CAIRO: Three years after its inception, the Ministry of Investment continues to drive economic growth, and is currently focusing its efforts on encouraging public-private partnerships (PPP) and developing the mortgage finance sector.
Established in 2004, the ministry has contributed to the government’s economic reform program, handling several portfolios that have contributed to the nation’s gross domestic product (GDP). Most recently, the ministry has taken on the task of encouraging private sector participation in infrastructure projects.
“Public sector participation in Egypt does not [currently] include infrastructure or public services projects; they are interested in greenfield, industrial, housing and tourism projects, said Sherif Oteifa, advisor to the Minister of Investment in mortgage finance and PPP, told Daily News Egypt.
“By infrastructure I mean the water network, hospitals and schools, he said. He added that a framework is needed to encourage participation in such projects, which is the essence of the ministry’s PPP program.
“We managed to gain support from other ministries . we cannot introduce private participation in housing or water without the cooperation of their respective ministries. With them, we conducted different brainstorming sessions and training courses; we hosted people from the World Bank and other international development organizations to help us identify pilot projects and create awareness for this program, Oteifa said.
Last year, a central unit was established in the Ministry of Finance to act as a hub for PPP activities and experiences. The unit will also facilitate knowledge-sharing and coordinate between different PPP departments at respective ministries.
A legal framework was put in place, and several projects have already applied the Build-Operate-Transfer (BOT) system – a form of PPP – such as the Sidi Kirir Power Plant and the Marsa Alam Airport projects.
“With the Ministry of Finance, we are studying whether there should be a unified concession law to serve the whole sector or to keep it this way – every project with its own laws, he said.
There are several more PPP projects in the pipeline, but the one that has seen the most progress is being implemented in the education sector. The private sector will take on the task of designing, building, financing and operating 2,200 schools across different governorates. Basically, everything it takes to build and run a school except for hiring teachers and managing the curriculum.
“We have already started with the first 300 schools, and are currently in the bidding phase. There are four investors being studied – three of which are domestic companies – and by the end of the year we will choose one, he said.
This will be a 15-year contract between the government and an investor, who will be paid by the government on a quarterly basis. The project will be completed in batches.
Another PPP project is underway in cooperation with the Ministry of Housing, Utilities and Urban Development to implement the New Cairo Water Treatment Plant and the New Cairo Waste Water Treatment Plant.
“This project is in the preparation phase; we expect by the end of the year to identify potential investors and to sign an agreement by June 2008, said Oteifa.
Another project is in the planning phase, set to renovate the Heliopolis Hospital as well as two university hospitals in Alexandria.
In the transportation sector, a project is currently underway to expand and upgrade the Cairo-Alexandria-Matrouh Desert Road. The project will be implemented in four phases, and the first phase has already been awarded to a public contractor. Oteifa said the ministry is now identifying potential investors to complete the remaining three phases using the PPP scheme.
“We have already built a lot during the past 20 years, but we still need a lot more if we want to develop and sustain the 7 percent annual growth.
“If we want to attract foreign investment we need to expand our infrastructure and public services, said Oteifa, “and we need to involve the private sector in these projects because we do not have enough budget for everything we want to do, he said.
Besides PPP – and in addition to the General Authority for Investment and Free Zones (GAFI) as well as a vigorous asset management program – the Ministry of Investment plays a vital role in enhancing non-banking financial services.
Non-banking financial services are divided into several domains: insurance, mortgage finance and capital markets. Recently, the ministry’s focus has been directed towards mortgage finance.
“Three years have passed since the Ministry of Investment was established, and [in that time] we have seen growth in the mortgage finance market through the number of loans originated.
“It is still a relatively small number if you compare it to the overall GDP or other benchmarks, but the growth percentage is phenomenal. Almost 15-16 million loans have been granted [from the ministry’s inception] since July 2005, said Oteifa.
The Mortgage Finance Authority (MFA) was established in 2001, and has since regulated the mortgage finance business in the market. It now falls under the Investment Ministry’s umbrella.
Because the mortgage finance market is still in the nascent stage, the ministry assists the MFA in regulating the market, setting policies, promoting mortgage finance as well as coordinating with other ministries, stakeholders and government entities.
A number of mortgage finance companies have been established, bringing the total to four. Three more are currently working on their business plans.
Several factors have contributed to the success of the mortgage finance market including standardized documentation processes, public awareness raising efforts and training of different stakeholders, namely brokers and appraisers.
“We are used to homebuyers in Egypt paying cash because of the prevailing culture. Sellers only sell in cash or in installments over a period of three to four years, with hidden interests within the payments, he said.
Mortgage finance, on the other hand, allows people to pay for their homes over a longer period of time – reaching 15-20 years – “in a transparent way, knowing how much interest you’re paying.
Borrowers always have the option of repaying their loan in full before the due date.
In cooperation with the MFA, the Ministry of Investment will launch an awareness campaign informing the public of the different mortgage plans and payment schemes available in Ramadan.
