Construction in Egypt appears as much a historical constant as a daily routine. Building has never ceased, whether to create awe-inspiring temples to honour the gods of the Pharaohs during the golden ages or castles to satisfy Mamluk warlords who were rarely at peace.
Even the economic crisis has not posed an insurmountable challenge for construction. The year 2010 has begun with an optimistic growth trend, supported by economic reports that seem to have bolstered market confidence, while the Egyptian Stock Exchange (EGX) records higher gains than other regional markets.
In its latest report, EFG-Hermes raised its growth forecast for this year from 4.5% to 4.8%, reflecting greater optimism than in earlier projections. The report attributes this improved outlook partly to the construction sector’s positive impact on growth, driven by the government’s sustained focus on infrastructure projects.
A report by the Egyptian cabinet notes that the annual GDP growth rate rose to 5.1% in the October–December quarter, up from 4.9% in the preceding quarter. The report attributes this growth to significant advancements in key sectors such as hospitality (13.1%), communication and IT (12.8%), and construction (11.5%).
At a round-table conference organised by the Economist Intelligence Unit on 15 February, Finance Minister Youssef Boutros Ghali announced plans for additional public projects to boost government spending on investment. These efforts are part of the government’s strategy to stimulate the domestic economy and push growth rates above the 5% threshold. Ghali also noted the goal of attracting investments worth LE20–25 billion for these projects over the next five years.
In its most recent infrastructure report on Egypt, Business Monitor International (BMI) highlighted the importance of power sector investments, particularly noting the World Bank’s involvement.
Last October, the World Bank announced a LE3.4 billion (US$624 million) funding package for the government’s planned power plant in North Giza. Additionally, the bank has already provided US$50 million to fund Egypt’s first solar power plant in Koraymat, demonstrating the country’s expanding renewable energy capabilities.
Dr Ahmad Mattar, chairman of the Arab Union for Real Estate Development (AURD), emphasised the demographic factor as a key driver of construction growth.
‘There’s a real and growing demand for housing due to the 2.1% annual population growth in Egypt, which adds an extra 1.4 million people each year, requiring 600,000 new housing units,’ he explained.
Mattar also noted that over the past fifty years, investing and saving in real estate has consistently outperformed risk-laden stock markets and banks that struggle to keep pace with inflation.
Another factor, according to Mattar, is the rise in oil prices, particularly in the Arab region, where construction often serves as a channel to absorb surplus market liquidity.
‘The cultural significance of property ownership is another reason for this growth,’ he added, referring to the broader Arab world, where construction and real estate contribute approximately 18% to GDP. Mattar also cited the popular folkloric song Awaad Sold His Land, which underscores the deep social value placed on land ownership.
Amr Soliman, managing director of Mountain View Egypt, also highlighted the demographic factor as a key driver of construction growth, noting that demand has never been fully met. He pointed to Egypt’s newly constructed cities as another important contributor to this growth.
The Spending Game: Stimulus Packages and PPP
In a healthy developing economy, the government’s role is to establish reliable infrastructure for growth. Investors are expected to seize these opportunities, while citizens seek better lives, including access to proper housing—or, in some cases, any shelter at all.
Ideally, the government’s responsibility is to provide both builders and consumers with a strong foundation that fosters economic growth and improves the lives of individuals. This includes ensuring homes have access to water and sewage systems, power plants, and transportation, alongside other essential services.
Recently, the government has been investing in these sectors while also modernising and expanding airports, seaports, and road networks.
The stimulus packages and the Public-Private Partnership (PPP) model have emerged as key strategies for mitigating the domestic effects of the economic crisis.
A financial report by Beltone offers a socially oriented analysis of 2009, shedding light on potential trends for 2010. As expected, the report highlights the fiscal stimulus packages—totalling LE33 billion—implemented by the government during FY08/09 and FY09/10. These measures have boosted domestic demand, contributing to economic growth.
At the same round-table conference, Finance Minister Youssef Boutros Ghali announced that the coming period would see an increase in public projects under the PPP strategy. He assured that this approach would not adversely affect public deficit levels or debt, as the public treasury would manage repayments over the long term.
Amr Soliman praised the PPP strategy, stating: ‘The government should act as a regulator, and it will undoubtedly succeed, similar to what happened in Morocco, where the private sector grew and supported the government.’
Dr Ahmed Anees, former director of the Center for Real Estate Evaluation Experts at Cairo University, expressed scepticism about the novelty of this approach. ‘This is a standard global policy during recessions, not unique to Egypt. Investing in infrastructure is the most common solution because it creates jobs and expands public utilities to support growth,’ he explained.
