Goodbye to hot money. Egypt moves to rely on foreign direct investment | latest news

Egypt is currently focusing on attracting foreign direct investment, in an effort to reduce dependence on “hot money” after global turmoil and current tensions led to the exit of more than $ 20 billion worth of debt instrument investments from the country during the first 4 years. months of this year.

Why?

These shifts come in the wake of the escalation of pressure as a result of the Russo-Ukrainian war, which affected the economies of the entire world. The impact was evident in all emerging markets; Among them is Egypt.

The impact on Egypt was not only evident in the exit of foreign portfolio investments, but also included pressure on the local currency, which has fallen by more than 17% against the dollar since last March.

The pressure on the local currency was the cornerstone from which the Egyptian moves to focus on relying on foreign direct investment, was launched.

This is in addition to the existence of financing gaps due to the high cost of oil and food commodities, especially since Egypt is the largest importer of wheat in the world, and imports up to 80% of its wheat needs from Russia and Ukraine – according to previous estimates – and is a net importer of oil.

The funding gap due to wheat and oil imports alone is estimated at $ 10.2 billion, according to Egyptian Finance Minister Mohamed Maait at CNBC Arabia earlier this month.

Similar to the above, the United Nations World Investment Report showed that Egypt’s share of foreign direct investment decreased by about 12%, from $ 5.8 billion in the year of the pandemic, to $ 5.1 billion in 2021.

How did the Egyptian government move?

These factors prompted the Egyptian government to announce a clear plan to bring in investments estimated at $ 40 billion within 4 years, in addition to the promises of countries: Saudi Arabia, the UAE and Qatar, to raise billions of dollars in the joints of the Egyptian economy in the form of deposits and direct investments.

It is also preparing to activate the state ownership policy document in its new financial year by strengthening its partnership with the private sector by about $ 10 billion annually as part of the targeted 40 billion, in addition to some of its assets on the Egyptian Stock Exchange, or either the sale of shares thereof to investors.

Even in its current discussions with the International Monetary Fund, it seeks to attract foreign direct investment.

“The new program with the International Monetary Fund is based on structural reforms, and is concerned with investment competitiveness and how to attract new investors,” the finance minister said in an interview with CNBC Arabia.

serious steps

Indeed, Egypt’s first steps in attracting investment have been translated into the signing with Saudi Arabia of 14 $ 7.7 billion investment agreements over the past week.

The agreements covered key sectors, including renewable energy, logistics, agriculture, technology and the pharmaceutical industry.

Saudi Arabia plans to lead $ 30 billion in investments in Egypt, the two countries said in a joint statement.

The Ajlan & Bros Holding Group had the largest share in these agreements.

“We have signed 6 agreements worth $ 5 billion, which is a first phase and is expected to increase at a faster pace in the coming period,” he said. Chairman of the Federation of Saudi Chambers and Chairman of the Ajlan and Brothers Holding Group, Ajlan bin Abdulaziz Al-Ajlan, in an interview with CNBC Arabia last week.

The UAE had some of the support and injected a package of direct funds into Egypt by acquiring shares in 5 companies listed on the Egyptian Stock Exchange by ADQ, valued at $ 1.82 billion last April.

In addition, Egypt, the UAE and Jordan have launched an integrated industrial partnership to bring about sustainable economic development in 5 promising industrial fields, including agriculture, food, fertilizers, pharmaceuticals, textiles, minerals and petrochemicals.

An investment fund managed by ADQ Holding Company worth $ 10 billion has been allocated to invest in projects arising from this partnership in the agreed sectors.

In the same direction, Qatar is close to pumping up $ 5 billion in investments in the near future, after government officials exchanged visits, the latest of which was the visit of the Emir of Qatar, Tamim bin Hamad Al Thani, to Egypt on Friday and Saturday. .

Interest and hot money

There is currently optimism within the Egyptian community about these moves and efforts, despite previous divergent expectations from investment banks – they spoke to CNBC Arabia – about estimates of the hot money flowing into Egypt by 2022, which ranged from 2 to $ 10 billion, based on the fact that the increase in these values ​​depends on the increase in interest rates set by the central bank.

