HSBC Global Connections Report

October 2013

Egypt

Egypts GDP growth was HSBCs Trade Confidence Index fell sharply to 111,
reflecting the impact of the military intervention to
estimated at just 1.4% in oustthe countrys president.

2012/13 rising modestly to Over the medium-term, there are potentially

substantial opportunities for businesses in the areas
2.5% in 2013/14, which is of industrial machinery including power, transport
equipment and petrochemicals.
well below the growth rates Asia will become an ever more important trading

of 2000-10. Egypt has been partner for Egypt, though the West and Middle East
will also be important partners.
heavily impacted by political Top five export destinations*
and economic crisis since the Rank 2011 2030
ousting of President Mubarak 1 India India

in February 2011. The country 2 Saudi China

remains in turmoil with a 3 USA Saudi

4 Turkey Turkey
significant risk of a serious 5 France Japan
escalation in the violence.
Real exports are forecast to grow by just 0.8% in 2013
after a 2.3% decline in 2012 reflecting the continued
impact of the political turmoil on the economy and
consequent lack of economic policy reform. Our forecast
assumes a modest pick-up in export growth to 4.2%
in2014.

Forecast data modelled by Oxford Economics,

based on HSBC Global Research macro data.
*The table considers goods exports between
the 23 countries in the sample.
 Equipping
for growth

Why infrastructure is important

Infrastructure industries as defined by intermediate
goods for infrastructure and investment equipment
required by businesses to boost production are
important as they contribute to an economys
productive capacity.

The share of infrastructure goods in total merchandise The investment countries are making in infrastructure
exports is currently around a third and expected to is phenomenal and provides a huge opportunity for
rise to about 40% by 2020. Most of this increase in businesses looking to grow and develop.
share will reflect strength in exports of intermediate
infrastructure goods, which currently account for about Rising middle classes across Asias rapidly emerging
three quarters of the total. Intermediate infrastructure markets will drive significant infrastructure demand
goods include mineral manufactures and non-ferrous in the region. As China looks to scale the value chain
metals. The share of infrastructure goods in imports in terms of the goods it manufactures, there is a
is lower at around 30%. This share is also expected strong opportunity for developed economies to
to rise, but more moderately, to around 35%. Both supply sophisticated investment equipment to the
sub-components will increase their share. Imports of countrys producers.
industrial machinery, transport equipment, and iron and
steel and minerals manufactures will all show significant We expect infrastructure-related goods to increase
growth over the forecast period. their share of rising global trade, providing strong
opportunities across both developed and emerging
Equipping for growth economies for exporters and importers of those
% year Growth 2013-30 goods and the merchandise that can be manufactured
as a result.
12%

10% James Emmett

8%
HSBC Global Head of Trade and Receivables Finance

6%

4%

2%

0%

Exports Imports

Goods for infrastructure Investment equipment Total goods trade

Total imports and exports are the sum of imports and exports from the modelled countries

Forecast data modelled by Oxford Economics,

based on HSBC Global Research macro data.
 Short-term snapshot

Real exports are forecast to grow just 0.8% in 2013 after a 2.3%
decline in 2012 reflecting the continued impact of the political turmoil
on the economy and the lack of economic policy reform. If the situation
stabilises it could help to relieve the pressure on the currency and allow
amodest pick-up in export growth to 4.2% in 2014.

HSBC Trade Confidence Index

The HSBC TCI fell sharply to 111 in H1 2013 from 126 Corridors of choice
in H2 2012, which had represented a recovery from
the 105 level previously recorded. This latest downturn The share of infrastructure goods in total
reflects the impact of the military intervention to oust merchandise exports is around one third. Around
the countrys first democratically elected president three-quarters of these goods are intermediate
which has led to further mass demonstrations by both goods for infrastructure.
sides ofthe political divide.
These include mineral manufactures and
140 non-ferrous metals. The share of investment
equipment at some 7% of exports is low,
reflecting the underdevelopment and lack of
sophistication of the industrial base.
120
The share of infrastructure goods in total
Positive merchandise imports is lower at around 30%,
with the share of investment equipment slightly
100 Neutral larger than that for intermediate goods for
infrastructure.
Negative
Greater China is the most promising region
80 for trade for all three specified sectors:
manufacturing, wholesale and retail trade, and
1H11 2H11 1H12 2H12 1H13
construction. Central and Eastern Europe came
Source: HSBC TCI data
topin the others category.
Cross border business
Greater China is the most promising region for Egyptian
traders in the next six months as cited by 21% of Opportunities for business
respondents, despite significant drops from the previous A young and growing population and a much neglected
HSBC Trade Confidence Index and year-earlier result. infrastructure suggest the possibility of an acceleration
This decline mainly reflects the slowing of economic in growth, which would potentially create significant
activity in China. opportunities for both exporters and importers.
For example, plans to boost power generation and
Region to region trade transmission will require the import of machinery and
equipment. And when the Tahrir Petrochemicals complex,
100%
the biggest project in Egypt right now, is completed, the
production of chemicals for export will increase.
80%

60%

40%

20%

0%

Asia Europe North Middle East Latin

America and North Africa America

Forecast data modelled by Oxford Economics,

based on HSBC Global Research macro data.
 Long-term outlook

The continued outperformance of emerging markets and in particular

fast growing countries in Asia will ensure that such countries will largely
dominate the list of the most dynamic export destinations for Egypt.
Even so, the advanced nations of Europe, the USA and Japan will
remain important trading partners in terms of absolute size.

