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Monday, 24 October 2022

A packed first day at the Egypt Economic Conference 2022

The first day of the Egypt Economic Conference 2022 saw speeches from government and central bank officials. Policymakers ran us through a brief history of our economy as they laid the groundwork to talk solutions today and tomorrow. President Abdel Fattah El Sisi and Prime Minister Moustafa Madbouly each took to the stage to open proceedings, before Planning Minister Hala El Said, Finance Minister Mohamed Maait, and CBE governor Hassan Abdalla led separate sessions on next steps for the country’s fiscal and monetary policy.

Some of the most important points to note out of yesterday’s sessions:

  • The CBE is looking at a new indicator for the value of the EGP that doesn’t compare it directly with the USD, Abdalla said. The indicator would compare the EGP against a (presumably trade-weighted) basket of currencies and potentially also gold, he added.
  • The letters of credit (L/C) system for importers to get their goods released from ports will be scrapped “soon,” according to Madbouly.
  • Slashing red tape and boosting efficiency will be key to strengthening the private sector and boosting FDI, non-state actors at the conference stressed yesterday.

REMEMBER- The gathering sees government officials, experts, and economists come together with the aim of creating a roadmap for the country’s economic future. Yesterday was macro-focused. Today, delegates will discuss the state ownership policy document laying out plans to up the private sector’s role in the economy, and ways to boost FDI. The third and final day, tomorrow, should address ways to stimulate industrial investment, develop national industries, and address the financing gap for manufacturers, as well as solutions to recent import troubles.

We’ve got some big ideas of our own — and we’d like you to join us: If you’re attending the conference, consider plugging our five-step recipe for how to build a new Egyptian economy that puts FDI and exports at the heart of everything we do.

ON THE EXCHANGE RATE-

We’re getting a new currency index: We need to stop measuring the EGP against the greenback to help people get used to the idea of a free-floating currency that is not pegged to the USD, CBE governor Hassan Abdalla said. The central bank will introduce its own EGP index, which will measure the EGP against certain currencies and potentially also gold, he said.

“I don't know why people are always fixated on the USD [exchange rate],” Abdalla said, noting that Egypt is neither an oil exporter nor a major trading partner of the US. Abdalla stopped short of explaining how the indicator will work. Reuters also has the story.

On hedging: The CBE is working to introduce currency hedging and has concluded futures contracts, Abdalla said.

Devaluation can be a good thing, Madbouly said: “Many countries take measures to devalue their currency to become more competitive,” Madbouly said, adding that a weak EGP does not necessarily point to a battered economy. “The value of the currency is not an issue; the real issue is curbing the impact of inflation,” he added.

REMEMBER- The EGP has lost a little more than a quarter of its value against the greenback this year, including March’s steep devaluation. That said, a big part of the decline has been a strong rally in the USD on the back of the US Federal Reserve’s tightening cycle. The EGP has actually strengthened against the GBP, JPY and EUR as the three big currencies have lost ground against the greenback.

Exchange rate flexibility has been one of the IMF’s key conditions for an assistance package, which officials have said could happen “very soon.” Abdalla’s statement comes on the heels of more signals from Finance Minister Mohamed Maait and Planning Minister Hala El Said that we have become more open to a flexible exchange rate policy.

ON IMPORTS-

Are we going to say goodbye to L/Cs soon? The government is working to reverse the Central Bank of Egypt’s (CBE) decision requiring importers to issue letters of credit to buy goods “soon,” Prime Minister Moustafa Madbouly said during the conference (watch, runtime: 2:34:07). This comes weeks after President Abdel Fattah El Sisi said that import challenges facing manufacturers should be solved within two months.

Stay tuned: According to the schedule, we should get more news on solutions to import troubles out of the conference tomorrow.

ON THE PRIVATE SECTOR’S ROLE IN THE ECONOMY-

Slashing red tape + improving coordination is key for a stronger private sector: Business leaders got the chance to suggest ways to strengthen the economy and help ensure its resilience to crises during a session led by El Said. Among the suggestions made were the importance of slashing red tape (we couldn’t agree more), and establishing a coordinating body to help streamline processes across different ministries and authorities.

We also need to make use of our EGP 3 tn worth of unused resources and assets, MP Ghada Ali said during the session, adding that establishing a new, dedicated fund for these assets under the purview of the Sovereign Fund of Egypt (SFE) could help get the ball rolling.

Practical steps to boost investment: Former deputy prime minister Ziad Bahaa El Din laid out a handful of common-sense steps to increase confidence in our market among foreign investors, according to Al Mal. They included:

  • Respond to investors who have pending requests to push forward existing projects;
  • Respect administrative decisions that have already been made to keep promises to investors;
  • Implement the helpful legislation that has already been passed (like the Bankruptcy Act);
  • Have the General Authority for Investments (Gafi) be the main point of contact for investors.

ON NATIONAL PROJECTS-

El Sisi and Madbouly spoke at length about the returns on investments we’ve reaped from several different national projects, including investments to expand natural gas production, improve roads and construct bridges, and in public transport.

National projects have cost the government more than EGP 7 tn so far, Madbouly said, adding that 90% of those projects were implemented by the private sector. Meanwhile, construction of new cities has brought some EGP 10 tn into the Egyptian economy, President Abdel Fattah El Sisi said during his speech (watch, runtime: 53:36) at the conference.

“Without the Zohr natural gas field, Egypt would have been in the dark,” El Sisi said, adding that we would have paid USD 2 bn on natural gas imports every month over the past few years. The 2018 discovery of the supergiant Zohr gas field — the Mediterranean’s largest — and the investments made to bring it online faster allowed us to pull the plug on gas imports. Egypt now produces an average of 58.5 bn cubic meters of natural gas every year, Madbouly added.

ON DEBT-

Our debt-to-GDP ratio could reach 90% this year, Madbouly said, adding that this does not affect the government’s target to reduce it over the next five years. Some “72.9% of our external debt is medium- or long-term, so we still have a while before the repayments are due,” Madbouly said. The government had been planning to reduce the debt-to-GDP ratio to 84% for the current fiscal year.

We’re targeting a 72% debt-to-GDP ratio by FY2026-2027, and a primary surplus of 2.3%, up from 1.3% in FY 2021-2022, Maait said during the session he led on public debt and fiscal policies. The targeted debt-to-GDP ratio would be our lowest on record.

EXPECT GLOBAL ECONOMIC HEADWINDS IN ‘23-

“The worst is yet to come” for the global economy, two high-profile thinkers said as the gathering got underway. Markets sage Mohamed El Erian, appearing in a video, emphasized the importance of economic resilience during global challenges and crises, as he pointed out how inflation, coupled with heightened interest rates and global supply chain issues, have impacted not just Egypt, but some of the most advanced economies in the world.

Center for Global Development President Masood Ahmed made a similar point, noting that next year will “feel like we’re in a recession,” while pointing out that emerging markets will face the brunt of the pressure. “Financial markets are going to be more reluctant, and they will be harder to access,” Ahmed warns, adding that debt pressures are going to be felt by many EMs. “The shocks may be global, but the response will have to be primarily national economic policies,” he said, pointing to the importance of how we manage the exchange rate as well as addressing “underlying fundamentals” like private sector involvement in the economy and our approach to debt.

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