Egypt’s Unsettled Canal Excavation

Egyptian shares rallied further on Gulf and foreign buying with the MSCI index ahead 35 percent as President El-Sisi initiated a second Suez Canal project which according to projections may eventually triple revenues from the current $5 billion, up 5 percent in the first half. The first phase will be funded by 5-year retail certificates with an annual 12 percent yield, as competing long-term government bond auctions were put on hold pending the debut. The channel will be constructed next to the exiting passage and is a showcase venture highlighted by the administration as it dusts off Mubarak-era blueprints and prepares for presentations at a year-end donor conference that may feature a renewed IMF loan request. To facilitate reception the government has borrowed $1.5 billion from a local bank consortium to repay one-quarter of international oil bills and has consulted with a wide range of economic experts under a private sector outreach led by UAE advisers. The double-digit electricity and diesel price hikes accompanying subsidy change have been initially absorbed with minimal protest, although the security forces have been a conspicuous presence with charges against ex-President Mursi and his main followers proceeding in closed trials. He has been accused of treason by allying with Qatar and Muslim Brotherhood sympathizers are on hunger strike in a last-ditch attempt to spotlight prison conditions and forestall harsh sentences. Inflation spurted to 11 percent with the utility increases but business has reacted through a PMI reading over 50 for the first time in the El-Sisi reign. GDP growth may improve marginally to 3 percent this fiscal year as the deficit repeats at 10 percent of output, according to consensus estimates. The medium-term goal is to double growth and halve the deficit, with revival of tourism, off 25 percent to $3 billion in the first half, also key to restoring previous Mideast “tiger” status which attracted foreign direct and portfolio inflows. In a positive sign M&A activity has jumped from a low base to represent one-quarter the $15 billion regional total through September. Market capitalization on the Cairo exchange hit $70 billion and may further rise with IPOs and the Nilex second board may soon expand its $200 million size with small company listings under consideration, representatives claim.

The leadership is setting the groundwork for parliamentary elections and has also won diplomatic praise for brokering a lasting cease-fire between Israel and Hamas after weeks of Gaza Strip battles. The border crossing remains shut to prevent smuggling and fighter penetration as the relationship with the Netanyahu administration is under general review while the bilateral peace accord is honored. Israeli shares have corrected across the board as the indefinite damage from the conflict translates into lower growth and currency value and a higher budget deficit and inflation. Tourism representing 7 percent of GDP has disappeared and the benchmark interest rate is near zero with the shekel needing an unaccustomed post-2008 prod on new crisis appreciation.