UAE’s growth reflects confidence in Egyptian economy, ‘Ras El Hekma’ a proof

The Egyptian-Emirati commercial connections have been strong and resilient since the 1970s, thanks to the vision of the UAE’s founder, Sheikh Zayed bin Sultan Al Nahyan. He saw Egypt as a pillar of political and security stability in the Middle East, as well as the centre of the Arab world.

These relations are always poised for growth and hold promising prospects across various sectors, supported by Egypt’s substantial economic assets, including human capital, a strategic geographic location, ports, fertile lands, logistics, and a growing consumer base. In addition, Emirati investors are skilled at finding and capturing opportunities, as well as carrying out diversified investment expansions.

One of these opportunities was the high-profile acquisition by the First Abu Dhabi Bank Group, a prominent banking institution in the Arab world and the Middle East, of Bank Audi Egypt. This multi-million-dollar deal was completed in 2021 despite the global market uncertainties and lockdowns imposed by the COVID-19 pandemic at that time.

In our interview with him, Mohamed Abbas Fayed, CEO and Managing Director of Abu Dhabi First Bank Egypt, explained that the acquisition deal and its timing reflect the highly positive outlook the Emirati group has on the Egyptian market, shaped over years.

Abu Dhabi First was the first foreign bank to open a branch in Egypt in 1974 under the name “National Bank of Abu Dhabi” following the establishment of the UAE. This marked the beginning of what would become a financial and banking giant, Abu Dhabi First Bank Egypt, which, in a short time, has written a success story that made it the fourth-largest bank in the local market by assets, valued at EGP 430 billion.

It is also one of the most profitable entities among the branches of the parent group, which operates in over 18 countries worldwide, with a market value exceeding $37 billion. The group holds the strongest combined credit rating in the Middle East and North Africa region, with ratings of Aa3, AA-, and AA- from Moody’s, Standard & Poor’s, and Fitch, respectively.

Fayed emphasised the group’s desire to carry out further expansions in the Egyptian market in the near future, viewing it as a promising and vast market capable of yielding high returns.

He noted the continuous Emirati interest in Egypt throughout history and across the time, citing the UAE’s top position in foreign investments in Egypt, even before the signing of Ras El Hekma project, the largest direct foreign investment deal in Egypt’s history, with an initial value of $35 billion. Here is the full interview:

Despite the present political upheaval in the Middle East, the UAE’s overseas investment, notably in Egypt, has been gradually increasing. How would you describe this approach?

This underlines the UAE’s strong belief and entire faith in Egypt’s government and people, since Egypt is considered its second home. It also emphasises the substantial investment prospects and potential rewards in the Egyptian economy. This potential has a favourable impact on the UAE’s investment goals as it strives to invest its financial surplus, which provides the UAE significant influence. Additionally, it revitalises relationships, attracting new ideas, cultures, and perspectives.

Despite the geopolitical unrest and tensions in the region, Egypt enjoys stability and has a wide range of industries that attract investors, whether in food production, exports, services, logistics, finance, tourism, hospitality, and more. These industries offer investors the potential to achieve substantial returns.

This certainly reflects the strong confidence and complete trust the UAE has in Egypt. These factors, along with the UAE’s confidence in the current state and future of the Egyptian economy, have led to Ras Al Hekma deal, the largest in the history of foreign investments in the local market, with an initial value of $35 billion, expected to rise to $150 billion over the course of the project.

This deal is the strongest testament to the complete trust in the Egyptian economy and is expected to further boost confidence in other Emirati and foreign investments looking to enter or expand within Egypt.

Ras Al Hekma is undoubtedly an exceptional and historic deal in terms of its size and timing. But how do you view Egypt’s investment climate and its overall attractiveness to foreign investors?

Egypt’s investment climate is highly attractive and yields the highest returns in the region, as evidenced by the significant investments from global investors. Egypt topped African countries and many other nations worldwide in attracting foreign direct investment, reaching approximately $10 billion in 2023.

This is out of the $52.6 billion in inflows to Africa and $13.461 billion to all North African countries, according to data from the United Nations Conference on Trade and Development (UNCTAD).

Egypt possesses significant economic assets, including human capital, a strategic geographical location, ports, fertile land, and logistics, as well as a substantial and growing consumer base with demand increasing by 2.5 per cent annually, which makes Egypt highly attractive to investors.

The ongoing growth in demand enhances market share for companies, as investors view demand for services as a key factor for market presence. This demand spans various sectors, including industry, agriculture, development, health, and education.

The annual increase in goods and services due to demographic growth, particularly the young population—referred to by investors as the “age of demand”—creates job opportunities and genuine development.

