Mariam Fam and Tamim Elyan
FROM small businesses 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.
At the other end of the scale, Nassef Sawiris, Egypt’s richest man, said he wanted to return part of his Orascom business to the country after pulling out over a year ago. The planned initial public offering (IPO) of the construction unit in Sawiris’s Amsterdam OCI is among a flurry of Cairo deals in recent months.
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.
Egypt’s financial markets have been predicting that outcome, rallying after El-Sisi led an army takeover last year. Since then, the government’s bloody suppression of Islamist groups 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.
“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 in London, said.
Since Hosni Mubarak was ousted in 2011, Egypt’s economy has been stuck in its deepest slump for two decades, as turmoil deterred investment and tourists.
Gross domestic product has been expanding at an average rate of about 2 percent annually since 2011, barely outpacing population growth, International Monetary Fund data show. Foreign reserves are around half the pre-uprising levels, and power shortages have become a regular feature of life.
Nor has the unrest evaporated. 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.
“There’s a high level of oppression, this doesn’t guarantee stability, and for outsiders they see it as a military dictatorship,” said Ashraf El-Sherif, 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 stabilisers cited by Jackson is the influx of foreign currency from El-Sisi’s Persian Gulf allies, which at least had stemmed the decline in reserves and “helped ease strains on the balance of payments”. A move to slash energy subsidies in July increased petrol prices by as much as 78 percent.
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 are not included, according to the finance minister.
A month after the government 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 had to be followed by “further measures to control the budget deficit” and steps to address energy shortages, said Ahmed El Guindy, the head of investment banking at EFG-Hermes. EFG-Hermes was 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 of private equity firm Egypt Kuwait, said his fertiliser factory had halted output last month after the government stopped supplying it with natural gas. He said the company was now negotiating with private energy suppliers.
Al-Alfi said he had the cash to expand the fertiliser business, but would not do it so long as he did not know where energy supplies would 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’s Egyptian unit, Suez Cement, said last month it was operating at about 40 percent of its capacity after energy supplies had been reduced by an additional 15 percent.
Another cement company, Misr Beni Suef, said this week that fuel supplies had been halted since August 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.
Emirates Telecommunications of the United Arab Emirates (UAE), one of Egypt’s main financial backers, has said it was considering an IPO of its Egyptian unit on the Cairo bourse. UAE and Saudi firms, along with Kellogg of the US, are potential bidders for confectionery maker Bisco Misr.
Cairo entrepreneur El-Meligy says business has not rebounded as much as he had hoped, yet he sees a difference. He said the transport of goods to southern Egypt had resumed. “If politics are stable, the economy improves,” he said. “People became more confident to start working normally.” – Bloomberg