Ongoing reforms by Egypt to help boost growth and reduce inflation are bearing fruit with foreign companies increasing their investment in Africa's third largest economy and helping it attract newcomers.
"I can see the success of our reforms when I look at the global business rankings," Sahar Nasr, Egypt's minister for investment and international cooperation, said in an interview with The National at the Africa 2018 conference in Sharm-El-Sheikh, backed by Egypt's president Abdel Fattah Al Sisi. "The number of new companies being established, the fact that our existing investors from Asia, Europe, the US – including Samsung, Uber, Coca Cola – are increasing their investments here, while new ones are coming in."
Egypt, North Africa’s largest economy, sustained major setbacks as a result of political turmoil, with its economy slowing, capital outflows increasing and inflation skyrocketing. However the country has turned a page with President Sisi ushering in political stability and the economy has improved with the country adhering to an economic reform programme backed by a $12 billion loan from the IMF since late 2016. Under the programme, the country made deep cuts to energy subsidies, introduced new taxes and devalued its currency. Economic growth in the 2017-18 fiscal year that ended on June reached 5.4 per cent, up from 4.2 per cent in the year earlier period. The government is targeting growth of up to 8 per cent for the 2021-22 fiscal year.
In the last two years, Egypt introduced at least 10 pieces of legislation intended to expand the private sector and boost economic growth. The new laws relate to investment, companies, bankruptcy and legislation that regulates the ride hailing app Uber’s services in the country, ratified in May.
Other reforms to strengthen the business environment include tax incentives, reduced bureaucracy and an investor centre – a one-stop shop to simplify the process of establishing a company. The measures have helped prop up Egypt's standing as a business friendly environment. The country rose eight places to 120th in the World Bank’s 2019 Ease of Doing Business index, published in November.
In September, IMF managing director Christine Lagarde said Egypt’s economy is “showing strong signs of recovery”, and that its economic growth was the highest in the Middle East, at a projected 5.3 per cent for 2018, rising to 5.5 per cent next year.
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Read more:
Egypt's private sector activity contracts marginally in September as demand weakens
IMF’s Lagarde: Egyptian economy showing 'strong' signs of recovery
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Having completed the “first phase of Egypt’s transformation” with new laws and regulations, the country is now focusing on implementing those changes, increasing foreign investment and building human capital at home, Ms Nasr said.
Forming public-private-partnerships which can help attract investment for infrastructure projects driven by a large economy and growing population is a key element of this, she added.
“In the beginning, when there was no investment law, the government had to step in and build these projects itself, but now we have a lot of [international finance institutions] who are very much interested in financing them, meaning our partnerships are not limited to the borrowing associated with external debts,” Ms Nasr said.
The World Bank’s private sector arm, the International Finance Corporation (IFC) is helping to build the $2.8bn Benban solar energy plant, touted to be the biggest solar farm in the world and expected to open next year.
Egypt is seeking more foreign investors to develop its roads, highways, energy infrastructure and railways – in which there has been “limited investment in recent years”, according to the minister. On Saturday, Egypt secured loans $135m from the Kuwait Fund for Arab Development to help finance the construction of four water desalination plants.
Egypt’s share of global foreign direct investment has risen 15 per cent in the past year since the reforms came in, and the number of new private sector businesses established in Egypt has risen 29 per cent in the year to date, Ms Nasr said.
Fostering the creation of start-ups is crucial for Egypt, which has relatively high, albeit falling, levels of youth unemployment at around 10 per cent.
“Our priority is creating jobs for young people and we know that the main job creators are small, young firms – the ‘gazelles’, the innovators, the disruptors,” she said.
During Africa 2018, the IFC launched a white paper on how to create an enabling environment for “transformational entrepreneurship” – the type of entreprenerual activity that has the capacity to transcend borders, build supply chains and create new private sector jobs. This is opposed to “subsistence entrepreneurship”, where businesses are primarily concerned with addressing a smaller, local need.
More sophisticated early-stage funding, robust digital infrastructure, bankruptcy and other laws to encourage risk-taking, and practical support to build managerial skills are all needed to boost the sector, the IFC said.
What are NFTs?
Are non-fungible tokens a currency, asset, or a licensing instrument? Arnab Das, global market strategist EMEA at Invesco, says they are mix of all of three.
You can buy, hold and use NFTs just like US dollars and Bitcoins. “They can appreciate in value and even produce cash flows.”
However, while money is fungible, NFTs are not. “One Bitcoin, dollar, euro or dirham is largely indistinguishable from the next. Nothing ties a dollar bill to a particular owner, for example. Nor does it tie you to to any goods, services or assets you bought with that currency. In contrast, NFTs confer specific ownership,” Mr Das says.
This makes NFTs closer to a piece of intellectual property such as a work of art or licence, as you can claim royalties or profit by exchanging it at a higher value later, Mr Das says. “They could provide a sustainable income stream.”
This income will depend on future demand and use, which makes NFTs difficult to value. “However, there is a credible use case for many forms of intellectual property, notably art, songs, videos,” Mr Das says.
The specs
AT4 Ultimate, as tested
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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Director: Basel Adra, Yuval Abraham, Rachel Szor, Hamdan Ballal
Stars: Basel Adra, Yuval Abraham
Rating: 3.5/5
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Ms Yang's top tips for parents new to the UAE
- Join parent networks
- Look beyond school fees
- Keep an open mind
The National's picks
4.35pm: Tilal Al Khalediah
5.10pm: Continous
5.45pm: Raging Torrent
6.20pm: West Acre
7pm: Flood Zone
7.40pm: Straight No Chaser
8.15pm: Romantic Warrior
8.50pm: Calandogan
9.30pm: Forever Young
Drishyam 2
Directed by: Jeethu Joseph
Starring: Mohanlal, Meena, Ansiba, Murali Gopy
Rating: 4 stars
The specs: Lamborghini Aventador SVJ
Price, base: Dh1,731,672
Engine: 6.5-litre V12
Gearbox: Seven-speed automatic
Power: 770hp @ 8,500rpm
Torque: 720Nm @ 6,750rpm
Fuel economy: 19.6L / 100km