Corridors to watch
By region, Asia (excluding Japan) is expected to show
the fastest growth in the period 2016-20. Latin America
and then the Middle East and North Africa will be the
next fastest growing export regions during this period.
On a bilateral basis, by 2021-30 the fastest growing
export destinations will be Vietnam (12% pa), China
(11% pa), India (11% pa) and Malaysia (11% pa). By 2030,
Egypts top export destinations in terms of value will be
India, China, Saudi Arabia and Turkey. After unclassified
goods, the most important export sectors by 2030 will
be mineral manufactures, chemicals and petroleum
products. The top four fastest growing import sources by
2021-30 will also all be in Asia. They are Vietnam (12%
pa), India (12% pa), Bangladesh (11% pa) and China (11%
pa). By 2030, industrial machinery will have overtaken
petroleum products as the leading import sector. Iron and
steel will be the third most important import sector.
Sector contribution to increase
in merchandise exports
100%
Focus on infrastructure
By 2020, the share of exports accounted for
by infrastructure goods is forecast to grow to
some40%.
This mainly reflects an increase in intermediate
goods for infrastructure, notably for mineral
manufactures and nonferrous metals. Growth in
imports of investment equipment will be slower
at around 5% pa for industrial machinery.
The import share accounted for by
infrastructure goods will grow more modestly,
toaround 35%. Both sub-components will
increase their share, although the increase is
slightly greater for infrastructure equipment.
Industrial machinery, transport equipment,
ironand steel and minerals manufactures will
showsignificant growth in imports over the
forecast period.

80%
Conclusion
The Egyptian economy has the potential to strengthen
over the forecast period provided the political situation
60% is settled and economic reforms are implemented. As
a consequence there should be plenty of opportunities
40% for exporters and importers in areas from industrial
machinery and transport equipment, through metal
manufacturing and chemicals.
20%

0%

2013-15 2016-20 2021-30

Food & animals Mineral fuels Machinery & transport

Beverages & tobacco Chemicals Other
Raw materials Manufactures

Source: Oxford Economics

Forecast data modelled by Oxford Economics,

based on HSBC Global Research macro data.
About the data:
About the HSBC Global Connections Report
Modelled by Oxford Economics:
Oxford Economics has tailored a unique service for HSBC which
forecasts bilateral trade for total exports/imports of goods, based
on HSBCs own analysis and forecasts of the world economy,
to generate a full bilateral set of trade flows for total imports and
exports of goods and balances between 180 pairs of countries.
Oxford Economics produces a global report for HSBC, plus regional
reports and country specific reports on the following 23 countries:
Hong Kong, China, Australia, Indonesia, Malaysia, India, Singapore,
Vietnam, Bangladesh, Canada, USA, Brazil, Mexico, Argentina,
UK, France, Turkey, Germany, Poland, Ireland, UAE, Saudi Arabia,
andEgypt.
Oxford Economics employs a global modelling framework that
ensures full consistency between all economies, in part driven
by trade linkages. The forecasts take into account factors such
as the rate of demand growth in the destination market and the
exporters competitiveness. Exports, imports and trade balances
are identified with both historical estimates and forecasts for the
periods 201315, 201620 and 202130.
The model looks at two-digit classifications from the COMTRADE
database, grouped into a set of thirty headings. The sector data
has been tracked by country, to give an insight into the primary
drivers of trade between the 25 countries and territories in the
sample. The sector data has been calculated to show growth
as apercentage of the overall contribution to growth, to ensure
that the model highlights the sectors which are representing the
biggest drivers of growth. More information about the sector
modelling canbe found on: www.globalconnections.hsbc.com
Oxford Economics formerly Oxford Economic Forecasting
wasfounded in 1981 to provide independent forecasting and analysis,
tailored to the needs of economists and planners in government
and business. It is now one of the worlds leading providers of
economic analysis, advice and models, with over 500 clients. Oxford
Economics commands a high degree of professional and technical
expertise, both in its own staff of over 70 professionals based in
Oxford, London, Belfast, Paris, UAE, Singapore, Philadelphia and
New York, and through its close links with Oxford University and
arange ofpartner institutions in Europe and the USA.
About the HSBC Trade Confidence Index:
The HSBC Trade Confidence Index is conducted by TNS on
behalf of HSBC in a total of 20 markets, and is the largest trade
confidence survey globally. The current survey comprises six-
month views of 5,800 exporters, importers and traders from small
and mid-market enterprises on: trade volume, buyer and supplier
risks, the need for trade finance, access to trade finance and the
impact of foreign exchange on their businesses. The fieldwork for
the current survey was conducted between May June 2013 and
gauges sentiment and expectations on trade activity and business
growth in the next six months.
Equipping for growth Methodology:
This report looks at the key industry sectors that contribute to an
economys productive capacity. This will include not only trade in
the intermediate goods required for infrastructure projects, but
alsotrade in the investment equipment required by businesses
toboost production.
It collects key investment-related sub-sectors into two groups,
defined as intermediate goods for infrastructure and investment
equipment. As the sectoral trade forecasts are based on the
UNs Standard International Trade Classifications at the two-digit
level, this does present some issues in accurately defining the
sub-sectors that contribute to investment, due to broad sectoral
definitions.
Intermediate goods for infrastructure:
66 Non-metallic mineral manufactures
67 Iron and steel
68 Non-ferrous metals
69 Manufactures of metals
76 Telecoms equipment
81 Prefabricated buildings
79 Other transport equipment
Investment equipment:
71 Power-generating machinery and equipment
72 Machinery specialised for particular industries
73 Metalworking machinery
74 General industrial machinery and equipment
75 Office machines and automatic data-processing machines
77 Electrical machinery, apparatus and appliances
87 Professional and scientific instruments

Based on the same underlying forecasts used for the existing

analysis of trends in bilateral trade flows, the report examines how
exports/imports of these two aggregates are expected to evolve
over time. The import forecasts for these aggregates will be linked
to the underlying investment requirements of the economy, while
the export forecasts will be linked to the economys ability to
produce the investment goods required by other nations.

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