Sunday, 15 March 2015

USD 51 bn in investments pledged at day two of the Egypt Economic Development Conference (Part 1 of a two-part special report)

WHAT WE’RE TRACKING TODAY

Today’s edition focuses on who said what, where, yesterday and includes the kernel of the project tracker will be building out this week. We have a two-part edition today for space reasons: Part one includes our talk shows roundup, the project roundup from day one of the EEDC and coverage of the business-dominated panels. Part two, which we’ll be sending in a second email, will include a rundown of commentary from government officials.

One note on content: The five simultaneous sector-specific sessions were, unfortunately, not broadcast or livestreamed, so we have no coverage there pending receipt of footage from the organizers. We’ll keep you posted.

We’ll also have later this week a comprehensive set of links to all panel sessions that have been broadcast.

** DID YOU MISS YESTERDAY’S SPECIAL SATURDAY EDITION? **

Click here for a recap of President El-Sisi’s opening address, coverage of The Capital Cairo, Egypt’s new capital, and reaction in the international press.

QUOTES OF THE DAY

Advice: Stop whining. The future will come down to the private sector. … This is a democracy with an enormous amount of legitimacy. I know what an illegitimate government looks like and smells like.” —Timothy Collins, CEO, Ripplewood Advisors

You don’t commit to a USD 12 bn investment unless you believe in what is going on in the country.” —Bob Dudley, Group CEO, BP

“Everyone decides on which risks he’ll bite into, and in Egypt, I’ll bite into any risk, any day.” —Emaar Chairman Mohamed Alabbar

I wish we had as many opportunities in Europe as we have in Egypt” —Joe Kaeser, President and CEO, Siemens

LAST NIGHT’S TALK SHOWS

After months of anticipation and periods of serious doubt about the viability of the economic summit, Egypt’s talk show hosts proudly showcased the highlights of day two of the EEDC. During their regularly scheduled time slots, most of the talk show hosts gave commentary interspersed with interviews conducted throughout the day on the sidelines of the conference. Below are some of the highlights.

El Kahera Wel Nas’ Osama Kamal interviewed Egyptian Prime Minister Ibrahim Mahlab, discussing a variety of topics including the energy crisis, energy sector reform, the new administrative capital and the participation and surprising support of the U.S. and Europe in the summit.

“The choice of location of the new capital is key. Its proximity to the new road network that we are currently constructing and its proximity to the Suez canal zone — and, of course, the availability of space — made this an ideal location,” said Mahlab. “Cairo can no longer sustain growth. We have already reached maximum levels of congestion, so we had to act fast. We expect the new capital to accommodate 5.5 to 7 mn residents.”

On the sudden the change of heart the west has had vis-à-vis Egypt, Mahlab said: “We have delivered a very important message. What happened on 30 June 2013 was the will of the people. The Egyptian people are behind the President and behind the reform process in a way that we have never seen before. The stability of Egypt is the stability of the region and the stability of Europe. There is no doubt about this. We are not afraid and we know the path that we must follow.”

Kamal also interviewed Mahmoud Abdel Latif, managing director of the Tahya Misr Fund. “The real test will be the implementation of these new laws that were announced,” said Abdel Latif. He explained that there are two main components of the Tahya Misr Fund: tackling social problems (healthcare, slums, housing, etc.) and making investments so that the fund is sustainable. “We intend to establish a holding company with subsidiaries in multiple sectors. We will partner with the private sector on labor-intensive projects. Within the next three weeks we will have a detailed business plan for the projects that we will be investing in. We will be moving very quickly as we do not have the luxury of time.”

OnTV’s Youssef El Housseiny interviewed Qalaa Holdings Co-Founder and Managing Director Hisham El-Khazindar, who discussed Qalaa’s USD 3.7 bn Egyptian Refining Company, the largest ongoing private-sector megaproject in Egypt. The project will cut Egypt’s current diesel imports by more than half and carry significant environmental benefits. El Khazindar noted that Qalaa was among the companies that never stopped investing in Egypt during the past four years despite the challenges.

