Thursday, 8 December 2016

Tarek Amer is the 2016 Enterprise Newsmaker of the Year

The parallel market for hard currency is dead, and for that you can thank Tarek Amer, governor of the Central Bank of Egypt and our first Newsmaker of the Year. Under pressure from the market, policymakers and the international financial community alike, the governor of the Central Bank of Egypt surprised everyone a month ago when he pulled the trigger and let the national currency float. He has, in the words of one senior critic, proven that “he has balls of steel. It was unquestionably the right call, made at the right moment.”

The decision — which we expected to be fraught when we set out — was ultimately easy: No other newsmaker was as scrutinized throughout the year; no other policymaker has had as wide an impact on the functioning of the business community and the wider economy.

The question on everyone’s mind is brief. The answer, complicated: “Where do we go from here?”

Amer plumbed this and other questions in over two hours of discussion over two days at the central bank’s Downtown Cairo headquarters, from which the governor and his top deputies direct a staff of more than 5,300.

Tarek Amer joined the Central Bank of Egypt in 2003 as a deputy governor to Farouk El-Okdah after a run in the private sector that saw him serve across the region with Citibank and Bank of America.

Together, El-Okdah and Amer presided over a cleanup of the banking system made necessary when the lending bubble of the 1990s collided with the fallout from the November 1997 Luxor massacre, which sent tourism — and the economy — into a nosedive. That cleanup, to which Amer repeatedly referred in our interview as the “first phase” of banking sector reform in Egypt, saw the CBE force consolidation, recapitalization, and a world-class regulatory framework (criticized in some quarters as excessively risk-averse) onto the industry. By the time it drew to an end, Egypt had 39 banks, down 17 from the height in 2003.

It was, Amer said, “Our ‘Lehman moment’ long before there was such a thing as a ‘Lehman moment.’” He believes the reforms they implemented in the nation’s state-owned and private banks — and at the CBE itself — have been key guarantors of “national economic security,” not just through the global economic crisis of the late 2000s, but in the wave of crises with which we’ve grappled as a nation since January 2011.

Our natural cynicism makes us want to downplay the claim, but consider the way banks handled the “leap into the unknown” on 5 February 2011, after a week of shutdown. There was no bank run, no crisis of confidence. Or the fact that, while we’ve had incredible challenges in the past 18 months on the FX front, there has been no critical shortage of food or energy sufficient to spark destabilizing protests. He calls the Central Bank of Egypt the economy’s shock absorber, and, in many ways, he’s right.

After a detour during which he led the National Bank of Egypt, Amer was tapped to return to the central bank as governor in November of last year. His first mission: Fix the failed foreign exchange system.

The wide-ranging interview gave us the sense of the policy direction to come — and shed some light on Amer as a person. This is a man who signs his name on the nation’s currency as “Tarek Hassan Amer” to honor the memory of his late father — the person (living or dead) with whom he would most like to have dinner. He seems almost sheepish as he admits to a passion for Western music and movies, but the book to which he keeps returning is the Qur’an.


  • The CBE will do nothing to prop up the EGP, full stop. “Those days are over. History.”
  • The banking system is doing a “marvelous job” managing the FX rate; the free market is now fully in charge.
  • The USD 2-4 bn everyone seemed to want the CBE to inject? If you hadn’t figured it out at this late stage in the game, it’s not coming.
  • The FX rate will become a daily gauge of how the government’s economic policy is performing.
  • Amer acknowledges that the CBE’s role has, in some ways, become non-traditional, extending to serving as an economic advisor to the presidency.
  • We need to stop obsessing about the exchange rate and focus on building the real economy.
  • The IPO program for state-owned companies will kick development of the stock exchange into overdrive — and improve the quality of state assets through private-sector oversight.
  • Regulations now in the pipeline on SMEs, financial inclusion, and payments (among others) will help drive innovation in the banking sector.

Edited excerpts of our conversation:

ENTERPRISE: Did you know from the moment you accepted the governorship that it had to be a full float? Was it clear from the beginning?

TAREK AMER: It was clear that the foreign exchange system had to become a flexible regime. The question was only the degree of flexibility. It was when the full details were revealed to me after I accepted the position that it became clear.

