Al-Ahram Weekly On-line 21 - 27 September 2000 Issue No. 500
Published in Cairo by AL-AHRAM established in 1875

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Reasons to be cheerful?

By Aziza Sami

With political tensions between the US and Egypt riding high the one question on the lips of administration officials in Washington tends to be a variant of "what possible use is Egypt to the US when it is not performing in the Middle East peace process to America's satisfaction?" The winds of change are blowing through, or at least around, the bourse. Its old domed building in El-Sherifein Street, the surrounding streets and environs, have been .painted, with the cost of the facelift being met by the bourse itself. And inside the venerable building work continues 24 hours a day, and with martial discipline, to install the wired floor and build special balconies for better viewing while at the same time preserving the dignified colonnades that contribute so much to the atmosphere of the original architectural scheme.

As the physical renovations progress and services come gradually online, new listing rules are being adopted intended to ensure far greater transparency. All this activity is engendering a degree of optimism among stockmarket officials, who can be heard talking ever more loudly that a new, more "investor-friendly" environment is about to be ushered in.

This comprehensive upgrading of the bourse was initiated by the former chairman Sherif Raafat who, despite enthusiastic public statements issued when he first accepted the post, quickly resigned -- officially because he wanted "to tend to private affairs," though the rumour on the street has it that his resignation was prompted by growing frustration at bureaucratic interference. But his successor, Sameh El-Torgoman, remains committed to carrying out Raafat's plan. And it would seem that very manner in which the bourse is administering its own affairs is undergoing a sea-change. No longer are there endless lists of new "appointments." Instead, positions are filled on a one year, contractual basis, with the contracts making provision for performance related incentives.

Despite all the signs of change, though, one cannot help, in talking to the Chairman of the Exchange, but sense an underlying complaint that the bourse is often unjustifiably maligned. In his office he points to a sensational headline, "all too typical," and the equally typical relegation of a more positive story to the back pages of a magazine.

There may well be instances of insider trading and, before the new rules of disclosure were in place, examples of capital market officials turning a blind eye to such practices. But the real problems of the market will take more time to redress since they involve other institutions operating within the economy, and also the question of facilitating the required institutional support for the bourse's activities.

El-Torgoman told the recent Euromoney Conference that Egypt's stock market was perfectly capable of assuming a leading regional role. For it to do so, though, it is necessary that economic policies capable of actively supporting the business environment and injecting life into the market be implemented.

Certainly it is becoming a matter of urgency to transfer some of the funding for major development projects from the banking sector to the capital market, especially in light of this week's government announcement that it expects the private sector to finance up to LE100 billion worth of projects.

Pension and insurance funds alone command assets of more than LE6 billion, though their ability to invest in the capital market is currently restricted by a morass of obsolete legal conditions which need immediate revision. A more realistic regulatory regime for other stock market institutions, such as venture capital companies, is also necessary for building the confidence of smaller investors who at the moment could all too easily fall prey to unscrupulous speculators. Nor should the positive impact of a more flexible exchange rate policy be underestimated, since it would provide a boost not only to local businesses but to foreign investors who, at the moment, remain wary of entering the Egyptian stock market because of fears that they will face problems in reconverting investments into foreign currency. Reinvigorating the privatisation programme through public offerings rather than seeking single strategic investors could also serve an important role in energising the bourse.

One thing is certain, though -- without engineering an economic environment that supports stock market activities, the capital market's ability to act as an engine of economic growth will always be no more than pie in the sky.

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