“Not only did we not stop investing, we also did not stop the activities of our scholarship foundation. 2015 is the eighth year that the Qalaa Foundation has awarded scholarships to students for graduate studies abroad. So far, 120 students have gone to study abroad and come back to Egypt. Nothing makes me happier then when I bump into one of these scholars and they tell me about their experience,” said El-Khazindar

“We all have big dreams. We are at a critical juncture and I am optimistic that we are moving in the right direction. We are more than capable of returning to GDP growth rates between 7-8% within the next three years,” El-Khazindar noted. “We had this kind of growth before the 25th of January, but there were two problems: This growth was often through companies that enjoyed 10 year tax exemptions. That wasn’t completely wrong because we were trying to attract investment, but the society at large was not benefiting. The investments created job opportunities, but they were not contributing to help the government fund healthcare and education. I did not want the New Suez Canal’s special economic zone to be a tax haven. Bringing down the general tax rate across the board was a very good decision on the part of the government. A growth rate of 7-8% — that provides benefits to all segments of society — has to be sustained over a period of 10-15 years so that we can experience a real shift that will allow our children to grow up in a better Egypt.”

Lamees El Hadidy interviewed Mohamed El Abbar, who has clearly emerged as one of the most passionate advocates of the New Egypt during the conference. El Abbar spoke about the USD 90 bn new administrative capital, which has been branded The Capital Cairo.

“The new administrative capital will include investments from Egyptian, Saudi and UAE companies,” said El Abbar, who is clearly excited about the project. “We hope that within the next 3-4 years, we will start to see people walking the streets of the new capital. I am personally invested in this company along with a number of companies who believe in this country and its potential,” he added. “We will start work within weeks, but President Al Sisi is not happy, he wants us to move even faster,” laughed El Abbar.

Amr Adeeb, Khaled Abu Bakr and Rania Badawi chatted about the irony of the unprecedented show of support for Egypt, particularly on the part of western countries and western investors.

“The 16 platinum sponsors of the EEDC [Egyptian companies]  each paid USD 1 mn for their sponsorships. Believe it or not, the foreign companies were jealous of those 16 booths that the Egyptian platinum sponsors had. Some of them mentioned to me that they should have been invited to sponsor as well,” said Abu Bakr.

“We are being very nice to the investors who are here with their checkbooks. Everything is rosy. We want the face of Sharm El Sheikh to continue after the conference is over. After the checks clear, are we going to continue being nice? We need to maintain this good faith. Develop these relationships that we have made. Let’s not turn these new friends into enemies,” said Adeeb.

SPEED ROUND

Egypt has so-far signed agreements and memoranda of understanding worth more than USD 51 bn at the conference. We’ll be publishing (and updating going forward) a full rundown later this week once the conference closes and we’ve had the opportunity to vet all the reports. In the meantime, deals announced yesterday during televisions sessions, on television news, online or on the EEDC’s news feed include:

Oil & Gas (USD 21.35 bn, all agreements)

  • BP: Agreement to invest USD 12 bn over four years to develop oil and gas fields in the West Nile Delta, with production scheduled to start c. 2017. The largest agreement signed to date, it was concluded (along with most other E&P deals) and announced just before Sharm as a momentum building. (Release here)
  • BG: Expected to announce today (Sunday) it will invest USD 4 bn to develop natural gas fields in the Mediterranean.
  • Eni: Agreements to invest USD 5 bn over 4-5 years to develop gas discoveries.
  • Dana Gas: USD 350 mn to support the drilling of 40 new development wells as well as investing in existing assets

Power Generation (USD 19.6 bn, primarily MoUs)

