Almost a year after the government took the plunge and floated the Egyptian pound and slashed energy subsidies in November last year, Egypt's economy is on a much healthier trajectory. It was these bold measures that were in the limelight of discussions at this year's Euromoney Conference that kicked off in Cairo this week, with participants from across the spectrum praising the government's economic reform programme. The newly appointed head of the Egyptian Stock Exchange, Mohamed Farid said that the reforms this time were different as they were not cosmetic and tackled the country's problems at the roots. “It is not about reducing the budget deficit by slashing subsidies, but addresses different issues affecting the macroeconomic front,” Farid said during the conference. Minister of Finance Amr Al-Garhi did not fall short either in highlighting the innovations in the reform programme and the government's achievements over the year-long period. He spoke about the current president's strong vision for the country and his courage in addressing the long-overdue issue of subsidies. He said that between 2003 and 2014 the government had shied away from addressing the issue and had feared dealing with it. Between September 2016 and September 2017, many important steps had been taken, including the implementation of the value-added tax (VAT), the IMF agreement, the floatation of the pound, the slashing of subsides and the issuing of laws such as the civil service act, the investment law and the industrial permits act, he said. These had led to an increase in the number of investors coming to the country, Al-Garhi said, stressing the importance of the efficient execution of the investment law on the ground. There was no doubt that the recent reform measures had increased the appetite of investors to invest in Egypt, he said, which could be why the government is embarking on a third round of issuing Eurobonds. Al-Garhi said that the government was planning to issue bonds to a total value of $3-4 billion in the first quarter of 2018. In early 2017, Egypt sold $7 billion in five-, 10- and 30-year bonds on the Luxembourg Stock Exchange. Al-Garhi expects an economic growth rate of between five and 5.25 per cent in the current fiscal year. Though the reform programme has had a positive impact on the outlook of Egypt's economy, there is still scepticism about the government's ability to address short-term challenges arising from the reform measures and its ability to uphold the reform momentum, however. In a live poll at the conference, the audience was asked what the biggest risk to Egypt's economic performance was. The largest percentage (50 per cent) said failure to maintain the reform momentum was the biggest risk, followed by over-reliance on foreign debt finance (34 per cent) and regional geopolitics (16 per cent). “Many positive things have happened since the floatation, but I'm worried about a lack of a national strategy to reinstate our economic position,” Hani Farahat, senior economist at CI Capital, said during the conference. “We need a coherent strategy that puts Egypt on the right path of economic growth over the next five to 10 years,” he added. Farahat said that leeway should be given to the private sector to lead the growth cycle in the coming period. Inflation was said to be one of the most pressing short-term challenges that needs to be addressed. Egypt's annual urban inflation rate dropped slightly in August to 31.9 per cent from a 30-year high of 33 per cent in July. The Central Bank of Egypt (CBE) has raised interest rates by a total of seven per cent since the floatation of the pound last year. Farahat is expecting inflation to go down in November to reach 17 to 20 per cent, which signals that interest rates will start to dwindle, too. Sherif Al-KholI, co-head of Middle East and North Africa at private equity firm Actis, said that bringing inflation down was the short-term challenge that should be tackled first as high inflation and interest rates were suppressing appetites for capital expansion. Egypt has never been unattractive for investment. The problem has always been in the surrounding environment and the implementation of policies, Al-Kholi said. Group Co-chief Executive of CI Capital Hazem Badran also expects inflation to cool down soon. “We think inflation is a one-off hike and it's on the way to stabilising,” Badran said during the conference. He added that although inflation could be a challenge to certain industries and producers, it would stabilise and be offset by consumption “as this continues to be the driver of the economy”. Al-Garhi said that policy priorities over the coming period would be to continue trimming the budget deficit and bringing inflation down. “We need to curb inflation so that interest rates decrease because they are hurting investment as well as the budget,” he said. On the government's plan to launch initial public offerings (IPOs) of several government-owned entities, Farid said the government had formed a committee to follow up on the state-owned companies that would be listed on the stock exchange, saying that large- and medium-sized companies would be listed soon. The government's five-year IPO scheme is part of its economic reform programme that aims to attract investment worth $5 billion over three years. The issue of hot money took up a fair share of discussion at the conference, with Farid saying that this had a role to play in the economy and helped reduce the financial burden on the government as it could be used to finance the budget deficit. “When you have capital flows, it means that the market is open to different types of investment and investors. Being a small and open economy, you have to accept everything, the good and the bad,” Farid said. Ahmed Badr, CEO for the Middle East and North Africa at Renaissance Capital, said that Egypt needed hot money in the short term as an initial stage. “We believe that a shift is going to happen soon when interest rates begin to fall. This is when Egypt will go to the investment stage,” he said. For Farahat, there was no such thing as hot money. “We should not fear money exiting the country. On the contrary, when Egypt is at ease to let investors in and out, this will attract more investors.”
