From small business to billionaires, a vanguard of Egypt’s entrepreneurs is starting to bet that the economy has finally turned a corner.
Sameh El-Meligy, whose interests range from importing home appliances to a stake in two Cairo restaurants, is thinking of opening another, after three years of violent unrest hurt demand. “We’ve begun to feel some stability and this has been reflected in the market,” he said by phone.
At the other end of the scale, Nassef Sawiris, Egypt’s richest man, said he wants to return part of his Orascom business to the country after pulling out more than a year ago. The planned initial public offering of the construction unit in Sawiris’s Amsterdam-based OCI NV is part of a flurry of Cairo deals announced in recent months in industries from food to communications.
The moves reflect an expectation that President Abdel-Fattah El-Sisi is starting to make good on his pledge to restore stability and fix the economy since leading an army takeover last year. Egypt’s financial markets have been predicting that outcome, with the benchmark EGX 30 Index of stocks surging 42 percent in 2014, the world’s third-best performer.
The government’s bloody suppression of Islamist groups that backed ousted President Mohamed Mursi has largely swept political unrest out of sight, while El-Sisi has won praise from business leaders and economists by cutting subsidies after his May election.
‘On the Mend’
“A lot of the problems that the Egyptian economy had over the past few years seem to be, slowly but surely, on the mend,” William Jackson, an economist at Capital Economics Ltd. in London, said by phone. “The political situation has stabilized somewhat over the past six to 12 months. I think that’s removed some of the uncertainty for the investors.”
Foreign direct investment reached $4.7 billion in the first nine months of the fiscal year that ended in June, Investment Minister Ashraf Salman said that month in an interview. The country is seeking between $8 billion and $10 billion in FDI this financial year, he said.
Since the uprising that ousted Hosni Mubarak in 2011, Egypt’s economy has been stuck in its deepest slump for two decades, as persistent turmoil deterred investment and tourists.
Gross domestic product has been expanding at an average rate of about 2 percent since 2011, barely outpacing population growth, according to International Monetary Fund data. Foreign reserves are still around half the pre-uprising levels, and power shortages have become a regular feature of life for businesses as well as households.
‘Military Dictatorship’
Nor has the political unrest evaporated altogether. There are regular attacks by militants on security forces, as well as sporadic protests by Islamists denouncing El-Sisi’s overthrow of an elected government and crackdown on its supporters.
“There’s a high level of oppression, this doesn’t guarantee stability, and for outsiders they see it as a military dictatorship,” said Ashraf ElSherif, a lecturer in political science at the American University in Cairo. “The president didn’t announce a clear economic plan for the next four years. This lack of transparency doesn’t encourage Egyptian investors, let alone foreigners.”
Among the economic stabilizers cited by Jackson is the influx of foreign currency from El-Sisi’s Persian Gulf allies, which at least stemmed the decline in reserves and “helped ease strains on the balance of payments.” The July move to slash energy subsidies increased gasoline prices by as much as 78 percent.
‘Positive Signal’
Past governments had shied away from such measures, even as the budget deficit ballooned. It reached 15 percent of economic output last fiscal year, if Gulf grants aren’t included, according to the finance minister.
A month after the spending cuts, measures of manufacturing activity and new orders surveyed by HSBC and Markit Economics rose to the highest levels this year.
The subsidy reductions sent “a very positive signal to foreign investors,” though they must be followed by “further measures to control the budget deficit” and steps to address energy shortages, said Ahmed El Guindy, head of investment banking at EFG-Hermes Holding SAE. EFG-Hermes is hoping to complete two IPOs before the end of the year, he said.
For Moataz Al-Alfi, the bottleneck in Egypt’s energy supplies is already holding back investment — his own. Al-Alfi, the chairman and chief executive officer of private equity firm Egypt Kuwait Holding Co., said his fertilizer factory halted output last month after the government stopped supplying it with natural gas. He said the company is now negotiating with private energy suppliers.
Power Woes
Al-Alfi said he has the cash to expand the fertilizer business, but won’t do it so long as he doesn’t know where energy supplies will come from. “You invite investors but when they come they don’t have power, they don’t have the land, the infrastructure,” he said in an interview at his Cairo office. “How can they invest?”
Italcementi SpA’s Egyptian unit Suez Cement said last month it was operating on 35 percent to 40 percent of its capacity after energy supplies were reduced by an additional 15 percent. Another cement company, Misr Beni Suef, said this week that fuel supplies have been halted since Aug. 26.
Some of the investment plans in Egypt are coming from the same Persian Gulf quarters that are spending heavily to ensure El-Sisi’s success.
‘More Confident’
Emirates Telecommunications Corp. of the United Arab Emirates, the Gulf nation that has been among Egypt’s main financial backers, has said it’s considering an IPO of its Egypt unit on the Cairo bourse. U.A.E. and Saudi firms, along with Kellogg Co. of the U.S., are potential bidders for confectionery maker Bisco Misr.
Cairo entrepreneur El-Meligy, 53, says business hasn’t rebounded as much as he’d hoped, yet he sees a difference after a period when he had to send employees on unpaid leave or reduce their hours. He said the transport of goods to clients in southern Egypt, which had been abandoned because it was too dangerous, has resumed.
“If politics are stable, the economy improves,” he said. “People became more confident to start working normally.”
Source: Bloomberg