  • Siemens: MoUs worth USD 10.5 bn (EUR 10 bn) to build a windmill rotor blade factory as well as 4.4 GW combined-cycle power plant in Upper Egypt and 2 GW of wind power (location not confirmed), perBloomberg.
  • ACWA: USD 7 bn coal-fired power plant (some reports see this lumped together with the Masdar and ACWA renewables projects, below, but our understanding is that this is a separate MoU)
  • Masdar and ACWA: USD 2.4 bn to build 4.4 GW of generation capacity, all of it solar and wind
  • GE: USD 200 mn agreement to build a manufacturing and training facility that will create 400 new jobs

Transportation & Logistics (7.42)

  • AVIC: The Chinese company inked a USD 1 bn deal to manufacture rolling stock and develop rail assets; the agreement was first explored during President Abdelfattah El-Sisi’s groundbreaking trip to Beijing.
  • Dubai Ports: An agreement to invest USD 415 mn in Ain Sokhna Ports.
  • Al-Swidan: Two deals worth USD 6 bn to invest in the Damietta commodities hub as well as the Suez Canal Development Project.

Retail (USD 655 mn, intention)

  • Majid Al-Futtaim: As we reported last week, MAF is expanding its investments in Egypt, with CEO Alain Bejjani saying the company will invest EGP 5 bn in eight projects over five years, creating more than 144,000 direct and indirect jobs.

Real Estate (N/A)

  • Skidmore, Owings & Merrill will lead city planning for The Capital Cairo, the new administrative capital. No value was ascribed to the deal in the statement.
  • The land deal for the proposed new administrative capital was signed on Saturday between Mohammed Alabbar, chairman of Emaar and head of the Capital City Partners fund and Minister of Housing Moustafa Madbouly.

Unconfirmed / Miscellaneous (USD 2 bn)

  • Abu Dhabi’s Khalifa bin Butti bin Omeir will invest USD 2 bn in “key sectors” of the economy, Reutersreports.

Regulatory Reforms

  • Confirmation we will see a new tax code published
  • A new, independent “shadow” regulator (probably along the NTRA model) for the oil and gas industry “within six months,” said Oil Minister Sherif Ismail.

IN OTHER NEWS: As a reminder that not 100% of all business news this weekend took place in Sharm El-Sheikh, Edita Food Industries published the public subscription notice for its offering on the EGX yesterday. Highlights of the offering, on which EFG Hermes is Joint Global Coordinator and Joint Bookrunner, include:

  • 30% of company shares in secondary offering, with selling shareholders including pan-emerging markets private equity firm Actis and Greek snackfoods player Chipita.
  • The offering will include two tranches: 15% to Egyptian retail investors and 85% in an offering to institutional and HNWI both in the local market and in the form of GDRs on the London Stock Exchange
  • Subscription for retail investors begins today and ends 31 March, with 25% of the value of shares to which investors are subscribing to be deposited with brokerage firms based on the IFA valuation of EGP 19.21 per share
  • Final price arrived at via a bookbuilding process should be announced c. 29 March 2015
  • First day of trading: Thursday, 2 April 2 2015

WHAT YOU CLICKED ON LAST WEEK

  • President Abdelfattah El-Sisi on FOX News (FOX News via YouTube)
  • Investor’s Guide to Egypt (N Gage Consulting) (pdf)
  • Did ‘SNL’ ISIS skit cross a line? (CNN)
  • EFG Hermes: How Patience Turns to Profit (Arabian Business) (tie)
  • Satire is no joke for Egypt’s Jon Stewart (CNN via YouTube) (tie)
  • The Capital Cairo (Official website of the new administrative capital of Egypt)

***
A MESSAGE FROM PHAROS HOLDING: Are analysts under-valuing Egyptian companies? The Stern School of Business’ Aswath Damodaran has backed Pharos’ assertion that analysts may be undervaluing Egyptian companies due to an error in commonly accepted terminal value calculation methodology. Learn more here.
***

EEDC PANEL DISCUSSION: EGYPT: GATEWAY AND HUB

Key Takeaway: Participants were exceptionally (and genuinely) optimistic about Egypt. The panel was short on news, long on positive sentiment.

