(Photo Courtesy of OBG)
Daily News Egypt sat down with Oxford Business Group’s Managing Editor Robert Tashima to discuss developments in the Egyptian economy throughout the past year, and the role of the Economic Summit in that development. The most appealing sectors to foreign investors were also tackled in the interview as well as the government’s suspended decision and how they reflect on its commitment to carry out with its promises.
How would you evaluate the Egyptian economy’s progress over the past year?
Egypt is one of those places where I think that in the past four years the mantra has really been the long term fundamentals of the economy. You have got an immense population, you’ve got a very robust private sector, a fairly liberalised regulatory framework, you have got high demand and high consumption as well as key industrial segments and obviously, a fortuitous geographical positioning, with the Suez Canal and everything else. So when you take a look at the competitive advantages, in the long term, it’s very competitive and it has a lot to offer in terms of upsides for potential growth. Obviously, it is a different thing when you think of the short term. You have got those long term fundamentals, which are very healthy, and you have got the short term which presents a more mixed view.
One thing that has been really obvious was the change in sentiment over the past year. Whether or not people believe it or agree or disagree with the government, one thing that has been really noticeable was the fact that business confidence and investment confidence has really improved. You can see that not just in terms of the rhetoric, which is obviously very impressive but also in terms of actual action such as the execution of subsidies frameworks, the changes to the budget regiment and the push to improve revenues. Those all come with upsides and downsides but when you take a look at them as a collective whole it really paints an encouraging picture of change in Egypt for the better from an investors’ perspective for the past 12 months.
The Economic Summit was also a success in terms of the commitment, but whether or not these commitments are realised is another thing entirely. The worth of investments announced is pretty impressive, and even if only half of that gets materialised, it is still a sizable amount. One thing that is really crucial to highlight is that the areas in which the government is trying to channel investments are in production sectors. At OBG, we cover quiet a lot of different emerging market and my area is Africa specifically. In Africa, we cover 10 to 12 emerging economies, Egypt is one of them, and what is really impressive in what Egypt is doing right now is that it is happening in sectors where multiplier effect are much greater like infrastructure, new roads and power generations.
So, I think what is impressive is not just that the government is spending a lot of money and trying to get investors to spend money, but that the money is spent in the right place and in the right way.
Discussing the budget, earlier this fiscal year the government set some goals but failed to reach them. Do you think that might give a negative perspective to investors?
I worked in government in the US. It was really interesting for me to be working in government and seeing how things actually get done, and how challenging it can be to pass even basic legislations. One thing that is important when taking a look at what the Egyptian government is doing in relation to the budget is bringing in a broader context. When you’re dealing with issues on a day-to-day basis, you see firsthand the effect of delays of budget reforms and you talk to people who are negatively affected by that, so it is easy to see and get a sense of the frustration. OBG is coming at it from an outsider perspective; we can contextualise it and say that even though not all the targets and not all reforms were met, it is still important that this is not unique to Egypt. It’s also important to highlight that Egypt has a wide range of top priorities that it needs to address. It needs to bring down the subsidies spending and tailor it to make it more effective. It needs to encourage fixed capital formation and to encourage growth in labour intensive sectors. It has to address poverty rate and improve international foreign reserves. It has all these priorities and any one of those on its own is a real challenge so when you are facing all of them it will be very difficult to juggle. I think that is also worth highlighting. The government has many targets, and it is very ambitious to accomplish them all at once. What was encouraging is that there was a push and a political will to encourage that. It is not surprising when those targets have been missed. Is it negative? Not particularly and it is to be expected. It is clear that the government is trying to do the right thing.
Several legislative policies with regards to taxes were announced but then suspended. How does that reflect on the government’s commitment to follow through with these policies?
When you have delays or postponements in those sorts of reforms, it will certainly draw into question the commitments. I don’t think in this case there is any major concern over the government’s efforts to broadly address the budget deficit. It will take a long time to bring it back to a surplus. If you take a look at advanced economies, [you’ll notice that] turning and maintaining a budget surplus is borderline impossible. As far as the delays in the revenues reforms though, I think it is a question of if the resources are able to push though all these challenges. I think it is very clear that the government has momentum and is moving in the right direction. What will be more telling will be at the end of the year when we can take a look back and say that these were all the things that were put up in the air, which ones have really stuck.
Many have dubbed the Economic Summit a successful conference, whilst at the same time not a lot of projects happened. Minister of Investment Ashraf Salman also said that FDIs for this fiscal year were lowered to $6bn to $8bn. How can we actually measure whether or not the conference was successful?
That’s a very good question. The role of investors’ confidence is really crucial and I think that’s particularly that case for international investors. If boards and executives of multinational companies feel confident about the direction of the country and feel like issues are being addressed, you’ll see that money begin to flow. It sounds very cliché and very general, I know, but this is actually true. That ability to say that I have faith in this country and, even though the risks are high, the opportunities are actually greater, is a big factor. This is the simplest formula: does the reward outweigh the risk? Confidence plays a big role in that formula. I think that’s the biggest effect that Economic Summit had. It was in the impression and the image it conveyed.
What are the sectors that foreign investors would be most interested in investing in?
One thing that has been really interesting was the performance of the stock exchange. There has been a clear disconnect between the stock exchange and the performance of the economy. There has been a clear realisation from portfolio investors outside Egypt that listed Egyptian companies are a great bargain. And even though these companies might be facing challenges, they are still offering a lot of potential. In terms of attractiveness from a foreign investors’ perspective, it is obvious that these companies offer a great deal for portfolio. The Economic Summit has really clarified the government’s priorities in terms of spending and it is going to the Suez industrial zone, road infrastructure and power plants. I would say high capital and long term projects. But they are not the only ones. There is also a lot of interest in telecom and IT.
But what about new and renewable energy? The government has a goal to achieve 20% new and renewable energy by 2020.
That’s a very ambitious goal. Again, I think that part of the purpose of these targets is to make it clear to outsiders or even local investors about where the government priorities are.