I consulted everybody who I felt had credibility, whether that was abroad, domestically, or within the central bank. We had differences of opinion, of course, but I had many honest, open discussions.

It came to a head this fall in Washington, when I met Dr. Abdel Shakour Shaalan. He’s one of the longest-serving experts at the IMF — an honest man who’s seen a lot in his years, may God grant him health and long life.

I asked him, “What do you think?” and he said, “It’s mission impossible. But you’ve got to do it.”

By that time I knew it was the only way to salvage the situation — it was severe. We weren’t just steering in a new direction; we were introducing an entirely new concept for our economy.

It was like the Six of October War, when we were preparing to cross the Canal: Mission impossible — but the results were incredible.

E: How did you build consensus for a full float?

TA: That was the most important thing — how to prepare the stakeholders and get their buy-ins. It’s a decision that affects every household, every institution in the country. And, of course, it’s the reputation of the economy.

When I took over a year ago, we started building an understanding of the problem to make a proper diagnosis. That made the direction clear, but so was the challenge: How would we change concepts that have been held for very long years?

It’s normal to encounter resistance. We faced this before, when I came to the central bank as deputy governor in 2003 with the first reform program. I knew that everyone gets worried when you talk about a new policy direction. Parliament, the people, the authorities. Everyone. And I knew that if we didn’t have the political will for the program, we wouldn’t get through this.

We used a lot of the same tactics that worked for us back in 2003 — designing a comprehensive program with deadlines and measurable objectives. I remember at the time, they told Governor Farouk El-Okdah, “How come you’re sticking your neck out in front of the president and putting targets by quarter and measurable figures?”

But we came from the private sector. That’s how we learned to get things done. Part of it, of course, is wanting to be successful. In our career — both in the private sector and in government service — achievement has become adrenaline for me and for my team. This isn’t just a job for us.

In the end, we were conservative in our scenarios, and of course we had worst-case scenarios in mind. But there came a time when I would speak with other officials and say, “We’ve been talking only about the worst-case scenarios. Let’s also talk about the good scenarios, because that’s also the opportunity.”

E: How did you feel the night before you pulled the trigger. How bad was the anxiety?

TA: It wasn’t about anxiety — it was pure excitement. We couldn’t wait to reach that moment because we knew it had to happen. I didn’t lose sleep the night before — I lost sleep when it was delayed and delayed. There were so many prerequisites, so many things that needed to be put into place. There was more buy-in from certain sectors and policymakers who needed to be on board: Domestic authorities, the IMF, the market, the banking system.

The closer we got to the day, the better we felt. I was worried about the result, but not about whether it was the right thing to do.

E: And now, it’s working. I think that’s inarguable at this point–

TA: Certainly the results exceeded our expectations. With God’s blessing, we passed through it. Our team here has done great work. The way it was executed — the prep work we did, the way we executed it — it is model by global standards.

Three things made that happen: Conviction, political support at the highest level, and diligent preparation.

It’s a model for the region. I believe we’re the only economy in the Arab world with a floating exchange rate regime. And it’s all because of these young people we have working here at the bank. Without them, and without political will to reform at the top level, there was no way we could have done this.

E: Now that we’ve crossed the Canal, as you say, is there anything that would prompt you to intervene again in the FX market?

TA: Intervene? No. Absolutely not. This is history. There will be no intervention. Everyone was talking about us pumping in USD 2 bn or USD 4 bn. That’s not it. That runs exactly contrary to the idea we were implementing.

The market thought we would still need to support the new FX regime. No. We want this newborn child to start standing on its own feet and supporting itself.

E: How do you do that?

TA: For the first time, the country’s banks have found themselves responsible for setting FX prices rather than waiting for the CBE. This is new to them, but our banking system is very strong, very seasoned, and they’ve done a marvelous job.

The same applies to the nation: When you look at what took place, two things stand out: First, we did it on our own. It really is a homegrown program. And second, that we did it without the financial support to which we have become accustomed over the years.

I remember the reporters used to call me everyday, asking about a bn USD coming from here or from there, and I’m telling them, “It’s a bad question.” We’re not waiting for assistance. We have to do it on our own.

E: How are relations with the banks?

