INTERVIEW: Global Inflationary Wave Impacted Egypt’s Non-Oil Sector

Hit by cascading crises, Egypt’s latest Purchasing Managers’ Index (PMI) showed that the country’s non-oil business sector was noticeably impacted by global inflationary pressures, Economist at Standards and Poor’s’ (S&P Global) Market Intelligence Department David Owen told Ahram Online (AO).

Egypt’s latest PMI report — which was released in June by S&P — rose slightly in May to 47, up from April’s 46.9, signalling a deterioration in the health of the sector and marking the 18th consecutive month of decline in operating conditions.

The country is currently facing the fallout of the Russian-Ukrainian War, the impacts of the global inflationary wave, rising food and energy prices, along with the already existing repercussions of the COVID-19 pandemic.

“Rising food, material, and energy prices — largely as a consequence of the war in Ukraine — led to a marked rise in purchasing costs across the sector, and often dissuaded client spending as consumer prices and living costs climbed higher,” Owen explained to AO.

The fall in overall new business volumes was the sharpest seen in nearly two years during May, translating into a further contraction in business activity. Moreover, supply chain disruptions continued, with several firms commenting on material shortages and shipping delays as a result of the pandemic and the war,” he added.

According to the latest figures announced by the Central Agency for Public Mobilisation and Statistics (CAPMAS), Egypt’s headline inflation recorded a three-year high of 13.5 percent in May, compared to 13.1 percent in April

. According to the S&P report, the outlook for future business activity in the non-oil sector dropped to the second lowest on record in May since April 2012, having reached an all-time low in March.

While businesses remained positive that output will rise over the next 12 months, there were increased concerns that inflationary pressures will limit growth,” said the report.

Owen explained that Egypt’s headline PMI rose fractionally from 46.9 in April to 47 in May but was still below the 50-point mark that separates growth from contraction, thus signalling an overall deterioration in non-oil business conditions.

“Despite improving for the second month running, the latest reading was still the third lowest recorded since June 2020.

The PMI is calculated from five sub-indices — output, new orders, employment, suppliers’ delivery times, and stocks of purchases. Of these, the new orders sub-index has the largest weighting (30 percent) followed by output (25 percent).”

He added that the output sub-index recorded in May the second-quickest deterioration in non-oil activity in almost two years, which panellists linked to lower sales, rising cost pressures, and reduced spending on inputs.

“With conditions deteriorating, business confidence fell back to the second lowest on record in May, signalling only mild optimism of a rise in activity over the coming year,” Owen said.

Egypt seeks to grant the private sector a greater role to play in the country’s economic activities.

To that end, the Cabinet launched the State Ownership Policy Document in June, which charts a roadmap for expanding the private sector’s role in a number of economic activities in the Egyptian market going forward through various types of ownership and contracting.

Meanwhile, Egypt’s non-oil exports rose significantly in the first quarter (1Q) of 2022 to post $9.2 billion, up from 1Q 2021’s $7.7 billion a growth of 20 percent according to the Ministry of Trade and Industry.