GE Chairman and CEO Jeff Immelt: As a global company, we’re not studying short-term ups and downs, but the long term. We’re looking for spirit on the ground, a willingness to tackle infrastructure and regulation. As a business person, what you want is infrastructure. You want investments in training and the education of people. You want development of SMEs. You want regulatory reforms. We see all of this happening in Egypt. That’s why we announced a USD 200 mn factory in Egypt yesterday. We do business in democracies, kingdoms and everything in between. Business adjusts to the world we live in. The question is about financing and about execution. For two years in the USA, I led the Jobs and Competitiveness Council, and we came up with a formula: infrastructure, regulatory reform, training and education, and nurturing SMEs. That formula will work everywhere, and it will work here.

EBRD President Sir Suma Chakrabarti: We’re 2.5 years into operating in Egypt and we have had a very strong start. The last 6-9 months — since we’ve had more stability — we’ve invested EUR 750 mn in power, in municipal services and in SMEs. Job creation is fundamental to us, and what’s more remarkable than what we have done so far is the pipeline of EBRD investments. It’s very strong in Egypt because the government is doing so well with reforms that it’s attracting private investors with whom we can work. The political, economic and social narratives are joining up

Emaar Chairman Mohamed Alabbar: If you understand the velocity of the Egyptian economy, the size and depth of the Egyptian economy and its population base … it’s clear Egypt is on its way to becoming one of the 20 most important economies in the world. If you’re in the business of building infrastructure, you’re in the right business if you’re in Egypt. The new administrative capital will echo the affordability, the diversity and the energy of Dubai. It will all be there in the new capital. I make you this promise, and we will deliver on it.

Allianz Chief Economic Advisor Mohamed El-Erian: Egypt is on fundamental voyage of economic transformation that will allow it to meet aspirations of its people. There has been a fundamental change in the approach to economic policy. You’ve seen, first, a macro framework coming into place. Secondly, there’s a sectoral reform program tackling power, education, health, sanitation and infrastructure — sectors with both economic and social objectives. And third, the environment is pro-investment with the new investment law, subsidy reform, and corporate tax cuts. Where there has been less confidence has been around implementation, and the institutionalization of implementation is a step in the right direction. What next must be external support beyond that of our three very, very good friends in the Gulf. And we need to supplement megaprojects with lots and lots of SMEs and startups.

Unilever CEO Paul Polman: We have four factories in Egypt and directly employ 10,000 people. Throughout good and bad times, we’ve continued to invest, and now that the government’s plans are clearer and more ambitious, we’ll step that up to serve the Egyptian market and for the significant export markets we serve from Egypt. I’m very optimistic about Egypt’s consumer market, particularly after the sustainable development strategy that was discussed [by Planning Minister Ashraf Al-Araby] this morning. The key challenge to unlocking growth in Egypt is for this to be inclusive growth. You need to unlock the bottom of the pyramid. Growth must include opportunities for youth and women.

Best Quotes:

“Everyone decides on which risks he’ll bite into, and in Egypt, I’ll bite into any risk, any day.” —Emaar Chairman Mohamed Alabbar

“I have operations in 15 countries. It will take me six years, in Canada or America, to get a building permit. In Egypt, five months. If you know want great returns, come to the Middle East. And within the Middle East, Egypt is the place.” —Alabbar

“In Egypt, mns of people go to school each day. Mns need healthcare. We realized some time ago as a management team that not all Egyptians are going to get a Shengen visa. They’re not all going to the U.S. embassy and getting a visa. We believed Egypt would work, that you can’t bet against nature. Our analysis proved correct.” —Alabbar

“GE is a big company. We have thousands of projects going on, but I know this one very well. I know how important it is to the Egyptian people. We won’t let you down. We’ll execute on this.” — GE’s Immelt on the company’s drive to install 2.6 GW of generation capacity.

“When we come and build a factory and hire 500 people, there is an 8x multiplier in the supply chain.” —Immelt

“I’m a young man. In a world like the Middle East, I’m a young baby. Why would I leave?” —Immelt, asked if he plans to step down as head of GE.

