In April 2018 President Abdel Fattah Al-Sisi instructed all concerned bodies to establish the first sovereign and wealth fund. The deed was followed by another through endorsing Egypt’s sovereign Wealth Draft Law in July by parliament. In the aftermath, the ministry of planning published an announcement in an international publication in September seeking candidates to hold a position of executive director in the new entity. The qualified candidate will be revealed during the first quarter of 2019 according to the Minister of Planning, Monitoring, and Administrative Reform Hala Al Said. Then, President Al-Sisi issued an order in November to finalise all required measures to create a new fund in the name of ‘Misr Fund’, consistent with global standards in this regard.
With an authorised capital of EGP 200bn and a paid-in capital of EGP 5bn, the anticipated fund will run all state assets, including untapped ones, in order to maximise their use, and enhance the investment sector. The fund is one of Egypt Vision 2030’s outcomes, the government’s sustainable development strategy which is expected to operate 3,000 assets in a profitable and economic way, to achieve the goals of Egypt Vision 2030.
According to a report issued by the American Chamber of Commerce in Egypt, despite the fact that sovereign wealth funds are common in MENA countries, especially among the Gulf Cooperation Council countries, it is distinctly Egypt’s first experience in this field.
The report, also referred to Saudi Arabia’s experience in this field as a neighbour country. Saudi Arabia stands out as a regional leader when it comes to operating several sovereign wealth funds. The Sovereign Wealth Fund Institute (SWFI) estimates the combined assets of all funds worldwide at $7.58tn at the end of 2017, with the kingdom accounting for 9.5% in total.
The Saudi Arabian Monetary Agency (SAMA), was launched in 1952 and is supported by significant foreign currency reserves, which allow it to retain its position as the world’s fifth largest sovereign fund in the 2017 ranking, with a net worth of $494bn, according to the SWFI. Following the same trajectory is the Riyadh-based Public Investment Fund (PIF), established in 1971, it ranked as the 11th, with assets estimated at $223.9bn and accounting for 70% of the Middle East sovereign fund investment in 2017.
The PIF seeks to invest through equity, loans, or guarantees. In addition, it allocates public funds to significant strategic projects that cannot be implemented by the private sector alone due to insufficient experience or capital.
In an effort to position the fund among the world’s largest, the Saudi Kingdom launched the PIF programme (2018-2020) in October as one of 12 programmes under the Saudi Vision 2030. The PIF’s programme plans to increase its total assets to $400bn by the end of 2020.
Saudi Arabia went through a boom-and-bust cycle as oil revenues fell from SR 368bn in 1981 to SR 74bn in 1986, causing huge drops in the fund’s reserves and negatively affecting the standard of living, according to a 2009 study titled “Rentier Exceptionalism, Oil and Political Mobilisation in Saudi Arabia.” A rentier state is one that derives all or a substantial portion of national revenues from indigenous resources.
Another challenge occurred in 1998, when Brent crude stood at $13 a barrel in real terms, with a break-even price for Saudi Arabia of $20.4. SAMA’s foreign assets were a mere $46.9bn, with government debt as a percentage of the GDP at 102.2%, according to the International Investor.
Brent prices began to rise two years later, hitting $28.6 a barrel. By 2013, Brent prices were $108.8 a barrel and Saudi Arabia’s break-even point was $92.8. SAMA’s foreign assets totalled $725.7bn, and government debt as a percentage of the GDP was 2.2%.
What differentiates Egypt from Saudi Arabia in this regard is that Egypt’s new sovereign fund will generate wealth from tapping public properties and assets. In addition, while Saudi funds depend on petroleum, Egypt’s approach to securing capital will be more diverse, including trade surpluses generated by energy projects and investments and other megaprojects which have been established during the last few years.
Nevertheless, the hope is that the new sovereign wealth fund will support sustainable economic development as outlined in Egypt Vision 2030, the report expected.
