Last year, Egypt’s growth seemed unstoppable. Following a few bleak years between 2001 and 2004, when the country experienced a deep recession and a banking crisis, it had already picked itself up and dusted itself down. It was top of the PricewaterhouseCoopers 2008 manufacturing index and came top of the list of countries that had made the most improvements to its business environment in the World Bank’s Doing Business index. It was also the most attractive country for private equity firms in the Middle East and North Africa region, according to last year’s Deloitte’s private equity confidence survey.

Yet the world’s economic crisis has certainly had an effect in Egypt, with much of the trouble emanating from the woes currently being experienced in the Gulf. “Egypt thought it would be insulated from the troubles in Europe and the US,” says Hussein Khalifa, US partner at MVision. “But by September or October, it became clear that this was not the case as the Gulf started being affected by falling oil prices and some of the Gulf banks’ less than prudent lending came to the fore, particularly in the real estate sector. Egypt had a lot of foreign investors in the market, including hedge funds, and once these started having to meet redemption requests, they took their capital out of the country.”

In the months following the collapse of Lehmans, Egypt’s EGX 30 Index fell by as much as 50%. “A lot of liquidity left the Egyptian market following the crisis and there was a lot less appetite for investment,” says Sherif Elkholy, investment principal in Cairo for Actis...

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