Karim Awad has led EFG Hermes since 2013, bringing the firm back to profitability in the wake of fallout from 2011 revolution. He has solidified its position as the region’s leading home-grown investment bank and directed its expansion since 2015 into non-bank financial services, including financial leasing and microfinance. Awad is presently taking EFG Hermes into global frontier markets and rolling out a merchant banking model. He’s soft spoken and modest, a critical thinker who came up through the investment banking side of the business, which he joined in 1998. Awad has led and closed transactions with an aggregate value of more than USD 40 bn. Excerpts from our conversation:

2017 will be the year of adjustment. The world is going through a tremendous period of change, and our region is far from immune. When you combine that with the period through which we’re passing in Egypt with the government’s reform agenda, the level of change is historically unprecedented. There’s no doubt in my mind that the reforms are spot on in terms of what they will do for the long-term health of the economy, but they will pose short-term challenges. Companies will have to adapt to an environment quite different from what they saw in 2016 — or any other year in recent history. The free float, the phase-out of subsidies, rising prices of utilities and fuel, the implementation of the VAT, inflationary pressure, rising cost of labour — everyone has completed their analysis of how these factors will impact the overall health of their business, and 2017 will be a year in which we all adjust our plans as we go.

The biggest challenge for the economy is bringing in investment, whether that’s direct or portfolio. Direct investment is much more important at the moment — it’s the only way to sustainably create employment and drive the long-term health of the economy. The immediate impediment to attracting direct investment has been removed by highly courageous decision of the currency float that dealt with the problem as a whole and through a devaluation piecemeal. But there are still other impediments that need to be dealt with in the same manner. We need to remember that non-Egyptian investors with significant foreign capital to deploy have a multitude of global investment destinations from which to choose. We need to make sure that we stand out.

The passage by the House of Representatives of a very good investment law is a starting point, but we also need to remember that ongoing communication is going to be key. There needs to be a continuous dialogue between the government and the investment community. They’ve been very good at that across all of the key ministries, and it needs to continue.

The government needs to continue to listen to the issues that businesses and investors bring to the table. Identifying those and dealing with them quickly and proactively will make our jurisdiction stand out. We need to be seen as offering a pro-business environment.

Our industry faces many challenges in 2017, most of which are a direct outgrowth of the highly volatile nature of the business. We have a set strategy and business goals, and we can always control costs, but we have comparatively little control over revenues. We’re the largest brokerage house in the UAE, Egypt and Kuwait, for example, but if trading volumes thin out, there are limited levers you can pull to generate brokerage revenues.

We will definitely be implementing raises — our people are our biggest asset. You deliver the best quality services by having the best quality people. We’ll retain staff by addressing inflation, by giving them access to on the job training, exposure to the best transactions and by ensuring that young, dynamic professionals who come up through the ranks with us have clear paths to advancement. In our high burnout industry, it’s always healthy for younger people who have been nurtured in the firm’s culture to come into senior positions with a renewed drive and energy.

Our industry’s biggest opportunities are product-related. We need to grow beyond the plain vanilla products we all offer today. We have led the way by investing significant capital and resources to open our leasing business in 2015 and then again in 2016 with the acquisition of Tanmeyah, which form the backbone of our non-bank financial services platform. There’s more to come on that front in 2017. Our private equity division has been very innovative with its investments in yield-generating renewable energy assets in Europe. Brokerage and Research have just launched a comprehensive online trading platform in cooperation with SaxoBank. It’s about thinking outside the typical product box to create more opportunity to maximize cross-selling and minimize volatility.

I do think the IPO outlook will be quite healthy in many parts of the region. The recovery of capital markets will be key — robust capital markets are very helpful in attracting new listings. We’ve led 10 companies through successful IPOs since 2014 on the DFM, LSE, Nasdaq Dubai and the EGX. That’s more than any other player in the region. And we entered 2017 with a good pipeline in Egypt and the UAE, all of which are exciting equity stories that will, in many cases, provide investors with access to underrepresented industries and even industries not presently presented on the exchange.