TA: Whether you want to believe me or not, I’ve not picked up the phone to call a single bank since 3 November. I want them to understand there is no influence. And my instructions to our treasury and to our FX people here is that our mission is to protect this regime. Full stop.

There’s no more targeting of the FX rate. You saw it: When we started, the FX rate in the market was 11. Then 13-14. Then 15, 16. Then 15, then up to 17. The market is adapting to the new regime, and I think this volatility is very good; it’s very healthy. It’s going to take a bit of time to settle where it should settle.

E: How long does that period of volatility last before the rate settles into a narrower band?

TA: I want to tell you something: Borrowers now, as I understand it, they don’t want to buy FX at these levels. The importers and industry. Because of the “volatility.” Okay? But let me answer your question with a question: Do you know where the GBP will be in five minutes’ time or tomorrow? Or the Swiss franc? You don’t know.

I want to be clear about this: Let’s stop obsessing about the exchange rate. Those days are over. Let’s think about the real economy instead. The exchange rate is now set by a market system outside the central bank — and I’m very glad it’s off my shoulders. The pressure was tremendous.

E: Tell us about that.

TA: We had to provide for everything, every single day. If you have a family of three, you’re really burdened, right? Well, I had 90 mn people who need to consume things everyday, and those things primarily come from abroad. The achievement of the team here is that we never had a prolonged problem or a serious shortage of anything — oil, gas, energy, imported LNG, commodities, food — in the past year.

Every day was a new search for creative ways to fund the balance of payments and the capital account — even “little” things, like opening the door to supplier credits, made a difference — a USD 6 bn difference, in that case. Just by deploying the basic wisdom of any chief financial officer in managing cash flow.

E: How do you see the float impacting flows of investment into the economy?

TA: The equation is simple: To grow more, we need to bring in more funds than are available domestically. Competition for global investment is high — everyone wants to harness investment flows to increase the rate of growth, to create jobs.

To compete, you need a functioning, transparent FX regime. How could an investor come and buy in at a rate that was 50% discounted from the market? They didn’t.

Now, the market is rewarding Egypt for the float. Contrary to our expectations, portfolio investors in the debt market came almost immediately. The equity markets — if we had more issuers in the equity markets — would have seen even more activity. As it is, the stock market is up 35% from 3 November — it’s the best performing market in the past month, globally. It’s been on the upswing even though emerging markets were down.

Foreign investors are considering transactions now, and they will create job opportunities and bring in know-how as they do. At the same time, the devaluation itself is going to be beneficial. Local producers — multinational and domestic — are now working on improving local content and on accessing export markets. That’s a major shift for the better in the long term.

Thanks to the reform program we started implementing in 2004, our banks are strong and can approach international capital markets comfortably. In other emerging markets that are in size not much larger than Egypt, their banking systems alone attract USD 100 bn of international funds. The banking system only — in terms of bond issuance, in terms of bilateral loans, syndications, etc. There’s an open road ahead of us now when it comes to raising liquidity.

All of this is supportive of potential sovereign issues. We’ve met investors in New York and Washington and London, and they told us they needed to be comfortable we were serious about a full program. So when we go to international capital markets as a sovereign, investors have a clear picture today.

All of these flows will automatically have a very positive impact on exchange levels and on general price levels. And everything will fall into place automatically. I don’t see this will take place in the distant future — it’s already started happening today.

Avoidance and denial led us to where we were before the float. Today, international investors know we’re serious. We’re not managing monetary policy on political grounds. It all goes back to the philosophy of the country’s leadership: “Let’s not fool ourselves.” We need to identify and confront problems.

E: You said a moment ago that the EGX would have rallied even further if we had more investable paper. How will the IPO program for state-owned companies help improve the stock of investable opportunities?

TA: We believe very strongly in the future of Egypt as the hub of a major stock exchange. We have a lot of material. We have a lot of corporates in the country — including many owned or semi-owned by government. Our ambition is to take most of those to the stock market. It will push us to start restructuring those companies that need it before they’re taken to the market, to make them acceptable to international investors.

We see the IPO program as key, and oversight of state-owned companies by international investors is important. Moreover, when these companies are publicly traded, their stocks’ performance will be the measurement of management efficiency.

