Daily News Egypt sat down with Leila Mokaddem, resident representative of the Egypt field office at the African Development Bank (AfDB), to talk about the bank’s vision towards the Egyptian economy.
What is the update regarding receiving the third tranche of the loan to support Egypt’s economic and social programmes? When will Egypt receive the fund?
AfDB is committed to supporting the government’s reform programme and social contract actions and measures. Therefore, the bank remains committed to fulfilling its mandate to provide the third tranche of the budget support operation. The bank expects to release the funds once all the necessary conditions are met, like parliamentary approval, and so we expect this all to be concluded by February 2018, by which time the funds can be released.
What projects has AfDB committed to in Egypt? What is the AfDB’s current portfolio volume in Egypt in 2017?
The bank’s ongoing portfolio in Egypt consists of a total of 29 operations. The portfolio is divided into seven public sector ADB loans (89% of ongoing commitments), two private sector projects (10%—one loan and one equity), and 20 grants (1%). The total commitment value is $2.3 billion, out of which 90% has been disbursed since 7 September 2017. The bank has approved a total of $551 million covering a line of credit for trade finance to Afrexim Bank ($500 million), three private sector projects for solar photovoltaic power under the government’s second feed-in tariff (FIT) programme ($48 million), and one grant to support the Administrative Control Authority (ACA) for anti-corruption. The remaining projects for 2017 include a loan of $150 million to expand the Abou Rawash wastewater treatment plant.
Will you increase the portfolio regarding Egypt in 2018?
We plan to maintain our lending programme to Egypt going into 2018, subject to available headroom (resources that can be made available from the AfDB), which is based on various factors, such as country risk, the bank’s own internal credit risk assessment, exposure of loans to the North Africa region, and other operational issues. We currently have identified a project’s pipeline exceeding a lending amount of $500 million going into 2018.
Which sectors is the bank most interested in?
The bank’s current focus is framed in the 2015-2019 Country Strategy Paper to address core development challenges based around two pillars:
Pillar 1: Developing infrastructure to foster sustainable and inclusive growth, as well as improve the business environment, through better access to basic goods and services. We also focus on skills development in critical infrastructure sectors to improve competitiveness and create jobs for both men and women.
Pillar 2: Strengthening governance by enhancing transparency, efficiency, and fairness to improve public sector efficiency and the capacity to deliver better projects. In addition, we support reforms to improve the regulatory environment and help promote skills development to spur job creation.
What is the size of the loans the AfDB plans to fund in Egypt by the end of 2020?
The bank will be guided by the government’s priorities and the priorities of the bank as identified in the Country Strategy Paper. We will plan to provide support to Egypt through public sector loans, grants, and private sector loans, as well as lines of credit for private sector growth. The average size of loans has been in the range of $100 million, and this will be maintained for all loans. Grants will be in the range of $1 million to 4 million. The main sectors include renewable energy, youth employment, informal settlements, agriculture and irrigation, water sanitation and wastewater treatment, and lines of credit to commercial banks for onward lending to SMEs.
What is the volume of funds allocated for the energy sector, whether traditional or renewable?
At this moment, and based on the government’s continued priorities on renewable energy, the bank will continue to explore opportunities of private sector financing for solar and wind power projects. For traditional energy generation, the bank will keep options open through its dialogue with the Ministry of Electricity and Renewable Energy.
What are your expectations for the Egyptian economy’s growth by the end of the current year and for 2018?
We are optimistic that with the economic reforms that the government has undertaken and plans to undertake going forward will lead to positive economic growth. The recent figures on foreign direct investment (FDI) flows, foreign reserves, and export growth are all promising. The bank forecasts of GDP growth will be around 4 percent by the end of the year. The crucial challenges will be to ensure that this growth is inclusive and supports strong job creation.
What is your opinion regarding the current economic reforms taken by the government of Egypt related to the liberalisation of the Egyptian pound, the oil subsidy cuts, and raising the interest rates at banks?
The government’s comprehensive reform programme aims to address the current macro imbalances and the deep-seated problems that hold back the economy. The key objectives of the programme are to restore macroeconomic stability, strengthen fiscal and external sustainability, and lay a solid foundation for inclusive and robust growth and employment creation. The government of Egypt is implementing strong and front-loaded adjustment of fiscal and monetary policies to stabilise the economy and place public debt on a clearly declining path. It has also launched broad-ranging structural reforms to support private sector development, strengthen the financial sector, promote exports, and improve governance and the business climate. The efforts made by the authorities will help restore confidence, attract investments, and continue to catalyse international financial support that is essential to ensure adequate financing of the programme.
Do you think that Egypt’s rating will improve from B in the coming period due to the recent economic reforms?
The major rating agencies have their own criteria and methodology, and it is hoped that with the improvement of many of the criteria, the outlook remains stable.
Egypt is committed to repaying its debts. Do you think that Egypt has the credit worthiness to repay loans from AfDB, in light of the public debt exceeding 110% of GDP?
The government of Egypt has never defaulted on its debt payments to the international financial institutions, and so this is not a concern. The foreign debt sustainability is positive, and so Egypt has enough headroom to borrow on the international capital markets and borrow resources from international financial institutions. The growing public debt is of concern, as this is high and can also stifle private sector credit.
Is the bank interested in funding projects and sectors characterised by intensive employment in Egypt?
The bank is deeply committed to the area of job creation, which is one of the key pillars of the bank’s overall strategy as highlighted in the “High 5s” (the bank’s priorities to light up and power Africa, feed Africa, integrate Africa, industrialise Africa, and improve the quality of life for the people of Africa). We plan to support a project related to job creation in informal settlements in 2018. Through our interventions with lines of credit to commercial banks, we plan to ensure that job creation is at the forefront of all our planned interventions.
In your opinion, how can the government of Egypt overcome the problems related to the investment environment?
The government is intensively focusing attention on attracting higher FDIs with a focus on job creation across all sectors. This push has come through both structural reforms that the government has undertaken, including the depreciation of the currency, as well as new legislation, such as the new investment law and industrial licensing. The Ministry of Investment and International Cooperation is taking a leadership role in ensuring the right conducive environment for private sector growth through FDIs.