2 minutes with Nadir Shaikh: The effects of economic reform on Egypt’s investment climate

Business Forward speaks to Nadir Shaikh on the sidelines of his talk “Risks for Investors in Emerging Markets” at the School of Business

After years of political and economic turmoil in Egypt, the country has been busily attempting to ameliorate its investment climate to attract more foreign and local investors. To supplement its target, multiple relevant changes have taken place including, a new investment law to alleviate what was deemed as “red tape”.

To provide a run-through of the investment landscape in Egypt today, Business Forward speaks to Citi country officer for Egypt and the Levant Nadir Shaikh to better understand how the reform program is realistically reflecting on the investment scene in Egypt.

How would you describe the investment climate in Egypt today?
I would say that it is very positive. The main positive factor for investors is the fact that there is a very successful International Monetary Fund (IMF) program in place since November 2016. The program has been adhered to very tightly by the Egyptian government, by the Central Bank of Egypt (CBE) and the Ministry of Finance. They have fulfilled all the conditions on time.

The IMF does a review every six months before they make the next disbursement, and Egypt has been able to get all the disbursements on time. So, from the perspective of foreign investors – whether they are coming into the financial markets or into direct investment sectors – there is a very positive climate.

What are the main challenges that face investors in an emerging market like Egypt?
The challenges are manifold and Egypt is no different than other emerging markets in that respect. What we are talking about here is the risk of understanding and complying with regulations, which can sometimes be very challenging for both foreign and local investors. Foreign investors face a greater challenge because they need to understand these regulations and stick to the letter of the law. Sometimes, it takes time for them to really navigate through the system of the civil service, the bureaucracy and the legal system to understand them better. As long as you have good local advisors, it works. But there is always the challenge of currency convertibility and transferability. Today, that challenge has been largely addressed in Egypt through the IMF program with a floatation of the currency and through the liberalization of the exchange rate.

Other challenges are always related to security. In the case of Egypt, security has been very tightly managed by the Egyptian state. Not only emerging markets, but even developed countries have security challenges. But of course, if you’re in a volatile region, these challenges are enhanced.

Then there is the challenge of actually attracting investors into different industrial sectors. In Egypt, a lot of investors come into power, oil and gas because these resources are abundant. But you might find other sectors where investors are not so eager to invest in, unless there are clearer regulations or more clarity on the outlook of the market. At the same time, Egypt has to demonstrate that there is more willingness and flexibility to open up markets to the private sector. There is still a lot of industry and production here in the public sector.

Egypt has been actively implementing reforms to attract investors. Do you think these reforms have paid off?
It is too early to say that these reforms have paid off because reforms have to consistently take place over a period of time. This process in Egypt has actually only just begun. The reforms are only two and a half years old.

These reforms are very fundamental in the economy. So, the change of pricing of petroleum products, electricity and gas, both in the household and the industrial sector, is a fundamental change. These are not short-term fixes and they will be beneficial over time. At the same time, there are reforms that are impacting the monetary and financial sectors.

There are also reforms taking place in particular sectors like education and health. The whole system of school examinations is being revolutionized. Those are long-term reforms.

If you look at the history of developing countries, you have to look at countries like South Korea, Taiwan and China. You have to think in terms of decades.

Does Egypt have enough facilities and opportunities to compete in the region?
Yes, I think it has pretty good facilities. For example, there are liquified natural gas (LNG) terminals. Egypt and Israel have now signed agreements to import gas and use the LNG terminals to export to Europe. These kinds of facilities have not been used for a while because of the shortage of production in the past. Now, we have an opportunity to actually go forward and use such facilities. Another facility is sunshine. You have an infinite amount of land. You have a very favorable physical environment to develop energy and power production resources. You also have 100 million people, and the level of education and technical skills are improving, but a lot of investment is required there.

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