We saw this when I led the National Bank of Egypt — just the act of tapping international debt markets, a first for a government bank, demanded that we address structural issues and be more transparent. And it worked.

E: What’s your mission now as the CBE? What’s next?

TA: Our mission is to protect the new foreign exchange regime. As I told the authorities, this system is flexible; it’s a shock absorber. It’s going to reflect political and economic events.

But we will never intervene in the system. We, as a nation, have paid dearly to reach this point. And I personally have faced a lot to bring it to this point. It is absolutely not happening again. It’s history.

In the past year, the CBE has expanded its mandate beyond what is conventional for a central bank. The president himself has given us this space. I think he considers the central bank as his chief economic adviser. This kind of confidence from the president was instrumental in our ability to conclude the float despite all of the challenges along the way.

E: Without asking you to make a policy statement: Would it make sense to bring down interest rates, to let the government save on the debt service burden and channel money into the subsidy program while still cutting spending?

TA: Interest rates are decided by the Monetary Policy Committee. Since the float, foreign investors have come into the 10-year bond market and the five-year bond market and into T-bills. The interest rates — after taking off by 300 bps — quickly lost 100-200 bps. This tells you that things are falling into place. Two percent is significant for the Finance Ministry, but I appreciate that they accepted the move on interest rates. They took it well, because they understand that this structural reform is — at the end of the day — going to be positive on their affairs as well.

But we’re not a month past the float. Don’t ask for everything today. [Laughs] Let’s be a little bit realistic.

There’s also a message from the market to the government now: That the level of exchange has to do with the results of economic activity. So if we want a different level of foreign exchange, it has to do with working on the fundamentals: On exports, on raising liquidity, on raising revenues, on thinking of ideas to bring in investors, whether through PPPs or by improving the investment environment.

So you see, the exchange rate now is a measure of economic performance. We’re working very heavily on this under the leadership of the president’s new Supreme Investment Council.

E: One of the secondary themes running through government today — from energy markets to the subsidy system — is about deregulation in one form or another. Is there a need for deregulation in banking, or is the system on track?

TA: What we need in banking is more development and more innovation. The foundation of the banking system is very solid. The challenge now is to innovate. We’re preparing now for the second phase of banking reforms. That will be interesting. There’s debate over whether it was Einstein who coined the phrase or not, but I go back to his definition of insanity: It’s doing the same thing over and over again, and expecting a different result.

E: Any hints?

TA: No. [Laughs] Not really. Look, it’s no secret we’re looking at SMEs, financial inclusion, and payments systems. We will be creating project units for each of these files and more to make sure we turn on-paper initiatives into on-the-ground realities. We also have things in the pipeline on effectiveness and to bring crisper standards into bank operations — to make sure banks optimize their capability to be there on the ground.

We have to put in place guidelines and governance standards that will ensure the banks are on the tip of their toes and on the ground. This is where innovation comes in. We want to see new banking products, services, ideas. We want smart banking by developing streams of operating revenue with minimal use of assets, of capital. We want to see more distribution, more advisory services.

The breakdown of loan concentrations [in regulations imposed in January 2016] is a part of that. We want to create a market in which there is more competitiveness in the corporate sector —that also helps the consumer get better prices and better services and better goods.

E: What’s the best part of the job?

TA: I don’t know. I just love it. I don’t see myself working in the private sector again. The kind of satisfaction I get from public service and from banking. I love the central bank — I feel I’m part of this institution. And I have an amazing team. I interviewed everyone now on my team, years ago. It’s my team, and I love working with them in this institution.

I love that 40% of our staff are women. I’m very happy with how we’ve restored confidence in this institution. We’re honored that the political leadership is giving us tremendous room to innovate and to make decisions.

I just love this job.

E: What keeps you awake at night?

TA: Nothing. I put my head on the pillow and I sleep. My conscience is clear. [Laughs]

E: The worst part of the job? Other than people like us asking you questions.

TA: You know, in any senior post … these posts they have their … features. There’s always competition, some personal matters, politics. The technical work is never a challenge for me. It’s the politics, it’s working to bring everybody together. And I hope we all get better at that going forward.

E: What’s the best book you’ve read lately?

