What are investors telling Renaissance Capital about Egypt? A lot of good things, according to the EM-focused investment bank’s CEO for North Africa, Amr Helal. We sat down with him last week following RenCap’s Egypt Investor Trip to Cairo on 11-13 February. The trip saw global fund managers with total AUM of c. USD 70 bn meet face-to-face with more than 20 companies. Excerpts from our conversation:

The trip went very well on the corporate side, the investor-side, as well as the stakeholder side, which included the Finance Ministry and the CBE. The overall sentiment has been positive. and it’s not just from the equity investors but our bond investors, too. Positives they brought up include the Egypt macro story and the eurobond issuances. They were also impressed with the quality of the corporates and how well businesses have been doing.

The most common questions we got from investors? “How well are the reforms going? What are the expectations around the government privatization program? What are the expectations around potential interest rate cuts, inflation, and where the currency is expected to land?” They are asking the right questions. They want to get the feel for how well businesses are doing. Things such as what’s happening in terms of the recovery of consumer spending. What are companies doing to navigate the new market reality? When do they expect companies to start investing in CAPEX?

On a macro level, the most common concern tends to be around the sustainability of reforms in light of the changing global backdrop.

We expect interest rates to come down in 2019. After the rate-cutting cycle resumed in February, we expect at least another 100 bps rate cut to 15.75% this year, with further rate cuts in 2020 when inflation falls to single digits in a sustainable way.

Based on our in-house numbers, we can probably expect the exchange rate to average EGP 17.60-17.80 this fiscal year. The EGP has strengthened against the USD and that was driven in January by positive inflows into the t-bill market. You had USD 2-3 bn of positive inflows, reversing months of decline. Obviously, tourism has picked up a bit from a low base. Remittances from Egyptians living abroad continue to be very strong.

Does Egypt need to go back to the IMF for another round of funding? That’s obviously a decision for the government. But I think the program will come to an end and not be renewed and I don’t think Egypt needs to or will go back to the IMF for another round of funding. But the relationship might continue in the form of regular engagement with the IMF, or something along those lines. This is something that investors would welcome, and some have broached the topic of having some form of continued engagement with the IMF.

On the wider economy, I expect Egypt to continue to perform strongly this year, especially with further interest rate cuts to come in 2H2019. The government is projecting GDP growth of 5.6% in FY2018-19. Hopefully, the rate cuts should spur corporates to start investing for the long term. Other factors we see as continuing to drive growth include the gradual recovery in consumer spending, the recovery in tourism and other sources of FX, and obviously Egypt having a net surplus of gas production as well.

FDI is the missing component for Egypt: We need to ask ourselves, on a macro level, what’s the missing component in Egypt’s value proposition? We are good at attracting investors in terms of portfolio inflows and fixed income investors. What has been thus far lacking is the ability to attract longer-term foreign direct investment (FDI) outside the oil and gas industry.

Egypt ranks high on top of the list of economies that we cover in terms of macro development and investment opportunities. And again, this is driven by the success of the reform program, which has put the economy on a solid growth path There is a pipeline of potential transactions that should be coming to the market this year and next year, either through the government’s privatization program or private companies looking to access capital markets.

When will the privatization program restart? I would argue that it already has started. Today, you have a number of companies that have already been picked and mandated, and banks have been working on them for quite some time. I think the next step is to start bringing those companies to market and that will depend on market conditions moving in the right direction.

I think the IPO outlook this year is very good, especially with the number of private and public sector listings coming to market in 2019 and 2020. There is a number of quality and sizeable offerings which should be a boost to the market. Hopefully we should see increased investor interest driven by the quality as well as the size of the issuances.

We’ll continue to see M&A driven by both strategic and financial interest across a multitude of sectors, but especially around consumer stories. This includes healthcare, education, non-banking financial services, food and beverages, etc. I think we’ll see a good M&A pipeline this year.

Consumer-facing sectors will continue to outperform this year. I would add the industrial sector, as these benefit from a number of key characteristics in terms of their ability to export and compete. I don’t see a certain sector that is likely to underperform.

On the emerging markets front, I think that the US Federal Reserve’s less aggressive stance on interest rate hikes has definitely helped sentiment around EM. With the current Fed signaling, there has been a recovery in emerging markets and investors are again deploying capital and we clearly see that year-to-date in the solid performance of emerging markets.

Cautiously optimistic that there won’t be another EM zombie apocalypse: At the end of the day, we are cautiously optimistic. It’s a wait-and-see game. There are a number of significant uncertainties in the global economy — the US-China trade war, Brexit, softening of growth in China — and these are all global factors that affect sentiment and impact how markets perform.

As far as other emerging markets are concerned, we like strong growth. We think South Africa can get a lift assuming the President Cyril Ramaphosa does well in this year’s elections. Pakistan could become a very interesting market if it gets an IMF program to support it.