By Aliaa Setouhy
Wael Ziada, Head of Research at EFG-Hermes, sat with Al-Borsa newspaper to outline the most pressing challenges hindering the growth of Egypt’s economy at the moment. He added that they require rapid government intervention as a prelude to placing the Egyptian market on the Arab investment map.
Where does the Egyptian economy lie at the moment? And where is it going?
Despite of the government’s recent efforts to tackle structural impediments ,the Egyptian economy continues to suffer from a number of serious problems, such as the budget deficit which is a result of public sector issues and subsidies, as well as the issue of foreign exchange reserves. For a country whose institutions have suffered for decades from wrong economic policy and lack of investment in human calibres, , the biggest challenge in 2015 will be establishing an economic vision in the short- and medium-term, which may be the most important and largest obstacle to attracting local and foreign investments. It is difficult for an investor to supply investments without a vision for the future.
A long-term economic plan is only an analysis of a set of short- and medium-term plans to form a long-term master plan. A future vision must be established over the next few years.
Why is the Egyptian government having difficulty establishing a clear economic vision?
For the past five or six decades, the administrate and economic planning for Egypt been very centralized, relying on the vision of one entity or person. Despite the recent attempts to change that, this is going to take time, and hence it will impact the ability to produce an economic vision for the country with many parties involved.. Laying out a comprehensive economic vision for the Egyptian economy will not take place without harmonising all economic interactions though the participation of all actors from state agencies, businessmen, regulatory sectors and others. Businessmen should [better outline] their plans to contribute to state projects and regulatory agencies to solve legal confusion, but this does not absolve officials from paving the way to implementing this vision, speaking strongly on behalf of local investments and how to provide them, which is what will encourage foreign investment.
Do you think that the economic problems facing the Egyptian market make it unattractive for investment?
No matter how many problems the Egyptian economy is exposed to, it will continue being the most attractive among Arab markets because it has potentially high returns. The market is also full of opportunities for new investment and growth for existing ones, and in reality, there is a thirst for investments across all sectors. This means that all of those sectors have a chance for high profit margins, which is not the case in developed countries that enjoy relative saturation of investments and thus suffer from lower profits.
I do not believe that the problems faced by the Egyptian economy are a factor in the exodus of investments. This actually represents a very attractive factor, under the condition that a clear economic vision exists.
What are the most important problems that require rapid government intervention to enable the country’s economic vision?
The most important problems that the Egyptian economy currently suffers from, includes the energy system. This must be re-evaluated as quickly as possible because without solving the energy problems the economy will not grow, since all sectors and industries are connected to energy. This has become a source of strain for foreign investors seeking to carry out projects in Egypt, and the first question for the investor is whether or not we will be able to provide the energy needed or not.
I am frustrated with the bureaucratic apparatus of the Egyptian government which is a key impediment and is in my view why Egypt keeps going down the ranking when it comes to ease of doing business .
Also, a country that needs investors should work very hard toward resolving all of the legal cases and arbitration it has with international investors. On the other hand, it need to reach an amicable solution with other investor to pay them what it owes them, I am obviously here talking about IOCs.
Egypt has witnessed a number of acquisition deals recently, involving large amounts of investments. Is this not a strong evidence for the restoration of foreign investments and a lack of fear surrounding the Egyptian economy?
Beside the gain on the foreign reserve side, these type of acquisitions did not add more jobs to the Egyptian economy, because they took place for companies and institutions that were already successful and strong and achieved solid returns. The Egyptian economy actually requires huge investments in areas that suffers from low investments and in labour intensive industries.and this will reflect strongly on the status of the Egyptian economy and growth rates.
What are the most attractive sectors for investment at present, and why?
The energy sector, infrastructure will remain the most important areas in the economic arena because it is the main operator for any investment across all sectors and is currently the most in need of investments.
What is your assessment of Egyptian Exchange performance recently and whether it attracts foreign investments?
The stock exchange witnessed price inflation in recent times mainly due to both foreign aid and expansionary monetary policies enacted to increase the cash supply in. Also perceived political stability has helped a lot. However, we need to move to the next steps where companies start delivering the growth in earnings that investors are betting on.
What are your expectations for GDP growth during the fiscal year (FY) 2014/2015?
I expect that the Egyptian economy will grow at a rate of 4.5-5.0% despite the difficult challenges it faces, and this percentage will remain steady until further developments are undertaken.