“Think of someone having a heart attack: The system doesn’t restore automatically. There’s a sequence, so the people who come in first are those with the most information — it’s the UAE, KSA and Kuwait. They are the first movers because they know Egypt best. Financial investors followed: Egypt’s was the best-performing stock market in the world last year. Third are other countries and businesses. We’re seeing that now.” —El-Erian, asked if he was surprised the G8’s promise of USD 20 bn in aid for Arab Spring countries hadn’t materialized.

“‘Inclusive growth’ has become part of normal vocabulary. There’s this critical understanding that the benefits of growth must be high and fairly distributed. Too much inequality is bad economics, as ministers have repeatedly told us today.” —El-Erian

“When I pitch sovereign wealth funds, they see Egypt and this region as having real potential. Equity returns in Egypt last year were fantastic. We’ve pitched-in with EUR 2 bn for this region, of which EUR 750 bn have come to Egypt. This region is much more open for business.” —EBRD’s Sir Suma

“Everybody needs chance at a better life. You need to believe that peace comes with economic prosperity. Make a commitment. We’re all human beings of the same race.” —Unilever’s Polman on why he thinks it wrong businesses use fear of regional instability as a reason not to invest.

EEDC KEYNOTE INTERVIEW: JOE KAESER, CEO, SIEMENS

Key Takeaway: Siemens and the Sisi administration have agreed a USD 10.5 bn agreement to build a 4.4 GW combined cycle power plant, as well as a wind power plant with a capacity of 2 GW. Siemens will also establish a rotor-blade manufacturing plant that could create up to 1,000 jobs. The announcement will triple Siemens’ footprint in Egypt. Siemens also plans to establish a mentorship program for 500 Egyptians and will EUR 10 mn to the Egyptian people.

Best Quotes:

  • “We have been present in Egypt since 1901, more than a 110 years. We are committed to this country.”
  • “We do business with many countries from without the world. I am a very strong believer that there is no business, if there is no stable society. That said, business leaders should not obsess over the business climate of a country, but should strive to stabilize the societal development of a company.”

EEDC PANEL DISCUSSION: ENHANCING THE INVESTMENT CLIMATE IN EGYPT

Key Takeaways:

Reform culture as well procedure. While Minister of Investment Ashraf Salman acknowledged the dangers of falling back into regressive habits that rely on a stringent bureaucracy, he feels that the reforms have carried through to the rank and file of both government bodies and the business community. At a later junction of the discussion, Ahmet Bozer, President of Coca-Cola, stated that the reform culture must also be carried into the business community. If the private sector remains concerned with short-term returns, true reform can never be achieved. He stressed the need for companies operating in Egypt to possess a long-term vision for their presence and a long-term commitment to dialogue with the government — and be active participants in the reform process.

Gauging investor confidence. After discussions investors from across the globe, Salman posits that the majority of investors felt that the reforms undertaken were sufficient to drive investor confidence. He did acknowledge that investors continue to push for swifter action in pushing along the legislative package that deal with some of the endemic problems of the old economic regime, such as an inefficient system for resolving disputes.

Bureaucratic leashes. According to Naguib Sawiris, one of the largest unresolved hurdles in generating a climate conducive to investment is the lack of swift change in Egypt’s inefficient bureaucracy. Licenses remain hard to obtain, while the lack of clarity involved in obtaining approvals from different municipalities have slowed down the timetable of some important investment projects. Sawiris places the blame squarely on an endemic fear in mid-to-low-level officials of taking bold and decisive action to follow through on the well calculated plans being devised at the ministerial level. This is due to the old system that punishes the official if a decision does not go according to plan, and fails to reward him or her for successful execution.

