In an exclusive interview, head of investments at the National Bank of Egypt Wael El-Hatow revealed the size of the company’s investments and its future vision to supply even more in the framework of cooperation with state bodies and institutions. He touched on the company’s orientation toward establishing new projects in light of their focus on investment, chemicals, transportation, health, and agriculture.
El-Hatow discussed his vision for the future of the Egyptian economy and the most promising investment opportunities available after recent government measures to support and attract investments.
What is your estimation of the Egyptian economy’s sectors? Which is more popular?
The real estate sector is very promising and is the most popular of all sectors. It requires more investment, especially for construction of middle- and low-income units, for which demand is continuously growing due to low supply. The government should encourage and attract more real estate investments, which will contribute to all other sectors indirectly.
How will demand be affected by real estate taxes?
The new real estate tax will not affect demand rates due to the limited nature of these taxes. Most middle- and low-income units are used for personal consumption, and thus this bracket has been excluded from the tax.
While there may be a temporary impact on demand for luxury units due to an increase in the tax bracket for redundant possession not for the purpose of personal consumption, in the long-term, a balance within the market will emerge after the feasibility of revenues and costs to acquire real estate units for trading is absorbed.
Is the government contending with investors to build small units?
The private sector has an advantage that lowers sale price due to lower costs and shorter implementation periods, compared to government work due to bureaucratic obstacles that shackle the real estate product to higher costs. The private sector can produce higher-quality and lower-priced units, as the units that the government offers for low-income individuals under the lottery system will not be lower in price in a way that competes with other units. This covers only a small portion of growing demand rates which private sector units will satisfy.
The energy sector is preparing for a big leap in government encouragement. What do you think about this?
The energy sector requires special expertise, large amounts of capital, and a desire to cooperate with the Egyptian government, because most investments will take place through cooperation with the government and will have a long-term nature. The most recent pricing for renewable energy was not a watershed factor in attracting investments because most of these prices did not provide a temptation for huge profits when compared to the size and extent of investment in the energy sector. However, the sector does have patrons, and jumpstarting this sector is done with the goal of targeting a distinct segment of investors.
Why are investors interested in all sectors except agriculture?
Weak agricultural investment comes as a result of weak production efficiency. This is due to the insufficient size of land plots, which makes utilising modern technologies difficult. This also increases production costs to the extent that Egyptian products lose their competitiveness with foreign products, which we rely on through imports. If investors are able to find suitable plots outside of the green belt areas, they will suffer from water shortages and poor fertility, and other countries in central and southern Africa become more attractive.
To what extent do you support granting preferences to foreign investors?
Perhaps there is no preference granted to foreign or Egyptian investors at present, but we do find that local investors are more able to bear risks while foreigners avoid any unaccountable dangers. The Egyptian government used to provide tax incentives to foreigners, but the size of the Egyptian market and increases in consumption rates do not need incentives to attract investments at the same time that the government is experiencing a performance slowdown and rising rates of bureaucracy.
What is your opinion on the ‘one-stop shop’ investment law which the government is on the verge of bringing into force?
The ‘one-stop shop’ investment law will not bring about a magic solution for eliminating government bureaucracy, because even if licences are offered to begin a project through this system, the project will not be immune to dealing with other state bodies and institutions in all their complexity throughout the life of the project. What is more important is facilitating and expediting measures across all institutions – not just by uniting them – in addition to taking investors’ interests into account after licences are issued and during project work in case of market exit. All procedures associated with these three stages should be facilitated.
What is your opinion on the government’s movement toward issuing a law that will make industrial land available through direct order?
It is good that there will be a law to allow industrial lands to be made available by direct order in accordance with the regulations that will be set out by the cabinet, and the Industrial Development Authority (IDA) will be the representative of the New Urban Communities Authority in light of its jurisdiction over all industrial land. The IDA will take over procedures for offering, reserving, allocating, cancelling, and waiving land in industrial areas in new cities for investors in accordance with the specified prices and regulations. This will help more industrial projects be completed quicker, as bids sometimes cause exaggerated land price increases which reflect on production costs and product prices.
What is your opinion on projects that require urgent government intervention?
The state must focus its investment efforts on infrastructure projects as it is essential that they are developed urgently. These projects cannot await the process of attracting new investments and, despite their importance, there may be some reluctance on the part of investors because the projects require huge, long-term investments with social returns greater than material ones. Investors, however, are focused on profit more than a societal role, and in order for the government to benefit from financial surpluses in the private sector, it must innovate more solutions for private sector partnerships in funding infrastructure projects, which may be difficult for the infrastructure sector to bear itself.
What are the most prominent partnership projects between Al Ahly Capital and the government?
The establishment of Egyptian Ethylene Company (ETHYDCO) is among the most prominent partnership projects with the government, and total capital amounts to $675m. The Egyptian Petrochemicals Holding Company will own 20% of the company, GASCO 11%, Al Ahly Capital Agricultural Investment ofthe National Bank of Egypt approximately 21%, Banque Misr 10%, and National Investment Bank 14%, with Nasser Social Bank owning the remainder.
The company will begin producing in early 2015 with ethylene production requiring investment costs of $1.9bn. The aim of the project is to provide more than $500m annually, the amount presently paid by Egypt to import ethylene and derivatives.
What about a possible partnership with the River Transport Authority?
The company was considering establishing a river transport project with the authority, but it has been delayed due to financial infeasibility at present. River transport will compete weakly with land transport due to subsidies directed at fuel consumption for land transport, in addition to the requirements for reworking the river course.
Do you prefer to establish new projects or contribute to existing ones?
The company is currently considering establishing a range of projects, both in partnership with the government and on our own. In both cases however, the company would prefer to establish new projects to take advantage of great opportunities for growth that are available. This will also strengthen the bank’s role in providing added value to the national economy more so than a preference for partnerships in establishing existing projects would.
What is the volume of Al Ahly Capital investments and where are they concentrated?
The company’s paid-up capital measures around EGP 5bn, and our investment portfolio amounts to EGP 7bn in investments owned by the National Bank of Egypt. Al Ahly Capital investments are concentrated in the chemical, transportation, health, and agricultural sectors, and the tourism sector only accounts for 9% of capital for the Egyptian Resorts Company. The bank is keen on diversifying its investments in other sectors, but this will take place through subsidiary companies.
Are there obstacles faced by the company in supplying more investments?
There is no doubt that the bank is looking to increase its investments through Al Ahly Capital and this initiative is not facing any obstacles, especially in light of liquidity available with the bank. On the other hand, the national economy enjoys an unlimited number of promising investment opportunities across various sectors, but managing depositors’ funds requires a degree of care and cautiousness to ensure that projects are feasible through intensifying research and studies before funding any projects. Establishing low-risk, guaranteeing projects thus requires quite a bit of time, as does the process of implementation.
