Tuesday, 14 February 2023

Khalid Hamza on EBRD’s very big (and very green) year + what’s in the pipeline for 2023

After a solid 2022, the EBRD has its eyes on plenty more green financing for Egypt + other markets in 2023: The European Bank for Reconstruction and Development (EBRD) had a record 2022, investing EUR 13.1 bn globally, almost half of which (EUR 6 bn) went towards green financing. Egypt took up around 10% of the bank’s financing over the year, with the bank investing EUR 1.3 bn in 25 projects, 59% of which went towards the green economy, the EBRD said in a press release (pdf) earlier this month.

EBRD is one of the most important investors in Egypt: Altogether, Egypt accounted for more than half of the EUR 2.4 bn of investments made in the southern and eastern mediterranean (SEMED) region.

Looking ahead to the rest of 2023, the EBRD has a lot more where that came from for Egypt. The EBRD plans to ramp up its investments in Egypt this year, with a continued focus on the green economy, Khalid Hamza, the bank’s director and head of Egypt, told Enterprise in an interview about 2022 and the year ahead. Edited excerpts from our conversation:

Recapping 2022: In 2022, the bank invested in 25 Egyptian projects across different sectors, many of which are critical to different aspects of supporting and developing Egypt’s economy, Hamza said. He pointed to the bank snapping up USD 100 mn worth of Scatec’s “landmark” USD 334.5 mn green bond issuance to refinance its six solar plants in Benban“It brought a different type of investor base to the country … it’s a capital market transaction which showed that Egypt can bring to the market sophisticated transactions,” Hamza said.

“It’s not always about the size of the transaction, but it’s about the impactfulness,” he said, pointing to the EBRD’s EUR 9 mn investment in Abou Ghaly Motors to fund its acquisition of electric vehicles. These were initially used during COP27 and are currently on Cairo’s streets as taxis.

More than half (59%) of the bank’s spending in Egypt went towards green projects. The bank provided a USD 80 mn loan to the Fertiglobe-Scatec-OC-SFE ammonia plant, the country’s first integrated green hydrogen plant. The bank also increased its stake in renewables player Infinity Group in a USD 41.5 mn investment, which helped fund Infinity’s acquisition of African renewables player Lekela Power.

With the broad majority of its spending geared towards the private sector, there’s scope for even more private sector investments: Last year, 78% of the EBRD’s spending targeted the private sector — 50% of which went to banks to on-lend to SMEs and “making sure that the access to finance is maintained or increased,” Hamza told us. Most of the bank’s most impactful work in 2022 was in the private sector, Hamza noted.

The lender’s biggest policy work in 2022 was on the energy pillar of the government’s Nexus on Water, Food and Energy (NWFE) program, to which it committed some USD 200-300 mn. The bank — acting as the lead partner on NWFE’s energy pillar — is working with multilateral institutions to secure investments needed to strengthen the grid, which will allow for more private sector investments in renewables, Hamza said. “The idea is to attract USD 10 bn in investments by 2028 — when the NWFE program will be concluded.”

Egypt has growth potential — but it needs to come from the private sector, which is why the EBRD is trying to focus on leveling the playing field to ensure the private sector can compete freely and therefore attract more FDI. The bank is also looking into participating in the government’s privatization program, hoping to see real governance change to empower private sector participation, Hamza said.

We also have strong policy credibility after a successful COP27: “Egypt was able to bring to the table the issue of climate finance and adaptation and I am happy there was a conclusion that was reached regarding the loss and damage fund that will address adaptation issues,” Hamza said. Just addressing the issue and making headway in resolving it was a huge political success, he added.

Our unfavorable economic conditions came with an upside: The Egyptian economy’s rollercoaster of a year only made the EBRD more committed, seeing that “that’s our role to be there during tough times,” Hamza said, “and see through the transition impact that the bank is trying to achieve and also help the Egyptian government achieve its goals.”

Now, the bank is ready to lend more: “When our countries of operation are affected, we tend to double down on our efforts to do more,” he said. The lender is targeting even more investments this year, Hamza said, adding that its materialization is not certain seeing Egypt’s current situation — EGP devaluation, high food prices, and high inflation. “A lot of work needs to happen to achieve that target, the best way to achieve that is for Egypt to really focus on leveling the playing field for the private sector and locking in more FDI.”

What type of investments can we expect to see? More of the same targeted investments, Hamza said, with more projects targeting inclusivity, the green transition, and manufacturing. “Typically around 20% of our annual investments targets private sector manufacturing projects, so I think we will see more investments coming in that space.”

The focus on green spending will remain unchanged, Hamza said. “We’ve seen that Egypt is really committed to the green agenda. In order for Egyptian products to remain competitive and to be able to penetrate its biggest market — Europe — it has to become greener over time to avoid the additional carbon tax that is going to be levied.” The green movement will come offering more jobs and attracting foreign currency into the country. Egypt’s ambitions to become a green energy exporter can happen through targeting the hydrogen sector and renewables, and capitalizing on the green movement would provide significant economic support, Hamza said.

The lender is also working to help introduce policy changes: “We also are working on the policy side with the government to improve the level playing field for the private sector … we are engaging with the General Authority for Investment and Freezones (GAFI) and the Egyptian Competition Authority (ECA) to see how we can assist to improve their capacity.”

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