Egypt’s investment potential is immense and deserves much better recognition than it currently receives. Regarding the risks associated with the current regional situation, they are manageable, and investors can navigate them to achieve substantial returns. This is evidenced by the significant growth in profits of companies operating in the local market over the past two years.

When discussing the Egyptian economy, what do you see as the main challenges and necessary solutions in the current period to achieve the desired growth and ensure that the severe shocks experienced in the past years are not repeated?

Egypt’s economy has faced numerous disruptions in recent years. To avoid further shocks and achieve the desired recovery, objectives must be set accurately, as vision is the foundation of progress. These objectives should be based on numbers according to the country’s internal needs.

Egypt has a persistent foreign currency deficit, which is the main cause of high inflation and the economic challenges the country is facing. To address this, it is crucial to focus on enhancing foreign currency resources through exports, tourism, investment, the Suez Canal, and remittances from Egyptians working abroad.

Solutions fundamentally depend on having a vision and working towards achieving it. For example, efforts should be directed at boosting the tourism sector, which I see as a significant yet underutilised resource. Many countries with far fewer resources than Egypt generate substantial revenues from this sector.

It is also essential to open up to the world and attract investments, which is a key element to focus on in the current period to achieve mutual benefits for all parties. Additionally, structural and administrative reforms are necessary, along with appointing the right people in the right positions to implement the targeted policies.

Coordination among ministries is also crucial at this stage for engaging with the world rather than working in isolated silos. Establishing task forces to achieve specific objectives is imperative at present, as is regularly monitoring the implementation of these goals.

The issue of currency and its provision has been a topic of significant debate during the crisis. Do you believe that monetary policy alone is capable of addressing this important issue?

The problem of foreign currency deficit fundamentally arises from fiscal policy and the real economy in general, including financial, trade, and investment policies, rather than from monetary policy. The latter attempts to address existing issues with specific tools and over short periods, such as tackling inflation through interest rates.

The solution lies in increasing resources and real development by leveraging the established infrastructure to attract investments and generate foreign currency. There is an urgent need to develop the service sector and elevate tourism to a completely different level, with contributions from all segments to achieve this goal. Additionally, port services, logistics, and all service-related sectors must be upgraded because they are rapid sources of foreign currency, unlike the industrial sector, which requires longer periods to establish entities and find markets.

Do you think that the dollar’s exchange rate reflects the actual size of the economy, or is the scarcity of foreign exchange in the Egyptian market behind its rise against the pound?

The scarcity of dollars is what has driven up its price, as the Egyptian economy is much larger than what this exchange rate suggests. Therefore, efforts should focus on several areas, starting with reducing imports and replacing them with local alternatives, increasing service exports, growing the balance of payments, and reducing the current account deficit.

Egypt has substantial resources, underutilised assets, and raw materials that can be manufactured and exported. There are markets waiting for our products, but we need to set specific targets and work diligently to achieve them.

I find our export target of $100 billion to be quite modest, as well as our tourism targets of attracting 15 million tourists and generating $15 billion, which seem very weak. Egypt could potentially achieve $100 billion from this sector, and this is not an unrealistic expectation but rather a realistic comparison with countries around us.

Additionally, raising awareness among Egyptians is crucial for reaching national goals through a clearly announced programme with specific objectives. For instance, addressing high inflation requires increasing incomes by boosting the actual production of domestic goods and services to reduce imports and create alternative opportunities. This necessitates greater effort from citizens.

“First Abu Dhabi Bank” is the largest bank in the UAE and one of the most prominent banking groups in the region. How does the group view the Egyptian market in light of recent developments?

The First Abu Dhabi Bank Group has been active in Egypt since 1974. Following the establishment of the UAE federation in the 1970s, it opened the first foreign bank branch in the Egyptian local market under the name “The National Bank of Abu Dhabi”. This emphasises Egypt’s historical relevance to investors, the people, and the leadership of the UAE.

The parent company sees the Egyptian market as attractive and important. It often refers to it as a “second home.” Following its recent expansion through the acquisition of Bank Audi, the bank in Egypt now accounts for a substantial share of the group’s assets and earnings.

Based on your banking experience from various schools and your role as a representative of First Abu Dhabi Bank in Egypt, what added value does an Emirati investor provide to an established sector or service in the Egyptian market?

One of the most important aspects of the added value that Emirati investors contribute to the Egyptian market is the transfer of innovative concepts. The United Arab Emirates has a large banking industry. For example, First Abu Dhabi Bank’s assets in the UAE could be equivalent to the overall size of Egypt’s banking sector. The banking business there is generally accessible to the rest of the world, allowing for tremendous cultural and knowledge exchange.