Dr Ahmad Mattar, however, criticised the size of the announced stimulus packages, stating: ‘The packages are relatively insufficient for a real estate market worth LE1 trillion.’
Tourism: Always a Catalyst for Construction
Egypt has long been one of the world’s most popular vacation destinations. Americans, Europeans, and Arabs continue to favour it for varying reasons—whether for its exotic allure, affordability, or, in the case of Arab nationals, shared language and cultural familiarity.
Construction activity along Egypt’s Mediterranean and Red Sea coasts remains robust, driven by both local and foreign investors aiming to meet potential tourist demand.
As long as Egypt maintains its appeal as an attractive destination, tourism will remain a core driver of construction, fostering the development of hotels, resorts, and the necessary infrastructure.
The year 2008 was a golden one for the tourism sector, with 12.8 million visitors choosing to enjoy Egypt. Tourism revenue rose by 32%, reaching US$11 billion—approximately 7% of GDP and 19% of the year’s foreign exchange earnings.
Dr Ahmed Anees strongly believes in the relationship between tourism and construction. ‘Most projects are tourism-oriented, as it is almost the only viable option for investors. This is due to its strong correlation with tourism demand, while other construction sectors are largely dominated by the government,’ he explains.
Not an Isolated Island: The Feeding Industries
Growth in the construction sector and real estate market naturally increases demand for the inputs that drive these industries. This often leads to higher supply, increased prices, or, more commonly, a combination of both.
The cement industry is among the most closely linked to construction, alongside steel and other essential materials.
At the World Economic Forum in Davos, Trade and Industry Minister Rasheed Mohamed Rasheed announced that Egypt would issue draft permits for eight new cement plants. Rasheed expressed hope that these plants would begin production by 2014 or 2015 to meet surging local demand, which rose by 16% in 2009.
According to Reuters, Rasheed stated: ‘We’ll issue eight draft permits, each with a capacity to produce 1.5 million tonnes of cement, as expected in the first half of this year.’
Meanwhile, local media reported that two major cement companies, Suez and Amreya, planned to raise prices by LE22 per tonne, bringing the cost to LE455. However, following a government warning, both companies reversed their decisions.
Rasheed’s legal advisor, Hisham Ragab, confirmed this development: ‘Both Suez Cement and Amreya have announced they are retreating from the decision to increase prices in response to a government warning.’
In the steel sector, the situation is more complex, marked by a heated conflict between local producers, who seek government protection, and importers, who argue that locally produced steel is overpriced.
Demand for steel has surged alongside construction growth, but local production has been unable to fully meet this demand. This prompted the government to reject requests for protectionist measures against steel imports, particularly from Turkish and Ukrainian producers, whose prices are LE200 cheaper per tonne.
The tension escalated when some local investors filed flooding claims against Turkish steel, the primary import.
The construction industry’s relationship with feeding industries extends beyond cement and steel to include a wide range of related sectors.
Dr Ahmad Mattar emphasises the positive impact: ‘Construction drives the growth of 96 industries, starting with cement and steel and ending with electric cables and water tanks.’
Amr Soliman also acknowledges the interplay, predicting both price increases and growth in construction feeding industries. ‘Growth in any case is good, but the government must maintain balance,’ he notes.
A Real Estate Haven?
For a country like Egypt, with a population exceeding 80 million and a long history of urban development, the real estate market should naturally be vast.
The Middle East and North Africa Financial Network (MENAFN) reported in a press release that Egypt’s total real estate wealth is valued at LE1 trillion (US$270 billion), encompassing residential, commercial, and administrative buildings.
This immense asset base highlights the need for a robust and active mortgage market to complement such a significant sector. Yet, the current mortgage market is valued at only US$716.5 million, though it is expected to grow to US$1.7 billion by 2013.
Amr Ezzat, former director of the National Center for Housing and Construction Research, noted in an interview with the Emirati newspaper Alrro’ya that the construction sector employs over 4 million workers. This labour force, if properly supported, could yield substantial socio-economic benefits.
Ezzat added that the Ministry of Housing is working to regulate the sector by issuing laws aimed at protecting real estate wealth and launching housing projects to address the gap between supply and demand for residential housing.
This gap, while difficult to estimate precisely, is often approximated at around 60%, reflecting significant excess demand over supply in the housing market.
Dr Ahmad Mattar views the real estate market as highly promising, citing Egypt’s large and continually growing population as the primary driver. ‘Prices will keep increasing and will likely see a major jump in 2012,’ he predicted.