Pacing of the reform timeline. While Naguib Sawiris and Lubna Olayan, CEO of Olayan Financing Company, had some reservations about the speed of the reforms, EFG Hermes CEO Karim Awad Majid Al-Futtaim chief executive Alain Bejjani affirmed that the scope and magnitude of the reforms already achieved in the last six months were monumental when compared to previous Egyptian governments — and, indeed, other governments. Hazem Badran, Deputy CEO of CI Capital, was quick to defend the government’s pacing by pointing to the subsidies reforms, which have eluded Egyptian governments for decades out of fear unpopularity. In his concluding statement Joe Kaeser, President and CEO of Siemens, argued that focusing purely on speed is narrow-minded and that the objective must remain establishing an ordered plan of action that focus on the issues in a comprehensive manner.

Government support for SMEs. Badran stated that a number of major obstacles are hindering SME development in the country, pointing to the relatively high interest rates as one of the biggest. Karim Awad, however, was quick to stress that government has begun taking meaningful action in promoting SMEs to the business community and expects these to show greater dividends in the future.

Transparency. On the issue of transparency and combating corruption, most of the panel guests began espousing the benefits of transparency. However, Naguib Sawiris pointed out that transparency remains the least of his concerns as an investor and he feels that this is reflected across the business community. He added that establishing a clear political and economic roadmap is of greater importance and urgency than transparency.

Best Quotes:

“As an Arab, what I would like to see is Egypt take on a leadership role in bringing about administrative and structural economic reform” —Lubna Olayan, CEO of Olayan Financing Company

“Egypt has 90 mn people, and the way to navigate through this change is with good leadership. And I have to say, I am very impressed with the leadership” —Joe Kaeser, President and CEO, Siemens

“We are undergoing a revolution as far as reforms are concerned. A silent revolution, whereby we are changing a culture, at the same time we are moving really fast with new projects, and all of this was done in seven months” —Ashraf Salman, Minister of Investment.

“We [Egyptian Investors] should set the example of investing in Egypt which will be a comfort to our foreign counterparts” —Naguib Sawiris

“There will be mistakes made, there will be wrong decisions, but there is one antidote: That we stay firm on this road and there be greater dialogue between the government and the private sector.” —Ahmet Bozer, President, Coca-Cola

EEDC PANEL DISCUSSION: EGYPT’S ENERGY EQUATION

Key Takeaways:

BP’s USD 12 bn investment to develop 5 tn cubic feet of gas in the West Nile Delta over the next four years is the largest single FDI in the country to date. BP Group CEO, Bob Dudley announced that the project, which is expected to create thousands of new jobs, will begin first production in 2017. The gas that will be produced represents a 25-30% increase in Egypt’s current supply of natural gas. According to Dudley, BP has chosen to commit to this huge project because “in the past 3-4 months we have literally been able to see the red tape being cut in Egypt.” The deal is a major indicator of the changing business environment in Egypt.

New energy legislation. According to OCI CEO Nassef Sawiris, the new electricity law will allow multiple private sector power projects to move forward in a much more seamless manner. He looks forward to similar legislation being passed by the Ministry of Petroleum allowing the private sector to purchase gas directly from the E&P companies. Giving industrial users a bankable source of energy will open a lot of investment opportunities.

Now that the subsidy system is dead what should we be looking at? According to Chairman and Founder of Qalaa Holding, Ahmed Heikal, there are three main things:

  • A clearing price of energy — energy must be available at a price, we can debate what that price should be, but it is no longer acceptable to have shortages;
  • Substantial new investments in upstream oil and gas;
  • Renewables and how we encourage more investments in renewables.

Encouraging new investments. According to Total’s Philippe Boisseau, there are 41 different stamps currently required to establish one gas station. If we could ease these procedures we could create twice the number stations and twice the number of jobs each year.

Investing in Renewables. Renewables are an important part of the new energy mix, said Egypt’s Minister of Electricity, Mohamed Shaker. 2000 MW will come from solar and 2000 MW from wind. The new law provides incentives for investments in renewables. We have thus far received almost 187 applications to participate in this scheme. At the end of the month the final power purchase agreement will be ready for those using the feed-in tariffs.

