Egypt The Future: Egyptian investment outlook relies on liquidity

The Egyptian government’s bid to lure foreign investment will depend on whether or not investors are willing to bet that they will be able to get money out of the country quickly amid a shortage of hard currencies and capital controls.

While the controls have been in place since 2011 to prevent Egyptians from taking money out, there have been bottlenecks in the past couple of years that have made foreign investors wait to get their capital out. That has made many foreign investors, particularly in the stock and bond markets, wary of dipping their toes in even though they are guaranteed repatriation of funds.

In recent months ahead of the Egypt the Future conference, the Egyptian central bank has made an effort to stamp out the black market in foreign currencies by devaluing the Egyptian pound against the US dollar, but so far it has not triggered a massive inflow of cash.

Like many emerging market currencies, the Egyptian pound has been a victim of the strengthening dollar in recent years. That, combined with the difficulties surrounding the conversion of the Egyptian pound, has not cheered foreign investors thus far.

“What would inspire me with more confidence is a normal market for currencies,” said Sherif Salem, a portfolio manager at Invest AD, an Abu Dhabi-based asset manager.

“I have no problem with devaluation,” he said. “We’ve seen the dollar rise against all major currencies. That doesn’t worry me as much as wanting to see a return to normality. What they’ve done is taken away a lot of the activity in the parallel market, but because of the lack of dollars there hasn’t been that supply in the banking market. There are companies that are still having problems sourcing dollars. The problem that we have as investors is the uncertainty.”

The country’s foreign reserves stand at about $15 billion, less than half of what they were before the political protests of 2011 that led to the deposal of the country’s long-serving president Hosni Mubarak. The political chaos that followed, during which the country’s first democratically elected president was removed after another wave of political protests in 2013, has taken its toll on the economy. Factories have been shutting down and unemployment has risen.

As a result the Egyptian pound has lost more than 35 per cent of its value since 2011, with $1 fetching 7.63 pounds. And according to EFG Hermes, the biggest Egyptian investment bank, foreign currency assets at Egyptian banks as of January have dropped to a decade low of $5.4 billion.

“Liquidity has been improving in the banking sector, although still not at a pace to clear the backlog of companies,” said Salah Shamma, the Dubai-based head of investment for Middle Eastern and North African Equity at Franklin Templeton Investments. “As such, we will be eyeing the upcoming conference for any financial support announcements from the GCC. Such funds are expected to support the central bank of Egypt’s ability to inject fresh liquidity into the market.”

Ashraf Salman, Egypt’s investment minister, said he expects investments into Egypt to exceed $8bn this year.

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