Egypt’s inflation drop ‘shows spending levels still low’

Woman leaves a clothing shop showing items for sale in Cairo, Egypt. The country's inflation dropped sharply in December. (Reuters)
Updated 13 January 2018
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Egypt’s inflation drop ‘shows spending levels still low’

CAIRO: Egypt’s inflation dropped sharply in December, the latest apparent indication of economic improvement after the 2016 currency float hit Egyptians hard.
Economists say, however, it may just be showing that spending power has yet to recover.
Prices climbed to record highs and the Egyptian pound lost half its value after the central bank floated it in November 2016 in a bid to secure a $12 billion International Monetary Fund loan to boost economic growth after years of turmoil.
With the pound at about 17.7 to the US dollar from a pegged 8.8 before the float, Egyptians have had to amend their spending habits to deal with their incomes and savings being slashed in half.
Urban consumer inflation eased to 21.9 percent in December from 26 percent the previous month, its lowest reading since the flotation, official data showed earlier this week.
Core inflation, stripping out volatile items such as food, fell to 19.86 percent from 25.53 percent.
Since the float, Egyptian exports have found new markets, narrowing the country’s trade deficit, and foreign reserves and foreign direct investment have surged to record highs.
But economists say the inflation drop is the result of a strong base effect, and not necessarily a meaningful economic recovery.
“After November 2016, you were comparing to the high rates of the post-flotation period, but in December, you had a strong base effect,” said senior economist at Beltone Financial Alia Mamdouh.
Monthly headline inflation contracted for the first time in two years in December due to a decline in the prices of poultry, meat and some vegetables and beans, data showed.
“The reduction may signal that the spending level has not fully recovered, especially because seasonal demand usually drives rates up,” Mamdouh said.
“We had expected a monthly rate of 0.5-0.7, but instead everything was flat except for food prices, of which some went down.”
Food producers said they wished to raise prices to maintain profitability, but are unable to because the market cannot absorb any more price hikes.
“We would like to raise the prices but the market isn’t favorable to that right now,” said Hani Berzi, the chairman of Edita Food Industries, one of the country’s largest food producers.
Retailers have also had to reduce prices of some foods like poultry and meat to lure back shoppers driven away by hikes.
“People don’t buy anymore,” said Ismail Gamal, the owner of a poultry shop in Nasr City. “We’re afraid we’ll go out of business if we don’t reduce prices.”
Economists say purchasing power could take three to four years to recover from the shock of the flotation.
“Segments of society have shifted from meat to cheese as a source of protein, this is what inflation did to consumers,” said Noaman Khalid, CI Capital Asset Management economist.
He said a complete economic cycle that includes business recovery and increased wages is necessary before purchasing power returns to pre-float levels and a healthy inflation rate is seen.
Egypt’s central bank has raised key interest rates by 700 basis points since it floated the pound to battle soaring inflation. Economists expect it to start cutting the rates in their upcoming monetary policy meeting, set for Feb. 15.


Saudi Aramco aims to buy controlling stake in SABIC: Sources

Updated 23 July 2018
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Saudi Aramco aims to buy controlling stake in SABIC: Sources

  • Riyadh-listed SABIC, the world’s fourth-biggest petrochemicals firm, has a market capitalization of 385.2 billion Saudi riyals
  • The potential acquisition would affect the time frame of Aramco’s planned initial public offering set for later this year

DUBAI: Saudi Aramco aims to buy a controlling stake in petrochemical maker SABIC, possibly taking the entire 70 percent stake owned by Saudi Arabia’s sovereign wealth fund, two sources familiar with the matter told Reuters.
Late last week Aramco confirmed a Reuters report that it was working on a possible purchase of a “strategic stake” in Saudi Basic Industries Corp. (SABIC) from the Public Investment Fund, the kingdom’s top sovereign wealth fund.
Aramco’s initial thinking is to buy the full stake owned by the Public Investment Fund (PIF), but if that fails to materialize Aramco could end up with a stake in SABIC of more than 50 percent, making it a majority owner, the sources said.
No final decision has been made on the size of the stake as the discussions are still at a very early stage, they added.
Aramco declined to comment. The PIF did not respond to a Reuters request for comment.
Riyadh-listed SABIC, the world’s fourth-biggest petrochemicals firm, has a market capitalization of 385.2 billion Saudi riyals ($103 billion).
The potential acquisition would affect the time frame of Aramco’s planned initial public offering set for later this year, the state oil giant’s chief executive, Amin Nasser, said in a TV interview on Friday.
Aramco plans to boost investments in refining and petrochemicals to secure new markets and sees growth in chemicals as central to its downstream strategy to cut the risk of an oil demand slowdown.
Aramco plans to raise its refining capacity to between 8 million and 10 million barrels per day, from around 5 million bpd now, and double its petrochemicals production by 2030.
Aramco, the world’s largest oil producer, pumps around 10 million bpd of crude oil.