Foreign Investors return to Egypt after Years of Turmoil – FT

Two heated battles between foreign investors for Egyptian assets have heartened Cairo officials hoping to relaunch their economy with a high-profile investment conference this week.

Bidding wars by European and regional groups for two food companies, Bisco Misr and Arab Dairy, both listed on the Cairo bourse, are the strongest signal yet that foreign investors are interested in returning to the 90m-strong market after four years of political turmoil following the revolution that ousted long-time president Hosni Mubarak, say analysts.

“The two deals are indicative that there is strong interest in Egypt,” said Ahmed Ozalp, managing director of Akanar Partners, a corporate finance advisory group. “There is recognition that Egypt is a more stable environment, even if it remains fragile and we have a long way to go. Consumer industries . . . are a big and easy play.”

Egypt is to present $35bn worth of projects at the investment conference in Sharm el-Sheikh on March 13 and 14. As well as showcasing opportunities for foreign investors, the government is hoping to highlight reforms aimed at restoring confidence in an economy which is emerging from one of its worst patches in recent history.

“Egypt adds 1m new consumers every year,” said Ashraf Salman, investment minister, who said the government was hoping to conclude six deals at the conference, including a power station worth $3bn.

Mr Ozalp points out that sectors such as healthcare and real estate have already attracted foreign interest in recent months with Abraaj Capital, an Emirati buyout firm, acquiring stakes in Egyptian hospitals and the US private equity firm, Ripplewood Holdings, buying into Palm Hills, a property developer.

“We would not have seen these kinds of transactions in 2011, 12 or 13,” said Mr Ozalp.

Local companies in the food sector such as Wadi Group say they are optimistic. Ramzi Nasrallah, vice-president and chief financial officer of Wadi, a food and poultry conglomerate, said he was “bullish” about the Egyptian market, and expecting 30-35 per cent growth in revenue this year, most of it from new business.

“It is the size of the market, the numbers, that are attractive,” said Mr Nasrallah, whose company is planning to invest $38m this year, its biggest investment since 2011.

The political rollercoaster that followed the 2011 uprising, which saw Egypt ruled first by a military council, then by an elected Islamist president who was subsequently ousted by Abdel Fattah al-Sisi, spooked investors and stalled economic growth.

Despite a low-level armed Islamist rebellion in the Sinai and clashes between police and Muslim Brotherhood supporters of the ousted president, analysts say there is a perception that political risk has diminished. The postponement of parliamentary elections earlier this month should not affect investor interest, said Simon Kitchen, strategist at EFG-Hermes, the Cairo-based investment bank.

“There is a little bit of disappointment especially on the part of multilateral banks who need to see a political transition but for other investors, they see a strong president and a strong cabinet,” he said.

The challenge for the Egyptian authorities in Sharm el-Sheikh is to convince international investors that the government has both a credible economic vision and the will to implement reforms, including the simplification of the country’s notorious bureaucracy.

Hesitancy to invest in Egypt, said Mr Kitchen, was less likely to be due to concerns over stability than problems such as shortages of foreign currency, which hamper the repatriation of profits, stifling bureaucratic regulations or uncertainty over taxes.

Last week the cabinet approved a new investment law in an effort to address some of the issues ahead of the conference. Changes include simplifying the process for obtaining permissions and making deals less vulnerable to legal disputes by third parties.

Energy shortages, another concern for investors, are being addressed by moves to import natural gas and permit the use of coal in electricity generation and manufacturing. The government is also establishing a legal framework for investment in renewables.

Other confidence building measures include slashing energy subsidies by a third and devaluing the Egyptian pound, which has weakened against the dollar by around 5 per cent.

The International Monetary Fund has endorsed Cairo’s efforts saying they were starting to spur growth and produce “a turnround”. It predicted that GDP would grow by 3.8 per cent in the fiscal year ending in June, up from 2.2 per cent the previous year.

“Egypt needs to attract at least $10bn in foreign direct investment year after year,” said Mr Kitchen. “Right now it needs to develop goodwill and demonstrate credibility over time because it is emerging from a period of volatility and uncertainty.”

Source: The Financial Times