The assets of First Abu Dhabi Bank amount to be over 1.2 trillion dirhams (320 billion USD) by the end of June 2024. In addition to its activities in around 17 countries across five continents. It assists local, regional, and worldwide enterprises in managing their businesses both locally and globally by using its international ties, broad expertise, and financial power.

The second component is the careful selection of qualified persons in key roles in each country where they invest. This improves employee efficiency, decision-making speed, and provides a clear vision of the future. Furthermore, the export of their diverse experiences is crucial; for example, First Abu Dhabi Bank works in 17 countries throughout the world, leveraging the experiences it delivers while remaining open to other nations.

The transmission of diverse international cultures and openness helps attract foreign investments to Egypt, develops ties between nations, improves the performance of corporations and banks, and increases the knowledge of people in these organisations. Emirati investors stand out for their coordination and independence in decision-making.

The acquisition of Bank Audi by First Abu Dhabi Bank in Egypt occurred at a difficult moment, as the globe was grappling with the aftermath of the COVID-19 epidemic and with the concerns of a large recession. Nonetheless, this vital transaction was completed. How was the acquisition decision made? And why?

It is said that the best times for acquisitions are during downturns, therefore the business realised a chance to buy Bank Audi Egypt during the COVID-19 epidemic. Both sides’ desire to acquire and sell aligned without my personal assistance, since I had been CEO of Bank Audi Egypt for approximately five years. What drove me to accept the position of president of First Abu Dhabi Bank Egypt was the company’s ambitious strategy for expansion and growth in the Egyptian market.

The First Abu Dhabi faced numerous challenges during the acquisition process, including the spread of the COVID-19 pandemic, global lockdowns, adherence to the Central Bank of Egypt’s acquisitions and mergers requirements, market anticipation of the new brand following Audi’s exit, and employee integration into the new work environment.
The desire of both banks’ employees to grow and develop contributed to our capacity to enhance the client experience and meet their needs.

On June 30, 2022, the bank completed the merger with Bank Audi Egypt. FAB MISR now provides a unified banking system to all of its clients across all branches. The merger process began upon the announcement of the acquisition, and was completed on time in October 2022, a record time considering the sensitivity of banking merger processes.

The merging of the work teams was the most challenging. It got special attention and care to guarantee that it was done without any disparity between the two banks’ employees in terms of systems, culture, and work regulations.

The banking merger process is one of the most sensitive matters in the sector. What are the main concerns of CEOs during the completion of the process?

CEOs are particularly concerned about creating harmony during a merger and ensuring that customers do not experience any disruption in service. Customers are concerned about potential problems with their accounts or big changes to the bank’s systems or interface. This has been a top priority for the bank’s personnel since the merger process began.

How closely does the bank in Egypt work with the group in Abu Dhabi?

We have made major integrations with the parent group’s operating procedures, especially given that the group has one of the finest credit ratings among Middle Eastern banks. Moody’s rank’s the bank at Aa3, Standard & Poor’s (S&P) ranks it at AA-, while Fitch ranks it at AA-.
The group constantly follows up the bank in Egypt to ensure that plans are consistent while accounting for differences in digital services between Egypt and the UAE. We are aiming to close these gaps by boosting the digitisation of operations to increase consumer comfort and convenience. We have successfully digitised around 60% of the bank’s business in Egypt and want to increase this in the near future.

Could we see a specialised banking school for First Abu Dhabi Bank in the Egyptian market?

First Abu Dhabi Bank (FAB) has left an imprint on the Egyptian market since the day it launched. I believe that the bank will eventually create a distinct strategy marked by continuity, variety, and pragmatism. This will necessitate various aspects, most notably the trust of consumers, shareholders, the state, and the institution’s staff.

What sets FAB apart, allowing it to establish a unique banking model, is excellence, honesty, pragmatism, and strong international relationships. Customers seek quality service. The key factor that differentiates one bank from another is how the service is delivered and tailored to the ever-evolving market conditions. Providing high quality service and advice to the customer and helping him grow in Egypt and taking him to foreign markets, enhance the bank’s position with the customer.

Given Egypt’s focus on increasing exports and opening new markets, FAB’s role goes beyond providing financing. We help clients achieve state objectives, especially leveraging the bank’s international connections to link local exporters with foreign importers. This strengthens the bank’s national role in contributing to the country’s economic development.

