Pitching for investment
Strenuous efforts are being made to make the Egyptian market more attractive. But, for the moment, they may not yield much, writes Niveen Wahish
This week around 120 foreign investors were in Cairo for a conference organised by investment bank Beltone. The conference, which was annually organised abroad, was brought to Cairo this year to allow investors to come to see first-hand post-revolution Egypt.
"We wanted to give investors a feel of the city. The Cairo they see on TV is different from the real Cairo," Alaa Saba, chairman of Beltone Financial, told the conference audience.
The conference is one of many efforts exerted by business organisations and the government to attract investors. Since coming to power, President Mohamed Mursi has made tours east and west, often accompanied by business delegations, aiming to tap on doors and indicate that Egypt is back in business. He has also been receiving in Cairo numerous foreign and Arab business delegations and dignitaries seeking to find out where the country's economy is heading.
The underlying message of all these efforts is that the whole Egyptian government is supportive of investment. One of the messages reiterated during this week's conference was that the challenges facing the Egyptian economy are huge and that policymakers are aware of that, and yet can work through them. Also emphasised were the underlying potential and resilience of the Egyptian economy. "Brilliant" is how Hani Kadry, deputy minister of finance, described it. Minister of Investment Osama Saleh told the conference that growth projections for Egypt's economy in 2012/13 are 4.5 per cent.
Investors were invited during the conference to pitch in to several projects that are on the table. The projects ranged from initiatives in various sectors around the country to huge infrastructure projects that are soon to be put up for tender within the Public Private Partnership framework, as well as mega projects in the East Port Said area and Upper Egypt.
But encouraging words alone will not be enough. Mike Newton, managing direct of Commercial International Life, a prominent insurance company (CIL), told Al-Ahram Weekly that the discourse of the prime minister is promising, but he has yet to deliver on his promises.
And there are other considerations to be kept in mind as well. Ania Thiemann, senior economist with the Organisation for Economic Cooperation and Development (OECD), acknowledges that there is definitely investor interest in Egypt. But she said what investors want most of all is "transparency, predictability and stability". She added that because of the rocky period that Egypt has been through, investors would look for measures that signal that stability can be maintained.
Thiemann pointed out that investors wishing to tap the area of infrastructure come in for the long term and need to feel that contracts will be secure for 10, 15 or 20 years.
Such signals, she said, could be the passing of a law or measures that guarantee contracts, guarantee against expropriation, and make sure that contracts have clauses for international arbitration and dispute settlement. Moreover, she said, if a government decides to cancel a contract, or reverses a decision, which is its sovereign prerogative, there needs to be a clear and transparent procedure and adequate and prompt compensation.
Following the revolution in 2011 there were many instances when contracts signed under the former regime were annulled by courts. These include contracts for land rights as well as companies sold to investors within the privatisation process.
According to Thiemann, the OECD strongly advocates that investment policy, laws and regulations should be clear, transparent and predictable, with clear rules for entry and exit of the market. She pointed out that Egypt is a signatory to the OECD Declaration on International Investment and Multinational Enterprises and as such has agreed to principles such as transparency of communication. "In difficult periods, such as a political transition, it is more than ever important for a government to uphold these principles in order to reassure the investor community."
But the government has acknowledged these problems and said it is in the process of resolving them.
Minister of Investment Saleh said that many disputes have been resolved and many more are on the way to resolution. He said while court rulings must be respected, the government tries its best to avoid harming the investor while retrieving the rights of the state and avoiding costly arbitration.
Nonetheless, while the government may be off to a good start, incidents like the recent riots over the US-made anti-Islam film, take their toll. As Newton put it, such demonstrations look bad on the news and could mean another six months before tourists or investors decide to come back.
Thiemann agrees. She said that in normal times investors are quite able to see the difference between a crowd getting out of hand and public demonstrations, "but these are not normal times and it's a new situation for the government." She pointed out that the constitution is still being drafted and therefore investors and tourists are paying more attention to these kinds of images than they usually would.
Thiemann said there could be a clearer picture when a final constitution is published, and a date set for parliamentary elections.
Prime Minister Hisham Kandil said during the conference this week that the constitution could be ready in a month or two. Two months later, parliamentary elections would be held. Newton does not want to see any further delay. He said that he feels the date has been drifting, but he hopes the delay is a result of productive debate.
But there are other requirements as well. "Restoring security is a first order. Clarity on the country's macroeconomic direction and future policies are a must," according to Ashraf Swelam, former director general of Egypt's International Economic Forum and senior policy advisor to former presidential candidate Amr Moussa. Swelam said that the results of efforts to attract investments would be limited unless these issues are tackled. "Unfortunately, progress on all these fronts has so far been lacking."
Again, official statements have indicated that these are issues the government intends to tackle. They said that one of the priorities is dealing with the gaping budget deficit. The finance minister recently announced that initial calculations of the budget deficit for 2011/12 show that it has reached LE170 billion or 11 per cent of GDP.
One of the issues that also matter to investors, according to Swelam, is whether Egypt is serious about reaching an agreement with the IMF. Investors are watching for an aggressive reform programme that addresses not only the structural challenges that Egypt faces, but also improves the business climate and levels the playing field by dealing with rampant corruption and nepotism.
Another issue investors have concerns about is the value of the pound, said Swelam. The value of the pound has witnessed little depreciation since the revolution. It is now trading at around LE6.1 per dollar compared to LE5.75 before the revolution. The resilience of the pound has been attributed to unannounced support by the Central Bank of Egypt. But Nidal Assar, Central Bank of Egypt sub-governor for foreign relations and investments, told the Beltone conference that they are satisfied with the exchange rate at the moment and will not interfere unless there is speculation.
These various concerns, according to Swelam, cut across the board. They may not matter to investors who come in with hot money and enter and exit markets in very short intervals, jumping from one quick win to another. But he said that "serious investors who see an opportunity for a return on their investment in what they perceive as promising companies traded in the Egyptian stock exchange, their concerns are the same as those involved in direct investment."
IMF agreement in process
OFFICIALS this week reiterated Egypt's need for an agreement with the International Monetary Fund (IMF).
Hany Kadry, deputy minister of finance, said signing the IMF agreement would represent a certificate of confidence in a language that the world understands. Kadry was speaking on Monday at a conference organised by investment bank Beltone. He added the relationship with the IMF could not be limited to a loan. He said it is a "credit facility", meaning that Egypt can choose to withdraw from it or not depending on its needs and on the extent to which economic activity picks up.
Speaking to journalists on the sidelines of the conference, Kadry said Egypt expects to finalise its discussions with the IMF in a few weeks. "We have a plan for a first round of discussions to begin in one to two weeks. This may or may not require another round of discussions."
The agreement with the IMF may be signed in the absence of a parliament, according to a Cabinet spokesperson. International agreements may be signed by the legislative authority or whoever is delegated with its powers, he told the state news agency MENA. Currently the president holds the powers of the legislature.
Kadry underlined that there is agreement on the fundamentals of the economic plan with the IMF. What remains to be hammered out are details. Those fundamentals, he said, are the need to streamline or reduce the budget deficit and promote growth. "We as a government have to start putting in extra investment to bridge the gap until the private sector comes back again and takes the lead as it used to."
Kadry further stressed that when the national economic reform programme is ready it will be put up for public discussion. And he stressed that no decision would be taken without providing the poor and low income brackets with full protection.