“All roads lead to Sharm El-Sheikh” — this saying could be used to describe how government efforts are focused on making the Egypt Economic Development Conference, scheduled for March 2015, a success. The conference, to be held in the Red Sea Coast resort, will showcase Egypt’s economic reforms and investment potential to the world.
In his speech to the World Economic Forum in Davos last weekend, President Abdel-Fattah Al-Sisi invited investors to the conference to find out what opportunities Egypt has to offer. The president also spoke of the Egyptian government’s support for the private sector and interest in attracting investment by creating an investment-friendly environment.
He stressed his confidence in the Egyptian economy and the ability and commitment of the government to carry out policies that tackle structural problems by implementing sound fiscal and monetary policies, reducing the budget deficit, minimising energy subsidies, protecting the needy and lowering inflation.
Egypt expects growth higher than four per cent of GDP in fiscal year 2014-2015, Hani Demian, the minister of finance, told Reuters. He said rising confidence and low oil prices will make that possible and added that the budget deficit for this year will fall to between 10 and 10.5 per cent of GDP, down from 12.5 to 12.6 per cent in 2013-2014. Earlier forecasts had put growth at 3.8 per cent.
In his speech to the forum, Al-Sisi promised that the government will tackle obstacles that hinder investment and settle investment disputes.
The president promised a unified investment law, simplified procedures and a “one-stop shop” as part of efforts to create a positive investment environment.
His words were well received, according to businessman Shafiq Gabr ,who has been attending the World Economic Forum for the past 25 years. He told the Weekly that the president’s speech, his first at a global economic event, was very important and came across as “balanced and reassuring.”
What the president said was received positively by investors, who expressed their intentions to attend the March Conference and to seriously explore investment prospects in Egypt.
However, Gabr said that invitations for such a major event should have been sent out much earlier, as business people often have their calendars marked out six months ahead. He recommended that there be room at the conference not just for the usual meetings, but also for innovative ideas that allow participants to get a feel for Egypt.
He is confident that the conference will succeed because “many governments want Egypt to succeed.” Kuwait, Saudi Arabia and the United Arab Emirates have all backed Egypt with financial support since the ouster of former president Mohamed Morsi in July 2013.
Gabr does not expect the violence that took place this week, on the fourth anniversary of the 25 January Revolution, to dampen prospects for the conference. Egypt saw a spate of attempted bombings and confrontations between protestors and police that resulted in the deaths of 18 people.
He said that many people understand that the “acts of sabotage”, referring to the bombings and attempts to damage infrastructure, carried out this week were meant to promote a negative image of the government.
He said that what worries most investors is the lack of clarity on issues such as foreign exchange, taxation and repatriation of profits. “These are the issues that must be dealt with,” he said.
To appease investor concerns regarding foreign exchange, the Central Bank of Egypt (CBE) has been letting the pound slide in value. It has lowered interest rates on the pound and since last week has held daily auctions of dollars, selling at a higher rate each time, in order to narrow the gap with the black market.
On Monday, the dollar officially stood at LE7.43 for buying and LE7.46 for selling. But it continued to trade higher in the black market at around LE7.88, slightly below the previous high rate of LE7.90, according to Mohamed Al-Abyad, head of the foreign exchange division at the Federation of Chambers of Commerce.
Al-Abyad said the real value of the dollar versus the pound will depend on the availability of hard currency. The fact that the CBE is continuing to increase the official rate and to make dollars available means that anyone hoarding dollars for speculative purposes will begin to sell for fear of losing money.
The Egyptian delegation to the Davos Forum this year included the ministers of finance, industry and foreign trade, and foreign affairs, in addition to the governor of the Central Bank of Egypt and a handful of businessmen. Among the latter was Qalaa Holdings co-founder and managing director Hisham Al-Khazindar.
“President Al-Sisi sent a clear and important message to the global business community that Egypt is heading in the right direction at the World Economic Forum this year,” Al-Khazindar said. He was speaking at a session at the forum called “Shaping Egypt’s Economic Transformation,” according to a press release by Qalaa Holdings.
The release said that Al-Khazindar, together with Ahmed Heikal, chairman and co-founder of Qalaa Holdings, “gave audiences at the World Economic Forum the private-sector perspective on the challenges and opportunities that Egypt currently faces as it strives to rebuild its economy amidst an energy crisis and limited fiscal resources.”
Qalaa Holdings, formerly Citadel Capital, controls subsidiaries in energy, cement, agri-foods, transportation and logistics, and mining industries. “We have today a once-in-a-generation opportunity for a reformist government not just to lay the foundations for a more secure energy future, but to create whole new industries and perhaps hundreds of thousands of jobs in the process,” Heikal told the audience.
In July 2014, the government increased the prices of petrol, diesel and natural gas by 40 to 175 per cent. The move was aimed to cut government allocations to energy subsidies that have been eating up almost a quarter of the budget.
The drop in oil prices to lows unseen in years could also mean a helping hand for the government because it means a reduction in energy import bills and, consequently, in the size of the subsidies. According to the World Bank in its MENA Quarterly Economic Brief for January 2015, the government has already realised savings from low oil prices, with “spending on energy subsidies [falling] by a quarter.”
This will positively impact the fiscal deficit. Egypt had earmarked around LE100 billion for energy subsidies in 2014-2015, with an oil price assumption of $105 per barrel, said the World Bank. But oil prices reached $48 a barrel on Monday, a 60 per cent drop since June 2014 due to oversupply and a decision by the Organisation of the Petroleum Exporting Countries (OPEC) to keep supply unchanged to defend market share.
“Lower oil prices can enhance both the government’s and firms’ ability to secure adequate energy supplies at market prices (by lowering the cost of importing oil and gas), and hence can lead to higher production and capacity utilisation and higher output levels,” said the World Bank, adding that lower oil prices “may help the country avail additional energy supplies through the summer, avoiding blackouts, which in turn can help reinforce political and social stability.”
The low oil prices, said the Bank, are expected to create space for the government to continue with its reform programme. Savings from the lower prices, it suggested, might be channelled towards the “implementation of specific win-win measures, such as extending the natural gas grid across Egypt, diversifying the energy mix or upgrading the infrastructure.”