Ahmed Badr leads Renaissance Capital’s MENA business and oversees growth strategy in the region. He joined RenCap from Credit Suisse, where he headed the MENA equities franchise in Dubai and Riyadh. He earlier spearheaded equity sales efforts at Credit Suisse in Dubai and was previously a top-rated analyst heading MENA real estate and infrastructure research at the bank. He joined Credit Suisse in 2008 from HC Securities, where he was a senior analyst covering real estate and construction. Readers will recognise Badr from his firm’s aggressive push into MENA and from his frequent appearances on Bloomberg’s morning show, where he takes visible delight in offering contrarian — and exactly on point — commentary.

2017 will be a year of reforms, and the biggest challenge for the economy will be in the implementation. Apart from subsidies and the general economic reform program, the most important thing was the currency. The float was unquestionably the right move, but letting the currency go without ambitious reforms and improving the business environment — and the latter is what is going to bring FDI back — doesn’t help much. That said, there is a clear and strong will for reform, which is made evident by the government’s recent moves. The key challenge is the business environment: bring back tourism (which is already picking up), make it easy for investors to get land and licenses for new factories, et cetera. If the local private sector has the confidence to effectively play their expected key role in the local economy, foreign investors will follow. 2017 needs to achieve this; otherwise, the currency will continue to depreciate if we don’t achieve positive net inflows into the economy.

Banking will do very well in 2017. The wider economic recovery will bring corporate lending back, with all of the positive implications that entails. I also see nascent sectors such as healthcare and education doing well, and the consumer sector will perform more strongly in the second half of this year. The market will adjust to the new reality when it comes to inflation.

My theory is that the informal economy is probably much bigger than the formal economy — it is multiples of the formal economy in my view, which always helps support purchasing power in Egypt. Look at the pictures from shopping malls on Black Friday after the float and you will soon jump to the same conclusion that consumers still have purchasing power. They seem to be negatively affected right now, but I don’t think it will be as severe as many people expect. There is income from the grey economy that, as an economist, you cannot put in numbers. It is unquantifiable, but is definitely a major force that enhances economic activity, in my view.

The float is bringing liquidity from the informal economy into the formal economy. Today, you don’t have two exchange rates — that was the first challenge. There is no longer an incentive to go to the parallel market. The second aspect is confidence, which is extremely important. In my view, the EGP is not going to appreciate towards its real fair value until confidence fully returns. The currency isn’t doing as well as some expected after the float given the FX backlog that has been building up over the years. Everyone thought the currency would overshoot and cool down as liquidity moved into the formal economy. However, it hasn’t cooled down yet given outflows and USD needs. This will adjust in the medium term, and we should see a stronger EGP, especially as capital controls are removed and confidence in the free movement of capital regime builds up. I believe the government is keen on supporting and promoting a free market, which is very positive.

On the stock market side, many foreign investors are still a bit hesitant because repatriation isn’t yet completely resolved. It’s totally understandable if this is a second priority given the size of our import bill, but it needs to happen soon, and I believe the government should be comfortable opening it. In the onset, you might see outflows, but if valuations are attractive — and they are indeed as Egypt is very cheap in USD terms — the money will come back.

What sector do I see underperforming next year? Consumer will likely underperform early in the year before it recovers in the second half. I actually see property being stable, because the weakening of the EGP has made real estate attractive in USD terms. Another sector that might underperform is perhaps cement, given the market is already oversupplied and more capacity is coming on line. However, if we’re right about the reforms and they start to kick in this year? I don’t see many sectors underperforming after the first half.

Our clients on the issuer side are asking about demand for Egyptian equities, and I’m telling them that demand is always there at the right price. And valuations are attractive today, so if you price your instrument right, then that is great.

Fund managers definitely have appetite for Egypt. South Africa has the heaviest appetite given their mandate to invest in Africa ex-South Africa. Nigeria has a number of problems, and Egypt is both much more attractive and weighted heavily. They’re asking a lot about consumers right now, but I think the key question they’re asking is about the shape of the economic recovery and whether we’re going to become an industrial economy. My answer is that we’re not — not in the short term. That’s going to take time, and the bureaucracy isn’t to going to help. That needs to change first. For us to become a manufacturer on the order of Turkey and Morocco is going to take significant (but needed) legislative changes, and that’s going to take time. We have little to offer in terms of export now apart from tourism, which should be our primary focus.

But tourism is an export, and Egypt is cheap. If security is good and you invest in the service industry to support hotels, people will come. The problem is that if you as a tourist have a bad experience, you are less likely to come back no matter how cheap it’s going to get. We need to invest in and improve our services industry.

Many people are overlooking how important remittances will be in 2017. They’re huge — it’s a USD 18-19 bn flow that fell to eight, and over the last two years, that’s mostly been channeled through the parallel market. You lost money that was going to the banks. Today, there’s no excuse, and people are transferring home now. Property prices have been cut in half in USD terms, so it’s a great opportunity for the Egyptian diaspora.

The IPO outlook is very, very interesting. We’re going to have quite a few offerings, and good businesses will be an easy sell. The only real downside risk is the possibility of the offerings being too small. So there’s a risk of some crowding if you have a bunch of USD 5,10, 15 mn offerings that just don’t go anywhere. But the market is smart — these will get filtered out. The noise will drop off.

If I’m positive on IPOs, I have to be positive on M&A activity. There are always people who want out of the market and others who see the opportunity as now being very attractively priced in USD terms. Whether you’re selling a portion of a company via IPO or M&A, it doesn’t matter. It’s going to be a combination of all of it, and we’re busy on all fronts.

Outside of Egypt, I like Saudi Arabia in 2017. I think it will be very interesting. Reform is a very new concern in Saudi — they’ve never done something so extensive, and they’re actually slashing subsidies and changing. I think the market has so far priced in all the negative elements. It’s time for it to move, because the market is cheap.

If I was going to start a new business today, it would be high-end restaurants in Egypt. There’s very little outside the hotels, and they’re incredibly expensive. If there’s even a tiny portion of the population that can afford it, that is still a huge number in absolute terms, and the supply side is non-existent.