On Monday Egypt’s Investment Minister said that the country’s economic growth is expected to reach 4.2 – 4.5% in the second half of the current fiscal year. There has been encouraging news on the economic front recently. Italy’s Eni also announced on Monday that its production of oil in western Egypt had reached a record high. And on Sunday Indian petrochemicals group Sanmar declared that it will invest $350 million to expand its Egypt plant, raising its total investment in the country to $1.45 billion.
While Egypt does not have anywhere near the same hydrocarbon resources as other major Middle East players, it is nevertheless Africa’s largest non-OPEC oil producer and the continent’s second-largest dry natural gas producer after Algeria. Egypt is the most populous Arab country with 80 million people, and its growing domestic demand has outpaced its energy production, making it unlikely that Egypt will become a net energy exporter anytime in the foreseeable future.
But supplying Egypt’s domestic market is still a significant draw for Eni, which signed a framework in March for investing up to $5 billion in the country’s oil and gas sector. Planned over the next four years, the investments are targeting the development of 200 million barrels of oil and 1.3 trillion cubic feet of natural gas. (The government has also helped increase the sector’s attractiveness by agreeing to cover at least $2 billion collectively owed to a group of operators.)
Eni is already the market leader in Egypt’s upstream oil sector, with an equity production of approximately 210,000 barrels of oil equivalent per day. That number will rise though, since the company revealed on Monday that it is producing around 70,000 barrels of oil per day from the western desert region, double the level from three years ago. And there is still considerable upside— exploration activities for deep plays in the same concession block will begin within the year.
The country’s economic picture is far from rosy, however. In the four years after Mubarak’s ouster, Egypt has experienced much political and economic turmoil, and the negative effects have been compounded by slow global growth and demand. The military-installed President, Abdel Fattah Al-Sisi, has brought more stability and pro-business policies since taking power in July 2013, but Egypt is still in constant crisis-management mode. On Sunday the government announced that it felt obliged to introduce tariffs on imported steel and sugar to help its domestic producers combat foreign dumping. Like many other Egyptian firms, steel companies have been pressured by increased energy costs (following long-overdue cuts of the government’s fuel subsidies) and chronic shortages that have taken a toll on output and profitability.
The Egypt Economic Development Conference was held in Sharm el-Sheikh in mid-March, and was a potential game-changer. It led to some 40 agreements and memoranda of understanding being signed in the electricity, energy, housing, telecommunications, and oil sectors. “The initial estimate for the total investments that have been agreed upon is $60 billion, including $18.6 billion on funded projects,” said Prime Minister Ibrahim Mehleb.
Yet the violent jihadist insurgency in Sinai rages on, as does the civil war in neighboring Libya. Security concerns are likely to be a major hindrance for foreign investors, including in the highly ambitious industrial zone by the Suez Canal that the government wants to build. Still, if Sisi can facilitate tangible economic benefits to Egypt in this perilous environment, it will be no small achievement.