Petroleum sector reform. The Egyptian Minister of Petroleum, Sherif Ismail announced that the government is investing in upgrading the infrastructure with ports and refineries including Midor and a refinery in Suez. Additionally, new infrastructure projects will be launched with the government offering a number of pipelines as investment opportunities for the private sector. Ismail explained that the reform is not only limited to infrastructure, the government will be establishing a shadow regulator within the next six months which will help secure the market and give investments the opportunity to work freely.

Best Quotes:

“You can feel the economic engine of Egypt revving up at this conference.” —Bob Dudley, Group CEO, BP

“Egypt is the lynchpin for the Middle East and must therefore meet its own energy needs.” —Dudley

“You don’t commit to a USD 12 bn investment unless you believe in what is going on in the country.” —Dudley

“We have built an infrastructure in Egypt that is three times the size of Alexandria and we have opened that up to other operators like BP.” —Sami Iskander, COO, BG

“We have 100 mn people and a gas shortage, so there is a huge market and great opportunities in the energy sector.” —Nassef Sawiris, CEO, OCI

“In the past seven months we have had transformative legislative change in the electricity sector with bankability in mind and this is a first for the government.” —Sawiris

“We are in the middle of a major transformation of the energy sector in Egypt. The subsidy system which has gotten us into the situation that we are in today is dead.” —Ahmed Heikal, Chairman and Founder, Qalaa Holdings

“There is definitely something new happening in Egypt. There will be investments on a massive scale; the amount, magnitude and size of investments in the coming period will dwarf anything that the government is talking about. The future is being shaped now and it is a bright future.” —Heikal

“We acquired the distribution assets of Shell and Chevron in Egypt, we showed trust in the country and two years later we have not been disappointed. Today, we would like to do more,” Philippe Boisseau, President, Marketing & Services and New Energies, Total

EEDC PANEL DISCUSSION: THE GLOBAL INVESTOR PERSPECTIVE 

Key Takeaways:
As with other sessions, the entire panel was bullish on Egypt. Sectors of focus were consumer, education and healthcare, with currency as the primary risk on which the government should focus and mitigate over the short term.

Arif Naqvi, Group Chief Executive of Abraaj, expressed his enthusiasm for investing in Egypt, but also made sure to identify a pressing potential downside risk, namely that the currency can very quickly come under stress. In terms of what needs to be done, Naqvi stressed that the Egyptian private sector needs to demonstrate its belief and confidence in the Egyptian economy as a signal to foreign investors. He also stated that the ‘Egyptian street’ needs to feel good about the economy and spend, given that Egypt is a consumer economy. Naqvi said he is not in the camp that all of Egypt’s challenges are behind it, but that if everyone comes together to work for a common goal, that Egypt will be able to successfully get through what he sees as a challenging year.

Timothy Collins, CEO, Ripplewood Advisors, outlined three criteria necessary for Ripplewood to invest, all three of which he finds in Egypt: only working with those whom they enjoy working with, only investing in places that are interesting and important, and only investing if they receive extraordinary returns. Collins noted that two investments he made a year ago in Egypt have since doubled, and that over the last eight years, CIB (in which Ripplewood has previously invested) increased its market cap by 8-10x. Fielding a question from an audience member near the end of the discussion on the top three risks that Egypt needs to mitigate, Collins replied, in descending order: security, jobs and access to foreign currency for the next 12-24 months until tourism completes its recovery.

Peter Orszag, Vice Chairman, Corporate and Investment Banking, Citigroup, when asked about what needs to be in place in Egypt to maintain its momentum, identified increasing women’s participation rate in the labor market, and stated that the international norm for the size of Egypt’s public sector [relative to its population] should be around 4.5 mn workers. With regard to what needs to happen in the next year, Orszag cited implementation of VAT and a continuation of rolling back subsidies.

Kirill Dmitriev, CEO, Russian Direct Investment Fund, when asked about Russia’s participation in the Egyptian economy going forward, said that Egypt can realistically become an agricultural hub for the region with Russia as one of its suppliers. He also noted that Russia can help Egypt build up its nuclear industry, as well as look into the possibility of developing a sovereign wealth fund for Egypt.

