Egypt Construction Market Report 3Q 2023
Construction market overview
Introduction
There is relative stability in the market in the third quarter of 2023 due to a momentary steadiness of the EGP/USD exchange rate. Contradictory views of how exchange rates will unfold in the fourth quarter range from some economists believing that this relative stability will continue until the end of the year, while others are of the view that we will witness a further devaluation by the beginning of 2024 at the latest.
Even so, it is worth noting that the market has shown no signs of slowing down. On the contrary, developers, both local and international, have shown increased interest in new investments, in addition to existing projects not just in Greater Cairo but other regions such as North Coast, Marsa Matrouh, Red Sea and Upper Egypt. This year sees growing interest from developers based in Saudi Arabia and the United Arab Emirates hoping to strengthen relationships with the Egyptian government as they look to capitalise on the potential the current market offers.
The future of the construction market seems bright but requires caution in the face of uncertainties.
In Reuters latest market overview, a July poll of 13 economists shows median forecasts for growth of 4.2% in the fiscal year that began on 1 July, down slightly from a previous forecast in April of 4.5%.
The latest poll estimates growth will rebound to 4.8% in 2024/25. Despite a hiccup in 2023, the outlook remains positive moving forward.
In its most recent report on the Egyptian market, Mordor Intelligence predicts a compound annual growth rate (CAGR) of 8.39% during the forecast period (2023–2028), from USD 46.85 billion in 2023 to USD 70.09 billion by 2028.
Such growth is not only fuelled by private developments and/or investments but also by the government’s plans to establish new cities, some of which are in advanced stages such as the New Administrative Capital and Alamein.
In addition to schemes for improving and expanding the country’s infrastructure, energy and transportation and creating logistic hubs next to major ports and key transportation routes, the government has also given the green light to commence the construction of a new wind farm in Sohag. Along with a new nuclear power plant in Dabaa and solar farms in Aswan, this forms part of Egypt’s decarbonise strategy, which aims to reduce carbon emissions and produce energy from renewable resources to overcome the current power and electricity issues that the country has faced throughout the summer.
The government's ongoing efforts to implement development plans and policies aimed at boosting the construction sector and encouraging foreign investments are also contributing to the market's growth.
However, economists and real estate experts advise caution as challenges face both the industry and the country as a whole, in light of the current state of the economy.
With rumours of an expected devaluation looming, the question on industry practitioners’ minds is what 2024 may shape up to look like and how further devaluation might impact the construction industry.
Experts estimate the exchange rate could slip to circa 37 EGP to USD by the end of the year and around 40 EGP to USD by the end of 2024. Such speculation brings fears of main construction materials and imported items’ price rises.
Forecasts suggest that customs tariffs and freight costs will increase. It is worth noting that with such devaluation, it is not only direct costs that are affected but also overheads and indirect costs, reflected as increases in professional fees and labour budgets.
Construction materials inflation history/forecast
Data informed by Gleeds experts and CAPMAS indices.
Values for August and September are estimated based on Gleeds view of the market since the CAPMAS indices had not been issued at the date of publishing the report.
Figure 09
Construction materials inflation rate (Indices from January 2008 to September 2023)
Recommendations
Consequently, a review of budgets — especially risk and contingencies — is a prudent measure for all ongoing and potential projects to pre-empt and reflect the impacts of devaluation. During such times, projects normally undergo extensive value engineering studies in order to find ways of offsetting rising costs, to maintain planned outcomes and reduce reliance on imported materials by using more local options. Gleeds Intelligence team works closely with the supply chain, including suppliers and contractors, to evaluate the magnitude of the situation.
Opportunities from the Brazil, Russia, India, China and South Africa (BRICS) economic alliance
Formed in 2009, BRICS is an economic alliance which aims to provide trade solutions for countries overcoming economic and financial limitations. An invitation extended to Egypt, along with five other nations, to join BRICS is a significant development of the third quarter of 2023.
Being part of this alliance will open up avenues for trade and collaboration for Egypt and attract foreign investment from participating countries.
Egypt’s forecasted and ongoing infrastructure, energy and utilities projects mirror the primary investment focus of BRICS in these sectors. As such, Egypt can stand to benefit and would, in return, provide opportunities for interested parties.
Overall, this will help improve the Egyptian economy as BRICS membership will aid Egypt in overcoming inflationary challenges and provide a more stable exchange rate.
It is worth noting that whilst joining BRICS is a step in the right direction for the Egyptian economy in this challenging climate, it is not the sole solution for the country’s financial and economic situation and should go hand-in-hand with other government efforts to improve matters internally.
With mounting pressures on the Egyptian government to make debt interest payments, which will likely increase from about 45% of revenue this year to 55% next year, encouraging investments into the construction market and providing facilities that enable its continuous growth may improve both GDP and revenue, ultimately lessening the impacts of debt payments.
Marassi Resort, Alamein, Egypt — Gleeds provided Quantity Surveying/Cost Management services