We’re starting 2017 with much stronger trading activity on the EGX in particular, and more importantly, the diversity of investors has shifted dramatically since 3 November. We no longer see only Egyptian retail and Egyptian institutions participating — we’re also seeing a lot of very large tier-one foreign investors coming heavily into the market. The best thing about this is that they see opportunities in Egypt not just because of cheap valuations, but also because they see the EGP moving in their favour before they exit.

What are investors asking? When I met investors at our One on One conference in March, every single person came into the room asking about the economy. Very few were drilling down into EFG Hermes itself. By September at our London conference, it had turned 180 degrees. Today, all of the investors we meet are asking about us, about our plans for the year ahead. I think every listed company is seeing this today. Investors are now looking for the right opportunity because they feel a lot more comfortable with the macro picture than they did at the beginning of the year.

Egypt will see strong M&A flow in 2017, and we have a strong GCC pipeline, too. The reforms the government is undertaking and the eventual resolution of currency volatility are key here. The volatility you see today in the currency is very short term when looked at in terms of the horizon of a long-term strategic investor. I think a large percentage of our M&A transactions will be cross-border and will be more likely to be financed by equity than debt given the high interest rate environment. It’s going to be great for the FDI flows into the country and for the CBE’s reserves.

Commercial banks will continue to do very well. The market remains highly under-penetrated, whether you’re talking about retail or SME banking, and everything from the ongoing budget deficit to high interest rates to a high level of liquidity are in favour. As the economy starts its recovery, they’re also likely to find a lot of opportunity in syndicated facilities, in corporate lending and in growing their fees and commissions business. Non-performing EGP and USD-denominated debt might be the downside for them, but the banks are by and large well capitalized and over-provisioned, and the central bank has been quite strict about USD lending for some time now, so I don’t think we’re going to see much in the way of major defaults.

I’m not sure I can pinpoint one sector — on its own — as the worst-performing, but cost inflation will be very challenging for most businesses. Wage costs will rise, the cost of debt is rising and utility outlays are rising. Everyone on the cost-side of the income statement will be growing faster than will the corresponding revenue-side in 2017. I do see it will be challenging for most industries to pass on the full impact of rising costs, so margins will be squeezed.

If I were to start a new business today, I would have loved for it to have been a restaurant, but my culinary expertise is limited, and I know my business. I’m a big believer in the migration of businesses to digital, in online delivery. That’s why we are launching EFG Hermes One. I would have done something fintech related. I’m a big fan of companies like Fawry, and we have so much incredible young brainpower in Egypt that I can think of any number of innovative fintech products. Whether personally as an investor or as EFG Hermes, I find fintech very compelling going forward.

The government is quite cognizant of the need for regulations to ease the flow of investments into Egypt. I would really want to see movement on the Suez Canal economic zone, which could be a major game changer for the economy as a whole and a huge source of job creation. Obviously, the sheer size of our market is going to be the primary driver of investment in Egypt, but the Suez Canal economic zone could really be transformative by turning our geographical location into a major logistics and industrial hub that would see us be the gateway between Europe and Asia.

For Egypt to increase its export potential, we need as a nation to decide what our competitive industries will be. What advantage do we have over Bangladesh or Southeast Asia in textiles? Why would we focus on technology or agriculture? Once those are identified, incentives for investments in those industries should be given to help nurture and grow them into globally competitive companies that can compete on a global scale and bring much needed dollar inflows into Egypt.

I hope the question we’ll be asking at the end of this year is whether we were too risk averse. We’re in the midst of so many changes and everyone tends to walk on the side of caution. Think about it: Nassef Sawiris one of the smartest business people in Egypt. He undertook a massive investment program in the late 90s and early 2000s when things were very difficult in Egypt. By 2004, the country took off in major way. I bet a lot of people looked at him then and said, “I wish I had done the same. I wish I hadn’t been so risk averse.” It will be a great problem to have if we are in a similar situation and asking that very question in December 2017.