TA: I really haven’t had enough time to read. I enjoyed The Chamber, by John Grisham. I liked it very much. But the book I most like to read is the Qur’an.

E: During Ramadan? Throughout the year?

TA: All the time. I’m not an extremist, but this book is inspirational. It gives you discipline in life and corrects you as you go. It’s about how to get along with people and how to take care of them. It’s a fantastic book.

I like the [Walter Isaacson] biography of Steve Jobs. I loved what he said about those people who are crazy enough to want to change the world being the ones who actually do. I believe in that very much.

How [How: Why How We Do Anything Means Everything, by Dov Seidman] sticks out in my mind. President Bill Clinton wrote the foreword about how to convert ideas and aspirations into reality. People with that skill are rare. We all talk about wanting to fix education or healthcare or the FX situation or to clean the city — and we talk for years, but do we get into how to do it?

I read a lot recently, before I assumed this position, about psychology. I wanted to think more about the psychology of our community. I was very independent growing up because since an early age — 15 or 16 — I started working, so I was interested in the psychology behind how this engenders independence.

E: What was your first job?

TA: I was a farmer. My grandfather had a reasonable landholding and, after 1967, my family was affected by political events. We had no means to survive — it was all cut by the government. My father lost his job, my family members lost their jobs. We had to go back to farm my grandfather’s land to survive.

So I lived for years with the real Egypt. That’s what interested me in psychology — I don’t think we’re doing enough, as a nation, to teach parenting to parents, particularly in illiterate areas, how to raise their children.

E: How do you relax?

TA: I love to watch Western movies and to listen to music. I often drive in my car alone and listen to music.

E: What do you listen to?

TA: I won’t tell you. I have been into this since I was very young. One of my best friends — I’ve had the same small group of four best friends since school — his father was an actor, a composer, and a musician. So when we were very young, he got me into loving music. That’s what he was into. My friend died a long time ago, when he was young, but he gave me a taste for music. I listen to things that maybe you do not know about.

E: Rock and roll?

TA: All sorts of things. I like classical music. After a difficult day, I like classical music. But any kind of music. Heavy. Anything.

E: You mentioned martial arts earlier.

TA: A long time ago, I was on the national karate team in college. We learned the fighting spirit of the Japanese. We learned respect, discipline, the fighting spirit, and the importance of good technique. We learned about the need for focus, speed, and seriousness. And all of it tempered by style and art.

In my work, for a long time now, I’ve always thought that when I did well, it was because I did what I did with artistry. I keep thinking of a problem and dreaming about it before I pursue it. It’s art. There’s an art to what we do — it’s not mechanics.

I also think It’s critical to not be afraid to speak your mind. I attended the youth conference in Sharm El Sheikh recently, and I had the chance to meet with some really bright young people. I told them: Never be afraid to state your opinion. I’ve done that my entire life, and it has cost me my job on occasion, but look — I’m now governor of the central bank. All of us need to learn to listen more when people have the courage to speak their minds.

E: iPhone or Android?

TA: iPhone.

E: What apps do you use most every day?

TA: Email. WhatsApp. Phone. That’s it. Well, and news. I read a lot of news — foreign and domestic, politics, and markets.

E: Spanish or Thai?

TA: Food? I haven’t eaten Spanish food since 1981, when I was in Spain. The kind of food I prefer? My best meal everyday — in the morning or at noon — is fuul. I like fuul. And I like to eat fuul and eggs and white cheese. I’m not very much into eating. I like the outdoors. I don’t do night functions. I don’t do business functions. I do my work and go home.

E: What’s your favorite film?

TA: The movie I’ve most referred to lately has been Bridge of Spies, the Tom Hanks movie. He’s bringing the pilot back on a military aircraft [from the Soviet Union], and the pilot was supposed to poison himself before he could be captured. And he didn’t. He was captured in Russia. His colleagues are looking at him, suspecting he broke. He tells Tom Hanks, “They think I talked.” And Tom Hanks tells him, “It doesn’t matter what others think. You know what you did.”

And that’s what kept us going throughout the last year. I told my team: “It doesn’t matter what they think. What matters is what you know. We are here for the country, we’re doing the work, we know the truth of where we stand today. Let’s keep doing our job.”

There are so many human lessons in the movies.

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