Electronics retailer eXtra pulls plug on Egypt plans

Unsplash/ Jass Hernandez

• Saudi retailer announced u-turn in a filing to the Tadawul
• Decision set to cost the business $10m, the company said
• Egypt has devalued its currency three times in a year

United Electronics, the Saudi company behind tech retailer eXtra, has abandoned its plan to expand into Egypt as analysts predict that soaring inflation in the North African country will dampen consumer spending.

The company said in a filing to the Saudi Stock Exchange on Monday that the decision followed a feasibility review, but did not give further details.

The u-turn will probably cost the business about SR38 million ($10 million), United Electronics added, and it comes at a time of significant economic stress in Egypt.

• GMG opens Egypt HQ with plans for 1,000 new jobs
• Egypt faces another devaluation, experts predict
• Riyadh and Cairo revamp trade alliance

The Egyptian government has devalued its currency three times over the past year, with the pound shedding about 50 percent of its value against the US dollar and inflation rising to nearly 33 percent in March.

Economists told AGBI last week that Cairo would likely be forced into a fourth devaluation, although its timing and size is uncertain.

There are 48 eXtra stores in Saudi Arabia, plus three in Oman and three in Bahrain. The Egypt expansion, announced in December 2021, would have been the company’s first move outside the GCC.

It said at the time that it would make initial direct investments of EGP1 billion (roughly $63 million in December 2021) and was targeting a 10 percent market share in Egypt.

Other GCC retailers are moving ahead with expansion plans in the country, however.

GMG, which manages more than 120 retail brands across the Middle East, North Africa and Asia, said in March that it aims to increase its Egyptian workforce 10-fold over the next four years.

It has opened an office in Cairo to support its plan to create more than 1,000 jobs as it seeks to open over 100 sports retail stores across Egypt by 2026.

Carrefour Egypt, which is owned and operated by Dubai’s Majid Al Futtaim, plans to inject EGP400 million ($12.9 million at current rates) this year and EGP750 million through to 2025. It has invested EGP2.3 billion since entering the market in 2003.

According to consultancy Kearney, the Egyptian retail sector is forecast to grow from $200 billion in 2020 to $254 billion in 2025. The e-commerce market is expected to be valued at $13.2 billion in 2025, supported by Egypt’s young and tech-savvy population.

In a recent research note, analysts at Fitch Solutions said international retailers continued to enter and expand in the country, particularly through franchise agreements with regional firms.

Fitch wrote that the retail sector had been boosted by legislation requiring that for every compound or real estate project, there is a corresponding commercial area. However, rising interest rates and the weakened Egyptian pound “weighed heavily on consumer purchasing power”. 

Stripping out the effect of inflation, analysts project real household spending to grow by 1.8 percent in 2023 to EGP1.9 trillion.

“Egypt’s household sector will be constrained by double-digit inflation rates and tighter monetary policy that is raising borrowing cost for consumers, as well as the currency devaluation of the Egyptian pound,” Fitch wrote.

“This has led to price rises, especially for imported brands. Persistent high levels of inflation beyond this point in Egypt will reduce the Egyptian households propensity to consume.”