Renaissance Capital, one of leading emerging and frontier markets investment bank, opened its office in Egypt last year.
Ahmed Badr leads Renaissance Capital’s MENA business and oversees growth strategy in the region. Daily News Egypt interviewed him to review his valuable insights, as well as RenCap’s latest views on the economy, and its plans going forward.
Following the launch of your office in Egypt last year, what are your targets in the market and when are you planning to announce your first deal?
We view Egypt as one of our core markets, which is why we decided to open an office in Cairo in line with our MENA and pan-Africa expansion strategy. We wanted to build a stronger platform to continue facilitating access to capital for Egypt’s leading emerging investment cases and showcasing abundant opportunities to the investor community in Africa and beyond. Our recent appointment of Ahmed Hafez as head of MENA research, based in Cairo, is a testament to our commitment to Egypt, as is our decision to organise the third Annual Egypt Investor Conference in Cape Town on 24-25 April.
We plan on becoming a fully licensed investment bank across all operations in Egypt, with the exception of brokerage services, while growing our team to five by the end of June. The expansion of our operations in Egypt is very much in line with our overall strategy to grow Renaissance Capital’s reach to frontier markets.
Are there any deals in the pipeline? Which sectors?
We are currently looking at a number of opportunities this year. We are looking at a broad range of sectors that form part of the Egyptian economy, including healthcare, consumer, financial, materials, and real estate.
Following the huge market gains and improving macroeconomic conditions, are performance evaluation measures in the private sector attracting foreign investments?
Today Egypt looks more competitive than ever before. Vision 2030, the government’s plan for Egypt’s economic development, continues to support the underlying growth story that will create plentiful investment opportunities for investors both in Africa and globally. We have seen a lot of interest from African and global investors who want to be part of this story. In addition to this, we have seen growing interest from clients who have never properly looked at the Egyptian market before.
Which sectors are RenCap’s clients focused on? What is RenCap’s perception of those sectors?
We look at a broad range of sectors that are likely to benefit from the attractive market dynamics, supported by the government’s reform agenda. These include healthcare, consumer, financial, and materials. We believe that real estate will do well in the short term as interest rates decrease and people move cash into properties, however, we are continuing to evaluate the long-term potential for the sector at the moment.
Which licences have you obtained in Egypt? Which licences are you aiming to get in that market?
Over the course of the last year, we have invested heavily to establish a strong platform in Egypt. We currently hold licenses for underwriting and promoting IPOs.
In an effort to secure recurring revenues, the non-banking financial sector recently saw a great deal of interest from investment banks. Do you consider tapping into one of those areas, either through establishing a new business or acquiring one?
We have no immediate plans to tap into the non-banking financial sector. Our short- to mid-term focus is going to be growing our operations in Egypt. We are looking to consolidate our position in North Africa and integrate regional business within the wider EMEA and frontier markets.
Regarding your third annual conference in Cape Town, how many companies, representative sectors, and investment managers will be participating? What is the overall size of assets these companies are managing?
The Annual Egypt 1:1 Investor Conference continues to be a popular event and this year again helped connect prominent South African investors with senior management representing leading Egyptian companies from a broad range of sectors—including healthcare, consumer, financial, materials, and real estate—to facilitate partnership and investment opportunities. Some of the Egyptian companies that attended the event include Cleopatra Hospital, Commercial International Bank, Edita Food Industries, Egypt Kuwait Holding, Ezz Steel, Ghabbour Auto, Housing and Development Bank, Integrated Diagnostics Holding, MM Group, Madinet Nasr Housing and Development (MNHD), Palm Hills Developments, Qalaa Holdings, and SODIC.
The business conditions within the financial services sector is developing with use of fintech. How can RenCap add value in the Egyptian market through the deployment of such technologies?
At Renaissance Capital we take innovation very seriously and have made a number of improvements to our global business proposition in order to serve our clients better than ever. Earlier this year we established an Algorithmic Trading Unit to meet growing client demand and capitalise on market opportunities.
Government issuance of bonds and sukuk are a key driver in financial markets. Are you planning to manage any of those issuances?
We do not have current plans to tap into sukuk issuances.
What are your expectations for the Egyptian market next year (ie interest rates, deficit, inflation, debt)? What is your view of the country’s restructuring efforts?
Egypt proved to be the sole reform story in the MENA region that has delivered and continues to deliver tangible results.
The government’s debt reached 108% of the GDP in June 2017, the budget deficit is expected to be 9.8% of the GDP in 2017/2018, there is double-digit inflation and the current account deficit is around 4-5% of the GDP. However, the direction remains very positive. Inflation has already been halved since the post-devaluation peak of 33%, recording 13% in March 2018, with prices recording a total increase of 2% only over the past five months. The budget is expected to show a healthy primary surplus in 2018/2019 (perhaps already in 2017/2018), helped by growth accelerating towards 6% (a figure we, the IMF, and the government all agree on).
Egypt is very committed to a reform effort, which via subsidy removals in fuel and electricity might keep inflation at around 11-12% from June 2018 to June 2020, and this fiscal effort should allow a reallocation of government spending towards infrastructure and investment.