Hisham Ezz Al Arab, Chairman and Managing Director, CIB, in responding to a question about the potential for a market for low-income housing, replied that home-ownership is a pillar of the economy, and noted some government initiatives to assist potential homeowners in financing their homes, but added that developers need to get involved. Asked what can be done to help those living under the poverty line in Egypt improve their standard of living, Ezz Al Arab pointed to education as a means for upward social mobility and to help grow the middle class. This response was also echoed by Orszag, who said that in order to have inclusive growth, an economy needs growth first, then it can look toward inclusivity through increased public investment in education as well as a progressive income tax system.

Sectors of interest: Tim Collins of Ripplewood said he is looking at the real estate, agriculture and financial services sectors in Egypt. Hisham Ezz Al Arab of CIB also cited financial services, as well as consumer goods. Arif Naqvi of Abraaj said that they were interested in the consumer goods sector, and heavily emphasized their interest in the healthcare and education sectors. Orszag also identified education as being interested in the education sector.

Best Quotes:

“Whatever the rules were before [with regards to lack of accountability to the public] they’ve changed.” —Hisham Ezz Al Arab, Chairman and Managing Director, CIB

“The confidence and optimism of the Egyptian private sector is the driver of the economy. There is now more optimism than I’ve ever seen.” —Arif Naqvi, Group Chief Executive, Abraaj Group

EEDC PANEL DISCUSSION: THE SUEZ CANAL DEVELOPMENT

Key Takeaways:

President El Sisi and Crown Prince Muqrin bin Abdulaziz joined the attendees as Mohab Mamish, the head of the Suez Canal Authority, was making his opening statement.

The Suez Canal development project will be called SCZone, announced Yehia Zaki, Managing Director of Dar El-Handasah Egypt. He showed the official promotional video for SCZone (watch in English, running time 08:36). An official app for SCZone will be available in “two or three weeks” on the AppStore and will contain all of the necessary information about the project.

The details of the canal project was further detailed in yesterday’s workshops, Zaki said before going into the general outlines of the project. The project involves a collaboration between three cities and six different ports, and aims to create one mn jobs by 2030, and will require the installation of an extra 6 GW of electricity generation capacity. SCZone requires an upgrade in the transportation network to increase connectivity to ports and increase the reliance on dry land ports. There are three sites ready for investment in East Port Said, Qantara, and Ain Sokhna. The project’s infrastructure is expected to cost USD 15 bn.

SCZone will be governed by the Special Economic Zones law, Hani Sarie-El Din said, not the new unified investment law. The legislative infrastructure involved created laws for the zone itself, a new SCZone regulatory authority, law to regulate the financing of projects at the SCZone and seed capital, and development of infrastructure in the area. Until the new SCZone regulatory authority is formed, Sarie-El Din suggests the Suez Canal Authority oversees the project and Mohab Mamish did not object.

The Special Economic Zones law will treat SCZone as an independent legal entity, meaning that investors will not have to deal with any other authorities except on matters of national security. The law already exists, but is not yet applied, with Sarie-El Din calling it the “best piece of legislation in Egypt …[it]  addresses all investors’ concerns… employs global best practices… [and] uses experiences with similar law in Ireland and Korea.” Land will be granted mostly on a right-to-use basis with long term contracts for periods that could go up to 50 years, ensuring bankability and access to finance. The SCZone authority will be responsible for allocating land, and with the project’s coordinates already settled, investors won’t face the regular problems of allocating land.

SCZone will give its investors access to over 1.6 bn potential clients based on Egypt’s population and its regional trade agreements, according to Mohamed El Sewedy, the head of the Federation of Egyptian Industries. The canal project aims at creating an international export hub, and the laws governing the project have reached the PM’s office who is expected to present them at the next cabinet meeting.

Watch for yourself (Arabic, running time: 1 hour, 12 minutes)

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