Egypt 2015: Onward and upward

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After nearly four years of stagnation, Egypt’s economy is back on track and attracting increasing interest from regional and international investors.

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WHAT A DIFFERENCE a year of stability makes. Twelve months ago, Egypt was still struggling to emerge from the turmoil that followed the 2011 revolution. Large parts of the economy were at a standstill, government debt was rising inexorably and foreign direct investment had all but dried up. 

Since the election of former army chief Abdel Fattah el-Sisi as president last June, however, Egypt’s economic prospects have been steadily improving. A series of much-needed reforms has not only set the country’s finances on the path to sustainability but also boosted confidence among both local and external investors. 

Share prices have soared, credit spreads have plummeted and ratings are rising. Even the International Monetary Fund (IMF), an institution not noted for hyperbole, in February hailed a "turnaround" in the Egyptian economy.

These achievements were crowned in mid-March by the overwhelmingly positive response to the government’s ambitious Egypt Economic Development Conference (EEDC). Held in the Red Sea resort of Sharm el-Sheikh, the EEDC was designed to showcase Egypt’s economic progress and attract a new wave of investment. It proved hugely successful on both counts.

Gulf support

Over the three days of the conference, more than $33 billion worth of investment agreements were signed, as well as a further $89 billion of memoranda of understanding. On top of that, Egypt’s key allies among the Gulf states – Saudi Arabia, Kuwait and the United Arab Emirates (UAE) – promised to provide a further $12 billion of direct support and investment.

Many of the private sector pledges also came from fellow Arab countries, including $2 billion from leading UAE private equity firm Khalifa bin Butti bin Omeir (KBBO). Western firms were also well-represented. US giant PepsiCo announced plans to invest $500 million to expand its Egyptian operations, which notched up sales of $1.2 million in 2014, while GE said it would invest $200 million in the development of a pioneering "multimodal manufacturing, engineering, services and training centre" alongside the Suez Canal.

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Egyptian president, Abdel Fattah el-Sisi

A key factor in the success of the EEDC was Egypt’s new investment law. Ratified by the president on the eve of the conference, the legislation is designed to provide a transparent framework for foreign investors and remove legal uncertainties that had previously acted as a brake on investment. 

In addition to guarantees for deals signed with the government and incentives to finance labour-intensive projects, it includes provisions to slash red tape for companies investing in Egypt via the introduction of a one-stop-shop system for licences and permits. The new system was due to be implemented by the end of April for agriculture projects and will be rolled out to other sectors over the next 18 months. 

Infrastructure pledge

Not all the news from the EEDC concerned external investment. The government also used the occasion to announce the latest and most ambitious in a series of high-profile infrastructure projects – the building of a new capital. 

The proposed development, which is projected to cost $45 billion in total, was devised as a solution to the chronic congestion and overcrowding of Cairo, the current capital. Located to the east of that city, the new conurbation will cover 700 sq km and house 5 million people. It will be built by Dubai-based real estate investment fund Capital City Partners.

It will be the second major infrastructure project to be undertaken by the Sisi government, following the start last year of work on the New Suez Canal. The latter initiative, which involves the creation of an extra 72km of canal, is expected to provide a major boost to income from the waterway when it is completed later this year by slashing transit times and increasing capacity. 

By allowing two-way travel in part of the canal, the new construction will cut the time it takes southbound ships to reach the Red Sea from the Mediterranean from 18 hours to 11. The daily capacity of the waterway will thus be increased from 49 ships to 97, while annual revenues are due to rise from the current $5.3 billion to $13.2 billion by 2023. The project also includes plans for the development of a 76,000 sq km industrial and logistics hub alongside the canal. 

Work on the new waterway began last August and is reported to be well under way. A particularly notable feature of the project is that the majority of the funding was raised from the Egyptian public. Following a television announcement by the president inviting citizens to subscribe for five-year investment certificates to finance the canal, the $8.5 billion required was raised within just eight days with the majority – 88% – being provided by retail investors.

Deficit reduction

While committing to much-needed investment in infrastructure, however, the Sisi government has earned plaudits for its otherwise restrained approach to public finances. The budget deficit, which had ballooned to 13.8% of GDP in the 2013/14 fiscal year, is gradually being brought under control thanks to major reforms to Egypt’s subsidy and tax regimes.