1 © European Bank for Reconstruction and Development 2010 | April 23, 2012 Cairo, Egypt Economic Challenges for the Trade Finance Market in Egypt Heike Harmgart Senior Regional Economist EBRD

Egypt: Dire Macroeconomic Outlook The turmoil in Egypt has had a severe impact on the economy: Contraction of GDP by about 0.6 per cent in 2011 –Sharp declines in tourism and industrial production Severe capital flight instigates balance of payments difficulties –Depletion of reserves ($15.1 billion at end-March) to defend currency –Continued outflow of capital amid political uncertainty Fiscal pressures have risen –Increases in subsidies bill and other social spending –Cost of government borrowing has increased Weaker trade flows and financing in wake of turmoil

Egypt: Growth collapses in 2011 percent, y-o-y, quarterly data

Egypt: Sharp fall in economic activity; Recovery pending political stabilization thousands, seasonally adjusted Tourist Arrivals per cent change, y-o-y, s.a. Industrial Production

Egypt: Substantial Capital Flight in 2011 US$ billionLE billion Foreign Direct InvestmentForeign Holdings of Treasury Bills

Egypt: On a more positive note… US$ billionUS$ million RemittancesSuez Canal Receipts

Egypt: Recent pick up in bank lending percent change, y-o-y Credit to the Private Sector

Egypt: Reserves depleted to defend currency US$ billion 4% depreciation Foreign Exchange Reserves US$ billion Foreign Exchange Reserves

Egypt: Significant rise in gov’t borrowing costs percent

Egypt: Weak domestic demand subdued inflation Consumer Prices percent change, y-o-y

Egypt: Fiscal pressures due to subsidy bill per cent of total Breakdown of Expenditures per cent of GDP Fiscal Deficit 2011/12 budget 2006/07 budget Subsidies, grants, and social benefits 33% 27%

Egypt: Government Debt—External & Domestic* LE billion * Domestic debt excludes borrowing from the Social Insurance Fund for gov’t employees and those from public and private business per cent of GDP

Egypt: Current Account and Trade Balances LE billion * Domestic debt excludes borrowing from the Social Insurance Fund for gov’t employees and those from public and private business

Egypt: Main Trading Partners per cent of total, Jan-Nov 2011 Imports by Destination per cent of total, Jan-Nov 2011 Exports by Destination Euro Area Italy-6.7% Germany-5.9% U.S.-11.9% 14.5% Dev. Asia-10.3% China 12.8% Turkey-5.1% MENA-8.7% GCC-5.3% Other 14.3% Saudi Arabia 4.5% Euro Area Italy-10.6% France-5.4% U.S.-6.5% 19.8% Dev. Asia-13.6% Turkey-4.2% MENA-20.8% GCC-4.6% Libya-4.7% Saudi Arabia-6.0% Other-14.3%

Egypt: Macro Impact on Trade Finance Turmoil in the past year has had significant impact on trade flows and trade financing: –Reduction in overall credit supplied by banks  Prioritization of certain imports over others (e.g. oil/commodities over consumer goods)  Credit crunch faced by SMEs/local companies as banks turn focus on bigger, well-established entities  Increase in inflation as imports become more expensive –Shortening of payment cycles as suppliers no longer comfortable with extending longer repayment options

Thank you! Contact details: Heike Harmgart