However, the Central Bank of Egypt came last week to defy expectations and move away from raising interest rates, to set interest rates as they are without any change in the third meeting of the year, after interest rates have risen since 3% is. the first of the year so far.The first was last March with 1% and in an Exceptional meeting, and the second was in May and was at one time 2%.

If the central bank is concerned about maintaining the attractiveness of the Egyptian pound, it will raise the interest rate, this was the justification of investment bank analysts, as hot money always seeks high interest rates, but apparently and in confirmation of the Egyptian government’s policy to focusing on foreign direct investment, the bank proved The Central Bank of Egypt has raised interest rates, despite a wave of rises taken by the rest of the central banks.

Discussions on exit mechanisms

At a related level, the Egyptian government is currently in a series of discussions with the business community on the “state-owned” document.

Egypt intends to retire from various activities or reduce its investments in them, including the transportation sector, mining, energy, communications, agricultural activities, manufacturing industries, retail, and construction and building.

Exit mechanisms include the listing of the assets held by the Egyptian government through the stock exchange, whether through a full or partial offer on the stock exchange, for a period estimated by the government at approximately 3 years.

Participation with the private sector within the forms of retirement, whether through management, financing or operating contracts.

Of course, the business community has had many observations about the problems of the Egyptian government’s withdrawal from some economic activities. The professor of finance, and one of the participants in the discussions on the revision of the “state-owned” document, Medhat Nafeh, says that there must be a mechanism to review it immediately, in the presence of a separate council or entity.For the governmental entity involved.

The Egyptian government is trying to attract foreign direct investment and is currently increasing the private sector’s contribution to economic activity from 30% to 65% within 3 years, in addition to raising the investment rate to between 25% and 30%. Which contributes to increasing the economic growth rate to between 7% and 9%.

“There are sectors that will not see an easy exit from their business, as it is related to various factors related to the business climate and the extent to which investors are willing to get involved,” said Domty’s vice president, Mohamed Al-Damaty, said. according to one of the previously released official statements regarding the discussions of the document.

Returning to Nafeh, he said some people are still confused between the vital role of the state in supporting an activity and contributing to its ownership. The state should be a regulator, not an investor or shareholder.

The chairman of the board of Cairo Lubricants, Ayman Kara – in a previous statement – says that the process of evaluating assets is important as a major determinant of the success of the private sector’s participation in state assets, therefore it is important to rely on international houses of expertise to ensure the attractiveness and objectivity of the supply and demand of the sector owns it.

Not only is the Egyptian government abandoning many activities, but there are many investment incentives, such as facilitating the procedures for investors to obtain the necessary land to implement projects, and to provide them with all the facilities, in addition to the granting of gold licenses for large development projects.

According to the latest statistics available to the General Investment Authority, the number of companies established in Egypt during the first 4 months of last year reached about 9 434 companies, compared to about 6 778 companies during the same period in 2020, a increase of 39.2%.

In any case, Egypt is currently implementing the structural reform program, launched in April 2021, and aims to develop a package of policies on which we will rely in reforming the structure of the economy, liberalizing trade, the reform of the vocational training system, developing capital markets, in addition to the reforms that will take place in the Egyptian labor market. .

This program focuses on a group of sectors: manufacturing, agriculture, communications and information technology, and increasing their contribution to GDP, which amounted to 26% in the fiscal year 19/2020, to between 30-35% in the year 23 / 2024.

The program also includes increasing the flow of investments in these sectors, and increasing their investments as well as their exports, as the Egyptian government intends to increase the share of exports of electronic products and modern technological devices and to export the communications and information technology sector, to reach $ 8 billion in 2024.

It also aims to double the share of agricultural sector exports in exports to reach 25% in 2024, as well as to increase industrial exports with a high technological component of total industrial exports at a rate of not less than 20% annually and to increase the share of industrial exports with a medium technological component of total industrial exports at a rate of not less than 10% annually, while increasing the competitiveness of exports of industrial sector by exports of industrial goods as’ increase a component of total exports. annual rate of not less than 15%.

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