Amr Soliman also noted the current high demand and gradual price increases but emphasised the need for government involvement to unlock the sector’s full potential. ‘The sector needs better regulations and education. We need to invest more in tourism and attract foreign funding,’ he stated.
Dr Ahmed Anees expressed strong confidence in real estate as an investment. ‘Egypt is still new to stock market investments and similar ventures, but real estate has always been, and remains, safer and in high demand. It will continue to grow, possibly even faster, in the near future,’ he forecasted.
New Tax Controversy
Few laws in Egypt’s recent history have sparked as much controversy as the newly introduced real estate tax. Opposition spans a wide range of property owners, from those with opulent palaces on the North Coast to landlords of modest apartment buildings in Upper Egypt.
Real estate laws are not new to Egypt, having existed since the nineteenth century, and in various forms even earlier. However, the introduction of this law in its current form—without exemptions for non-revenue-generating residential properties—has provoked significant political tensions, including among government officials and members of the ruling National Democratic Party (NDP).
It is widely believed that the government, following its stimulus packages, is now seeking new sources of revenue to address the expected budget deficit. This has led to public frustration, as many feel they are being asked to bear the financial burden of a problem they did not create.
Surprisingly, Amr Soliman, a real estate investor, considers the tax to be fair. ‘The low-income class will benefit from this tax, but the problem lies in how the media has handled it,’ he argued.
Dr Ahmed Anees, while not opposing the concept of a real estate tax, criticised the law’s structure. ‘It has many legal flaws and will face challenges from legal experts. It should have been studied thoroughly before being introduced, and I don’t believe it will pass in its current form,’ he remarked.
Dr Ahmad Mattar, however, delivered a more scathing critique, succinctly stating: ‘It’s a bad law, at a bad time, introduced by a bad minister.’
Other Challenges, Yet
The real estate tax is just the latest in a series of challenges facing the construction sector. Other issues, including outdated laws, require attention and reform to support such a large and continuously growing industry.
A study titled The Role of the Institutional Framework of the Egyptian Construction Sector, conducted by Cairo University scholar and Ministry of Trade and Industry researcher Shimaa Serag, highlights the need to develop and reform the legislative and institutional frameworks governing the sector. Serag argues that simply liberalising the sector is insufficient and that reforms are necessary to ensure its full potential is realised.
The study recommends amending Egyptian legislation to align with international obligations and suggests establishing a Supreme Council for Construction. This council would include representatives from all relevant institutions and oversee the sector’s growth.
Serag also proposed that the government take responsibility for paying debts owed to construction companies and provide coverage for contractors’ risks through such a council.
Legal and regulatory issues remain a significant concern for construction experts and investors, often cited as the primary barrier to achieving growth that aligns with the market’s size.
Dr Ahmad Mattar criticised the government’s policies on land allocation for investment, calling them deficient. He also pointed to delays in issuing construction licences and a lack of organisation in the real estate intermediary and agency business as major obstacles.
Amr Soliman, as an investor, highlighted unfair practices in the land market, where some buyers purchase land for speculative purposes, profiting from price increases driven by the development efforts of others.
‘The government should provide land exclusively to developers, not traders,’ he commented.
A Peek into the Sector’s Future
Despite the confusion and gaps in legislation, the construction sector continues to be viewed as a profitable and safe business, remaining attractive to investors regardless of the challenges.
The Egypt Construction Market Data and Forecast to 2013 report by World Market Intelligence (WMI) highlights how the Egyptian government is capitalising on the country’s status as a regional tourism hub, driving increased construction activity.
Key areas of growth include airport expansions, construction of tourism facilities, industrial development, and the expansion of power and water infrastructure.
The report also emphasises the residential construction segment, which has attracted substantial private sector investment and is expected to continue doing so.
Previously, residential construction was concentrated along the North Coast and the Red Sea. However, activity is now expanding to include new housing and industrial cities across the country.
These trends indicate significant potential in the construction sector, which offers high marginal returns on capital investment.
Amr Soliman remains highly optimistic about the sector’s future, stating: ‘Investors will always find land for their investment, jobs will be created, and the economy in general will definitely benefit.’
Dr Ahmad Mattar also expresses confidence, pointing to Egypt’s demographics as a key driver. ‘The country needs a lot of infrastructure. I believe the best strategy for building road networks, bridges, ports, and more for a population of 80 million is the BOT model,’ he noted.
Optimism about the future of construction dominates among experts, as evident in the responses of both Mattar and Soliman. When separately asked about the sector’s future, their unanimous answer was: ‘Excellent.’
Another version of this article is published by Business Today magazine.