The level of confidence in the Egyptian economy is increasing, thanks to the clear vision of decision makers, according to Atiq Rehman, Head of EMEA Emerging Markets at Citigroup.
The country has been proactive in the measures it has taken to support small- and medium-sized enterprises (SMEs), industrial, and tourism sectors amid the coronavirus (COVID-19) pandemic. The government and the Central Bank of Egypt (CBE) have taken several steps to support the economy, which are indications of how Egypt is dealing with the crisis, said Mohamed Abdel Kader, Citi Country Officer and Managing Director in Egypt.
Daily News Egypt sat down with Citigroup leaders Rehman and Abdel Kader to find out more on their vision for Egypt’s economic outlook.
How do you see the future of emerging markets in the Middle East, especially Egypt?
Rehman: It has become clear that the level of confidence in the Egyptian economy is increasing, thanks to the clear vision of decision makers, which should eventually lead to more activity. This was evident in the issuance of the latest Egyptian Eurobond, which was multiple times covered, indicating investor confidence in the Egypt story. If the global situation continues to improve, you would see further appetite towards investing in Egyptian instruments. All of this proves that confidence is returning, and if it is a continuous process, I think we will see more investments in these bonds.
However, there is some uncertainty on bond issuances regarding how long this process takes and what their economic impacts are, but governments are taking measures to deal with some of that.
Accordingly, economic impacts on recovery have been quicker and we are very comfortable about Egypt. Moreover, with the currency policy, the International Monetary Fund (IMF) dialogue, and access to capital markets, I think all of these are very good, proactive actions that have been taken and the reserves situation is acceptable.
How do you evaluate Egypt’s COVID-19 response in different sectors?
Abdel Kader: I think that Egypt was proactive in terms of measures that have been taken supporting SMEs, industrial, and tourism sectors, as the government and the CBE took several steps to protect the economy. These are indications actually of how the country is dealing with the crisis.
Additionally, we have seen different initiatives taken by the CBE in all types of sectors in support of individuals. These include the postponement of loan repayments for six months, which proves the CBE’s proactive and timely decisions to solve business problems and ensure sustainability of economic activity. We have seen the indications of COVID-19 impact on Egypt’s Purchasing Managers’ Index (PMI), which fell considerably in April to a 29.7 level, but due to the measures taken, we’ve seen the index rise above 40 in May and we will keep an eye on this vital indicator as we go.
Egypt has also taken proactive measures regarding the country’s external accounts by approaching the IMF for Rapid Financing Instrument (RFI) support of $2.8 billion, as well as issuing a $5bn Eurobond and having successful discussions with the IMF for accessing standby facility of $5.2 billion through the coming one year. This comes in addition to various bilateral and multilateral dialogues. Consequently, all of this proves that the Egyptian government and the CBE are providing proactive facilitations to handle the situation.
Egypt was ranked the 29th most favourable emerging market in facing the current financial risks due to COVID-19, according to The Economist magazine. How could Egypt maintain its position in contrast to other emerging markets?
Rehman: First of all, if you look at the global impact of the pandemic, with the whole world being affected, most industries worldwide have been hit by the crisis.
Oil producing countries such as the UAE, Saudi Arabia, Kuwait, and Qatar are reliant on oil resources in dealing with the COVID-19 crisis, which is different to other emerging markets. Therefore, you need to consider several aspects including whether a country is heavily invested in oil or not, and whether a country is an oil importer or exporter. Oil Importer countries, for example, benefited from the recent reductions, by as much as half, in their oil bills which makes a difference to their position, while those countries neutral to oil prices didn’t necessarily see the same benefits.
The other aspect is how countries responded to the situation. Regarding Egypt, the country has responded quickly to the crisis and has taken large domestic and external actionsby issuing bonds and easing monetary policies to maintain foreign exchange reserves.
In your opinion, which sector in Egypt has the potential to grow in the current period?
Abdel Kader: In light of the COVID-19 situation, construction will continue to be a very important sector in Egypt, and it is one of the main drivers of the country’s economy during these challenging times. The other sector is everything related to consumer goods, and we are expecting that this sector will keep growing. Therefore, I think that the consumer goods and infrastructure are the two sectors that will continue to be leading the growth in Egypt.
Accordingly, we have seen that the IMF and different rating institutions have identified Egypt as one of the few countries that will continue to achieve positive growth rates in the coming period. I think this will be on the back of government investment in infrastructure projects and continuation of growth in the construction sector in addition to a vibrant consumer market given the large population of Egypt. Another important sector is tourism, which is very dependent on how the global situation evolves, as many governments will reopen soon for tourism. The oil and gas sector will continue to perform normally, but it is affected by the behaviour of the global market.
How attractive will Egypt be for FDIs in the MENA region, and when will investor appetite return to Egypt?
Rehman: If we look at what happened in March, there was a general large-scale outflow of money worldwide, which was placed into safe assets, namely bonds and treasuries. It was not specifically in Egypt, but rather a general sentiment around the world. Nevertheless, with more market clarity, people started to feel bit more comfortable because when the crisis comes, people do not feel safe. On the other hand, with more clarity on the COVID-19 situation, governments took more action to address these issues, and therefore, the appetite returned and investments will come over time.
It is worth mentioning that Egypt has managed that process to ensure there is a strategy to attract investors into the domestic market. Egypt is a very attractive destination for portfolio investment and the equity market has strong national investors. Overall, in the coming period, we will see new investments in emerging markets, equity markets, Eurobonds, and guarantee bonds base.
Abdel Kader: I think Egypt will be one of the destination portfolio investors will be looking at as soon as global liquidity gets back to business. Despite the cut of 300 bps Egypt continues to be attractive to investors in terms of interest rate differential .
The fact that Egypt managed the outflows during the crisis time in a very professional manner and provided needed liquidity is a major aspect to be considered among investors as investing in markets where it is easy to come in and go out is a major point investors look at. Egypt has seen smooth outflows of $17bn form market with little volatility and excellent liquidity which in itself is a good drives to get back investors in as they feel comfort in trading Egypt given smooth liquidity.
Reports say that Egypt’s investment banks are eyeing a $400m investment in local debt. Do you think this figure is exaggerated?
Abdel Kader: It is not big news because Egypt used to have over $25bn investment in the local debt. However, it indicated that the outflows have paused for the time being.
What role will citigroup play in attracting these investments to the Egyptian market again?
Rehman: Citigroup’s important roles in the global capital market business is that we are number one arranger of currency debt in emerging market issuers. We have footprint in around 100 countries with solid relationships. For Egypt, we act mainly as the link between investors and ministry of finance and CBE. We arranged a conference attended by more than 200 clients where Egyptian seniors from Ministry of finance and CBE have been main slot. We also have our in-country team and offshore team in continuous dialogue with investors to give them first hand comfort regarding Egypt investment which is very important for investors’ confidence. We also try to continuously provide best access to the market to our investors which helps keep their appetite and give them comfort to invest in Egypt. Also the fact of been large custodian in market we improve our process and service to facilitate their business in Egypt.
