to stabilise the Egyptian Pound (EGP). While the desire for absolute certainty persists, contractors seem increasingly comfortable operating in a less volatile exchange rate environment.
However, a layer of caution persists. Bidders still seek protection against unexpected currency swings, often requesting price adjustment formulae linked to the USD exchange rate. These formulae essentially allow contractors to adjust their pricing if the EGP experiences significant fluctuations. While this approach is understandable, it underscores the continued need for a stable exchange rate to fully unlock the construction sector's potential.
Government agreements
The construction industry is showing signs of growth across all sectors. The government has also been working diligently to strengthen government-to-government and government-to-business relationships since the beginning of the year. It has succeeded in signing several high-profile memoranda of understanding (MOUs), the most prominent of which is the one signed by the General Authority for Investment and Free Zones of Egypt (GAFI) and the UK in May of this year.
Under the MoU, UK Export Finance, the British export financing agency, will provide financial support for a range of projects in close coordination with GAFI. The MoU aims to facilitate cooperation between the two countries and foster investment and trade opportunities. The memorandum establishes a supportive framework for the investment priorities of both nations. It outlines a mechanism for exchanging vital information to identify projects most deserving of financing and to direct financial support towards investments that align with the development strategies and plans of both countries.
Looking ahead
All indicators point to sustained momentum, growth opportunities and strong potential for the Egyptian construction industry in both the near and long term. The market holds significant growth potential and the outlook remains positive.
Damac Park Avenue Phase 1,2, Cairo — Gleeds provided Project Management and Quantity Surveying/Cost Management services.
