REPORT| Egypt fared better than Nigeria in dealing with similar economic challenges

A recent Bloomberg analysis compared how Egypt and Nigeria, two of Africa’s largest economies, dealt with similar economic hurdles, and found Egypt fared better.

Egypt is on track to successfully implement the first phase of its economic reform programme, according to business news source Bloomberg.

Bloomberg recently reported the results of an analysis it conducted, asserting that Egypt’s economy is starting to reap the economic benefits of flotating of the currency more than three years ago, while Nigeria — which took a different path when faced with similar problems — is still struggling.

In its analytical comparison, Bloomberg said that the inflation gap is a reminder to Nigeria that Egypt got it right, adding that Egypt’s economy is growing around twice as fast as Nigeria’s.

“Inflation in Egypt, Africa’s third-biggest economy, slowed to single digits for the first time since the pound was floated in late 2016. It had rocketed as high as 33 percent soon after. President Abdel-Fattah El-Sisi’s administration said a devaluation was needed to ease severe shortages of foreign exchange and get a $12 billion loan from the International Monetary Fund,” Bloomberg stated.

It added that though the decision was painful for Egyptians, it turned the Arab nation into a favourite of bond and carry traders. And it set Egypt apart from Nigeria.

Nigeria, Africa’s biggest oil producer, was also suffering from a dollar squeeze, but opted instead to keep a tight grip on its currency via a system of multiple exchange rates and import restrictions.

Foreign currency in the west African country is no longer scarce, but the inflation rate was 11.2 percent in June — one of the highest levels on the continent — and has been above the central bank’s target of 6-9 percent for four years.

In contrast, Egypt made significant strides to revive its economy and to pave the way to a healthier, stronger business and investment climate through the measures it applied under its economic reform programme.

The Egyptian government’s efforts resulted in more economic growth and an inflation rate downturn, albeit with a painful impact on citizens as prices of goods and services hiked.

Tracking inflation rates in Egypt from 2014 to 2019 revealed that it reached its highest level in 2017 at 23.54 percent, began to fell slightly in 2015 to reach 20.68 percent, and declined to 14.53 percent in 2019.

The glogal data forum Statista projected in its outlook for Egypt that the inflation rate would reach 12.27 percent in 2020 and drop to 6.92 percent by 2024.

Decode Economic and Financial Consulting, as well, projected that Egypt’s inflation rate would temper gradually with fiscal consolidation and public investments that boost the productive capacity of the economy, expecting it to drop to 11.7 percent in FY 2019/2020 before reaching single digits at 9.4 percent and nine percent in FY 2020/2021 and FY 2021/2022 respectively.

Bloomberg further forecast that Egypt’s output would expand by 5.5 percent in 2019, more than twice Nigeria’s and the strongest gain among Middle Eastern nations.

The report said that portfolio flows into Egypt soared following the devaluation and the start of IMF-supported reforms, which included cutting subsidies that soaked up much of the national budget.

Egypt attracted more foreign direct investment last year than anywhere else in Africa, according to the UN.

On the other hand, Nigeria has attracted hot money by keeping bond yields high and pledging not to let the naira weaken, but foreign direct investment has decreased sharply.