Market Round Up

For almost a decade now, Egypt’s president Abdel Fattah al-Sisi has promised his people that he would revive the economy, build a new capital state, and provide prosperity and a comfortable life for citizens. Instead, Egypt is a country in crisis, with poverty starting to knock on the door for millions, the Egyptian pound sitting at record lows and price inflation soaring above 20%. Sisi’s regime is beginning to come under pressure.
 
Like much of the world, the Arab state is currently struggling under the headwinds from Russia's invasion of Ukraine, and the subsequent economic recession has come at a time that the country is burdened with debts and struggling with a severe foreign currency crunch. However, the deepest problem is the military’s influential role in the economy, with the most powerful state institution overseeing many state infrastructure developments. This phenomenon has restricted private sector competition and stifled foreign direct investment that would generate jobs and a more sustainable source of hard currency.
 
In the wake of the 2022 Federal Reserve’s hawkish monetary policy, Egypt also saw an exodus of around US$20bn of foreign capital, with investors rushing to safe havens, despite Egypt offering the world’s highest real interest rate. This feat exerted pressure on the value of its pound against the dollar, slashing it by almost half, with foreign currency remaining in desperately short supply for the import-dependant country. This has resulted in an estimated US$12bn worth of goods being held up at the country’s ports, leading to official inflation figures soaring above 20%, despite some analysts estimating that the real inflation rate in the country has jumped to 101%.
 
Last year, Cairo was forced to turn to the International Monetary Fund for the 4th time in six years, becoming the fund's second biggest debtor behind Argentina. With it came broad and ambitious restructuring plans of the public and private sectors in the economy, that could unleash the most significant transformation in the country since the nationalisation of close to the entire economy in 1961. These commitments included promises to reduce the state footprint in the economy, with the aim to increase private sector participation in public investments from 30% to 65%. Cairo has also committed to a flexible exchange rate regime in which market forces determine the currency’s value – something Egyptian governments have long resisted.  
 
It is often assumed that Egypt, the Arab’s most populous nation, is too big to fail and that donors or Gulf states will always bail Cairo out. But the reality is that the country is structurally unfit to sustain global shocks and is becoming too heavy to rescue. With the country also seeing its foreign debt amounting to 35% of GDP, it is now up to its donors to use their leverage to ensure the military-led regime meets its commitments and starts to rescue itself from the crisis, by offering fully fledged government support for the private sector’s manufacturing activity and tourism, alongside the introduction of effective policies geared towards competitiveness, that can unleash the private sectors maximum potential needed to shift Egypt into gear.
 
More UK companies failed in 2022 than at any point since the financial crisis in 2009, with 22,109 business insolvencies, coming in at 57% higher than in 2021 – according to data issued by the Insolvency Service. Soaring costs, rising interest rates, the winding down of pandemic government support and weakening consumer confidence and demand have been piling pressure on a variety of different businesses in the UK, with the construction, retail and hospitality being hit particularly hard. 
 
Personal insolvencies also reached the highest numbers for three years, with 118,850 registered in 2022, as the cost-of-living crisis and falling real wages hit personal prices. Despite this, 2022 saw the lowest level of personal bankruptcies since 1982, with the continuation of the downward trend experienced since the financial crisis in 2009. 
 
The continued cost of living crisis led to seven different trade unions and hundreds of thousands of workers striking on Wednesday, in separate disputes over pay, jobs and conditions. The day dubbed ‘Walkout Wednesday’ was the biggest day of industrial action in more than a decade and included teachers, train drivers and civil servants alongside others. The strikes follow controversial government plans for a new law on minimum service levels during strikes.
 
Union bosses continue to argue for higher pay rises to combat record inflation and real-term wage cuts over the previous decade. However, ministers continue to insist that introducing pay rises above inflation would further fuel inflation and would have larger negative effects on the economy as a whole. The government insist that lowering inflation will be beneficial for everyone, and they have named it as the government’s top priority.
 
Bradford-headquartered supermarket chain Morrisons reported a fall in group like-for-like sales of 4.2% in the 2021/2022 full year of trading. It also reported a 15% decline in EBITDA to £828m, despite an increase of 2.2% in total revenue to £18.4bn. The report added that it had achieved improved sales momentum towards the end of the reporting period, and the successful acquisition of the McColl’s chain has delivered a leading position in the convenience marketplace. However, Morrisons warns that higher food price inflation, rising interest rates, supply chain disruption and subsequent cost of living crisis have provided a difficult period for consumers and the business itself. 
 
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