Furthermore, the bank must uphold openness, integrity, and client rights by providing honest advice to its clients. The bank’s success is inextricably linked to the success of its clients, which helps the nation as a whole. Over the last two years, FAB Egypt has created tremendous customer trust, which has resulted in considerable commercial development. Its assets have expanded by nearly 700% in two years, indicating an expanding consumer base. Meanwhile, the Egyptian banking sector’s total assets increased by 114% from roughly EGP 8.6 trillion in December 2021 to over EGP 18.4 trillion by the end of April.

FAB Group handles most major operations between Egypt and the UAE. How do you explain this?

The group’s confidence in the Egyptian economy is the primary reason behind these operations, in addition to the bank’s position as the largest bank in the UAE. This makes it a gateway for investors coming from the UAE to Egypt, especially from Abu Dhabi. In Egypt, we assist investors in managing their investments and help them build their financial models.

After the strong positive results FAB Egypt achieved in the first half of this year, what are your profitability expectations for 2024?

We achieved net profit increase in the first half of 2024, reaching EGP 15.8 billion, up 139% from the same time last year. After adjusting for currency rate disparities, the bank’s growth rate reached 121%. We predict the bank’s net earnings to exceed EGP 20 billion this year, up from around EGP 10.4 billion in 2023. At the time of the acquisition in 2021, the bank’s net profit was EGP 1.9 billion.

There is a concept known as “profit multiples,” which refers to the time it takes for an investor to recover the cost of purchasing an asset. When can it be said that FAB Egypt has recovered the cost of the acquisition?

Typically, the investment cost of any acquisition is recovered within 6 to 7 years, after which profits start to generate. Currently, we are experiencing significant profitability growth and have begun recovering the investment cost. This encourages the group to further support the bank in Egypt.

Where do FAB Egypt’s revenues come from?

Over 50% of revenues are generated from international market transactions, corporate banking and investment services. The rest comes from other business lines, such as retail banking. The bank in Egypt focuses on excellence in service, in collaboration with the parent group. Our presence outside Egypt and our extensive international relationships have allowed us to assist many clients in entering export markets—not just for products, but also services. We have helped several construction companies expand their operations in Saudi Arabia and the Gulf.

As mentioned earlier, FAB Egypt prioritises exports, aiming to support the state’s strategy of boosting exports to over $100 billion. We are actively helping clients reach new markets they may not have previously considered and aiding them in adapting to the specific working environments of these markets.

The bank has also achieved positive results across the board, with net loan and advance portfolios growing by 40 per cent to EGP 121.2 billion compared to the end of December 2023. Total assets increased to EGP 429.9 billion, a 46% rise, and customer deposits grew by 39% to reach EGP 278.7 billion.

In terms of the income statement, net interest income rose to EGP 14.6 billion by the end of June 2024, a 116% increase compared to the same period last year. Net fees and commissions income jumped to EGP 1.3 billion, growing by 30% compared to the first half of 2023.

We thank God for the strong performance we achieved during the first half of 2024, which demonstrates the effectiveness of our strategy towards growth, alongside our commitment to providing our clients with innovative financial solutions.

This significant growth in the bank’s key financial results is a clear indicator of our strong position in the Egyptian banking market and our ability to navigate the changing economic environment in Egypt. We will continue to leverage our strengths to drive operational excellence and enhance sustainable growth opportunities to deliver long-term value for all stakeholders.

We always strive to strengthen the bank’s position in the market while maintaining prudent risk management and improving operational efficiency. This contributes to delivering exceptional value to our customers, supported by the bank’s ability to operate in a dynamic economic environment, all while remaining committed to its long-term goals.”

Does your long experience in syndicated loans influence FAB Egypt’s strategy?

Throughout my career in banking, I have supported syndicated loans, especially those directed towards industry and projects that generate real development. I strongly support any loans that provide added value to the economy. However, the syndicated loan market in Egypt has slowed down recently. At FAB Egypt, we welcome any syndicated loans that support this path and create real added value and development for the Egyptian economy.

I think that everyone, “government, banks, local and foreign investors, and citizens,” should prioritise production, seek to encourage investment, and open up to the world. I am also hopeful about the new government’s intentions to assist diverse parties in moving the economy forward and achieving development.

Do you think the recent focus on real estate investments is beneficial for the economy, or the opposite?

Real estate will always be in demand, but we don’t want investments in property to be solely for hedging purposes. Liquidity surpluses that are put into real estate could be better invested in productive ventures.

What is the best way for individuals to invest in such times?

Any investment that generates a reasonable return is worth considering. Personally, I prefer diversifying investments to spread risk. I allocate part of my investments to the stock market, focusing on understanding the tools of financial markets. Another portion is placed in banking savings, and the rest in entrepreneurship, partnering with like-minded individuals to start small businesses.