EFG Hermes Group CEO Karim Awad kicked off the group’s One-on-One Conference in Dubai yesterday, welcoming 179 companies as well as 561 global institutional investors and fund managers to explore key investment opportunities across frontier and emerging markets. The conference (pdf), headlined “Outplaying Challenges,” runs until 9 March.

Sovereign Fund of Egypt (SFE) CEO Ayman Soliman took to the One-on-One stage yesterday morning to talk about the fund’s approach, which sectors its eyeing, where its pre-IPO fund fits into the government’s privatization plans, and how the depreciation of the EGP impacts potential investors.

“Egypt is a two-sided economy,” Soliman told attendees. The SFE is targeting both of those sides — “the old that needs to be rethought, which includes the agriculture, tourism, and services sectors, as well as any consumer-driven sectors,” as well as fast-growing new sectors like tech, renewables, and the green economy. “Our ethos is to create avenues for capital to flow into key sectors,” he said.

Key sectors for the SFE: “For us, key growth comes from food, healthcare, logistics and supply chain management, or sectors where labor arbitrage is beneficial,” Soliman said. He also namechecked export-oriented businesses and those that have proven resilient against the currency devaluations.

The SFE’s pre-IPO fund gives state firms a chance to raise capital in challenging conditions: “Global equity markets are challenging and given the current devaluation, equities are becoming difficult to price,” Soliman said. “This unlocked an opportunity for us to bring in strategic anchor partners that add value to the companies that need capitalization that is not abundant in the local market.”

Strategics bring expertise, which brings growth: “Our process for the pre-IPO fund entails carefully selecting companies that have the right growth profile and the right management talent, but don’t have the right know-how or bandwidth to grow outside Egypt or tackle their next M&A. We bring in strategic partners who see these opportunities, and once that partnership is forged, the company goes to market at multiples of its valuation, which is [good] for investors, the partner, and the company. It’s a two-way value-creation cycle.”

And investors should feel confident about returns: “We have seen a lot of private placement investors locked into companies over the last two years, stuck with illiquid instruments due to COVID or geopolitical challenges. That is why we carefully select companies with high growth potential and good payout,” Soliman said. “So if the government doesn’t deliver, investors still get to walk away with returns.”

^^ You can read more from Soliman on the plans for the pre-IPO fund in the Privatization Watch section, above.

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KEY TAKEAWAYS from EFG Hermes Research’s 2023 One-on-One Live Poll, the only live research poll we know of in frontier emerging markets. Participants had 10 seconds to vote live on each of 10 questions. Here’s a roundup of the results:

• Fed to stay hawkish for longer: Almost three-quarters (72%) of respondents think the Federal Reserve won’t start to cut interest rates until 2024 — with 45% of all respondents expecting the cuts to come in 1H 2024.
• Oil to tread water this year: Almost three-quarters (73%) see Brent crude averaging USD 80 / bbl in 2023, while 23% think it will reach USD 100. In September last year, fewer respondents (46%) saw Brent averaging USD 80 / bbl in 2023 — and more (41%) predicted USD 100.
• EM stocks > Wall Street: MSCI’s EM stock index will outperform the S&P 500 in USD terms this year, think the majority (57%).
• AI is making waves: More than half (54%) of respondents already have a ChatGPT account. A full 12% still don’t know what that is.
• The biggest challenges for businesses? Geopolitical factors (34%), cost of debt (25%), and lack of human capital (24%).
• And the biggest factors driving chances for investment? Saudi Arabia’s Vision 2030 (34%) and AI (25%). Egypt’s economic reforms got 12% of votes.
• Climate change is a big concern: More than seven in 10 investors believe climate change will have an impact on their business within the next 10 years. Some 41% think the impact will be moderate and 30% expect it to be significant.
• The most concerning MENA-specific challenges: Inflation’s impact on consumer stocks (37%) and the impact of tight liquidity on bank margins (31%).
• The most attractive industries to invest in over the next five years: Healthcare (24%) and IT (19%), followed by renewable energy (18%) and food production (17%).