In an interview with Daily News Egypt, Mouayed Makhlouf, the International Finance Corporation’s (IFC) director for the Middle East and North Africa (MENA) region, said that narrowing infrastructure gaps in Egypt is one of the IFC’s priorities.
What is your opinion regarding the recent economic reforms that are part of the Sustainable Development Strategy: Egypt Vision 2030, such as the liberalisation of the exchange rate of the pound and the fuel subsidy reduction?
The flotation of the local currency and the cut in fuel subsidies, although difficult decisions, are steps in the right direction. They are part of a bold economic reform programme that is already bringing investments back into the country and supporting economic growth.
The reduction of fuel subsidies, while painful, helped the government reduce its budget deficit amid a shortage of foreign currency. Meanwhile, the devaluation of the currency made Egypt appealing to investors, putting it back on the radars of some for the first time in years. While the reforms are quite recent, they are having an impact. A recent issuance of treasury bonds on international markets, designed to help alleviate a foreign currency shortage, was oversubscribed. We have also seen foreign financial institutions, like the World Bank Group, step up with critical funding for infrastructure projects. Those include a massive solar plant being planned for the Aswan area.
At IFC, we believe in the long-term potential of Egypt and will continue to support its reform efforts. After several difficult years, it is good to see the country back on the investment map.
Will you increase the portfolio regarding Egypt in the coming period? If yes, please tell us the amount of increase, and when?
The recent reforms have definitely made Egypt a more attractive country for investors. Recently, our executive board of directors approved an investment of up to $635m in the world’s largest solar project, Benban, Aswan. The financing will be geared towards constructing and operating 11 solar plants with a combined power of 500 megawatts as part of the country’s solar feed-in tariff (FIT) programme. This, along with other investment projects in our pipeline, could bring our commitments in Egypt close to $1bn.
What are the current projects that the IFC is committed to in Egypt? In addition, what are the mega projects that the IFC is participating in funding with other international financial institutions?
Narrowing infrastructure gaps in Egypt is one of our priorities. We will continue to look for opportunities in this sector, with focus on energy generation and renewables. As mentioned before, we approved investing $635m in the country’s ambitious FIT programme. Last fiscal year, which ended June 2017, we provided $20m to Hassan Allam Holding, which specialises in developing mega infrastructure projects, like power facilities and sanitation plants. In fiscal year 2016, we invested $144m in Sonker Bunkering Company to help the company build Egypt’s first privately owned liquid fuel terminal at Port Sokhna to capitalise on Egypt’s central location and help the country develop as a logistics and energy hub.
What is the size of loans allocated for funding SMEs in Egypt? Additionally, what are the recent requests you received, and what are the IFC’s decision in this regard?
Our support to small and medium enterprises (SMEs) extends far beyond financing. At IFC, we take a more holistic view. We see SMEs as key drivers for growth, not only in Egypt, but also in several other developing economies. Yet, they face a host of challenges, like securing capital and financing, paying for high energy bills, finding skilled labour, and dealing with burdensome regulations. Our investment and advisory work is geared towards addressing these challenges.
On the financial side, we have provided long-term loans to several Egyptian banks, allowing them to scale up their lending operations to SMEs, while simultaneously supporting the banking sector amid the foreign currency shortage. This included a $100m loan to the Arab African International Bank and a financing package of $50m to the National Bank of Kuwait-Egypt. These investments will also help both banks promote a sustainable energy financing programme that will enable firms to reduce energy bills by adopting green technologies.
At the IFC, we also support entrepreneurs, including those in the technology sector. These entrepreneurs often struggle to get financing for their ideas and advice from others who have walked the startup path. To change this, we provided up to $11m to startup accelerators and venture capital firms, like Cairo-based Flat6Labs and Algebra Ventures.
On the advisory side, we are doing a lot to support SMEs. We are working on promoting our women banking programme in Egypt, which aims to support banks in providing female entrepreneurs with both financial and capacity building of business skills, which are much needed by women, in order to help them expand their businesses.
We are also helping information and communications technology (ICT) companies find skilled workers. We are working with ITIDA to improve the abilities of ICT graduates. The aim is to equip them with the skills in demand by employers, ultimately contributing to the reduction of unemployment, which has long been a problem in Egypt.
What is the volume of funds allocated to the energy sector, both traditional and renewable?
The IFC is looking to expand its programme in the energy sector, as evidenced by the recent approval to support Egypt’s FIT programme. In previous years, we provided a $100m loan and helped arrange up to $400m for natural gas producer Petroceltic, allowing it to ramp up operations in Egypt. We also provided a $34m loan to Transglobe Energy, helping the oil company increase exploration in Egypt and Yemen.
In your opinion, what are the challenges that face investors, and how may they be overcome?
Economic and political reforms go hand in hand, and investors in general look at a number of factors before entering any given market. For example, they seek high-growth potential, low economic and political risks, clarity of regulations, credibility of the government, and a competitive edge in the market. Egypt has been able to address many of these issues with its economic reform programme. We see many positive changes in the newly ratified Investment Law. It provides a range of guarantees and rights for investors. For example, it codifies the fair and equitable treatment of investors and provides access to freely convertible currency. It guards against the expropriation of assets without compensation. It also sets up transparent procedures for allocating land for investment and bars discrimination against foreign investors.
Despite the recent reforms, more could be done to attract investors. The new Investment Law does not explicitly cover every industry. Instead, it includes a “positive list”, which defines the sectors it covers. That could limit its scope and make it difficult to implement.
Meanwhile there is a need to make it easier for companies to enforce contracts. Currently, it takes an average of three years to resolve a commercial dispute through courts. By automating more court procedures, the country could speed up the settlement of cases, which would boost investor confidence.
Also, Egypt could make it easier for companies to trade internationally. The country, strategically located between east and west, could be an important logistics hub. But red tape and high customs fees discourage cross-border commerce. The country ranks 168th on the Doing Business’ “Trading Across Borders” indicator. Cutting back on bureaucracy would be relatively simple and lead to major gains.