Egypt needs more investments to boost its economy

Cairo: In a few short years, if everything goes according to plan, Egypt will have new megaprojects, special investment zones and power plants fuelled by the largest offshore gasfield in the Mediterranean. But in the more immediate future, experts say the government needs to boost investment and bring in foreign capital to avoid a looming cash crunch.

Billions of dollars in debt repayments are coming due, foreign currency reserves fell to a six-month low in August, and Finance Minister Hany Kadry Dimian said last week that foreign direct investment is not growing as fast as hoped. Experts say if the government doesn’t act quickly, the investment needed to realise its ambitious plans may not materialise in time.

Letting the currency devalue against the dollar would make exports more competitive, shore up foreign reserves and alleviate investors’ uncertainty over what their Egyptian-pound assets will be worth. Implementing a planned value-added tax this month would help bring the budget into line, as would a fresh bond issue like one last June that raised $1.5 billion (Dh5.5 billion).

“Managing the short term for the country will be critical ... the next two to three years,” said Hazem Badran, deputy chief executive of CI Capital Group, at a Euromoney business conference held last week. “You’re facing a lot of cash shortages in the short term,” he said, adding that “foreign investors aren’t going to come back without the exchange rate issue being resolved”.

Less than a fifth of the Cairo conference’s participants were foreigners, although many delegates expressed hope for the future after years of turmoil that took a heavy toll on North Africa’s biggest economy.

Stabilising efforts

Egypt has been making a gradual recovery from the tumult that followed the overthrow of Hosni Mubarak in a 2011 uprising. President Abdul Fattah Al Sissi, a former general who led the army’s overthrow of the Islamist Mohammad Mursi in 2013, has staked his legitimacy on stabilising the country and reviving the economy.

But militants in the Sinai have escalated a long-running insurgency in the two years since Mursi was overthrown, and a series of recent bombings in Cairo, mainly targeting security services, has rattled nerves. A Sinai-based Daesh affiliate set off a car bomb outside the Italian Consulate in July and later captured and beheaded a Croatian oil surveyor.

The government has forecast 5 per cent growth this year if investment targets are met, approaching the 7 per cent Egypt averaged in the years leading up to the 2011 uprising. But even at its peak, the growth failed to generate enough jobs to meet the surging needs of the country’s overwhelmingly young population.

An economic conference in March drew promises of billions of dollars in investment, as well as additional aid from Gulf states. But most of the non-binding agreements signed at the conference have yet to result in major inflows of capital.

Power plants

Germany’s Siemens announced its single biggest order ever at the conference, worth $8 billion, to build power plants. And late last month Italy’s ENI announced the discovery of a “supergiant” offshore gasfield that could eliminate long-running energy shortfalls and possibly allow Egypt to export when it comes online in around five years.

The government is hoping for a total of $10 billion in investment in the 2015-16 fiscal year. The latest central bank figures do not cover the post-conference period but show improvement, with $5.7 billion in the three quarters ending in March, compared to just $4.1 billion the entire previous fiscal year.

The centrepiece of Al Sissi’s efforts to jump-start the economy was an extension of the Suez Canal unveiled in March and completed in August. But claims that annual revenues from the crucial waterway will be more than doubled to $13.2 billion by 2023 depend on a surge in global trade.

Infrastructure development

The next phase of the canal project — ambitious plans to develop a special trade zone, industrial hub and logistics Centre — has yet to get off the ground. Observers say it will need $30-35 billion in investment over the next 15 years, and some $10 billion for initial infrastructure development from the private sector, but little has been pledged so far and incentives have yet to be revealed.

“What will the private sector bring there? It depends on the investment opportunities and incentives,” Yehia Zaki, of project consultants and planners Dar Al Handasah, told the Euromoney conference.

Parliamentary elections are planned for later this year.

“They really need to resolve this foreign exchange issue,” said Mohammad Abu Basha, an Egyptian economist at regional investment giant EFG Hermes.