Covid-19 may be causing trouble in the markets, but infrastructure projects have so far remained unscathed as construction companies with whom we spoke told us the virus hasn’t slowed the development of infrastructure projects. Aside from a few conferences and meetings being cancelled, companies say that the impact on the ground has been limited, with little to no operational disruptions.
Italian and Chinese companies supply material to Egyptian builders and a number of their construction and engineering outfits are involved in projects here. While Egypt so far remains unaffected by covid-19 virus, companies operating here could see their supply chain disrupted by shortages thanks to plant closures in China and Italy or the inability of foreigner workers to come to Egypt thanks to travel restrictions in their own countries. Any projects that have Chinese components in their supply chain — which, in today’s age, is essentially … any infrastructure project anywhere — could feel the pinch, an official at an electrical engineering firm told us. Look for the impact to be felt first on the building materials front and then to extent to spares and parts for capital goods.
Even if covid-19 infections do not spread in Egypt, there could be other knock-on effects, starting with a potential slowdown in foreign funding for infrastructure projects. Foreign institutions of all forms are imposing travel restrictions on staff in bids to help slow the spread of the virus, and conferences and events are being cancelled across industries. For the infrastructure sector, observers will want to keep an eye on delays at public-private partnership (PPP) projects, and there could be less appetite for both infrastructure and green bonds in the short term.
Egyptian officials speaking on condition they not be named assured us that delays will not derail their plans — green and infrastructure bonds are still in the development pipeline, it’s only a matter of timing. They similarly downplayed the impact of delays on major infrastructure projects, noting that they are by definition long-term undertakings.
Will green bonds see the light of day in FY2019-20? As we noted last month in our feature on infrastructure bonds, their issuance will be determined by how successful the government is with the roll-out of green bonds — bonds issued by the government with incentives to fund green infrastructure projects. Finance Minister Mohamed Maait had initially announced back in January that green bonds would be issued this fiscal year, which ends in June, with infrastructure bonds being slated for an issuance in FY2020-21. The deadline for the issuance of both classes of bonds has always been tied to market conditions, according to statements by Maait. Assistant FInance Minister Khaled Abdel Rahman reiterated that message to us when we asked whether the current market downturn had impacted the timeline for the issuance.
Remember, Asian and European markets are key to Egypt’s green and infrastructure bond strategy: Egypt has been looking to Asian markets, both as an inspiration and as a market for these types of bonds. And European development finance institutions have poured funding into Egypt since 2011. The government has opened initial talks with the Asian Infrastructure Investment Bank (AIIB), which a government source tells us may have appetite for the instruments. “We always have alternatives,” Abdel Rahman says. A crucial part of the ministry’s debt control strategy that was set in 2019 was diversifying our sources debt, he noted, adding that the ministry isn’t beholden to one type of bond issuance to meet its funding targets. Ultimately that determination will be made by the government after consulting with its advisers, whether to go with the infrastructure and green bond route, or look for another way of financing these projects, he noted. Citigroup, Credit Agricole, Deutsche Bank and HSBC have been tapped by the government to advise on these issuances.
Some PPP tenders are on hold for now: Some PPP projects in which the government hopes to partner with foreign companies will not see a tender until the market stabilizes, a government official tells Enterprise. These projects will likely be tendered next month, the source added. While the source did not specify a project, they did note that tenders for a desalination plant and a dry dock project were pushed back to April.
Investment promotion will also take a short-term hit: A global conference to promote investment in the Suez Canal Economic Zone (SCZone) has been pushed to 21 March from later this week, SCZone head Yehia Zaki tells Enterprise. In addition to promoting new investments, the conference was supposed to announce new investment incentives the SCZone has been working on, he added, without disclosing these new incentives. That said, Zaki characterized the delay as an “inconvenience,” saying talks with potential investors would continue, even at a slower pace. “The nature of these projects are long term and will not be impacted by what’s happening now with covid-19,” said Zaki. Despite covid-19’s impact in China, SCZone remains in active discussion with a number of Chinese companies, Zaki said, alongside parallel talks with DP World about a potential expansion.
The bottom line? With Egypt so-far unaffected by covid-19, major players in the infrastructure sector — in the private sector and government alike — are taking stock of risk, engaging in contingency planning, looking at mitigation measures, and bracing themselves for what they hope will be short-term impact.
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