Ahmed Heikal, the head of one of Egypt's largest investment companies, has been a long-time critic of the country's energy subsidies. But with the government of Abdel Fattah al-Sisi having begun the process of phasing them out, the chairman of Qalaa Holdings is eager to take advantage of what for him is a significant market opportunity. "Yes, there is local and regional risk, some of which can be mitigated, but after we have prepared for so long, no one can tell me ‘do not invest now'," says Mr Heikal. "It is like telling an athlete who can already see the gold medal on his chest, not to take part in the tournament." Business people and analysts say investor sentiment in Egypt has improved in the past few months on the perception that stability is returning to the country following the election of Mr Sisi, the former army chief who ousted his elected Islamist predecessor last year. Mr Sisi's government has slashed costly energy subsidies by about a third, sending a signal to investors that it is serious about structural reform. It was a decision Mr Heikal had long anticipated. For years, he argued publicly that subsidy cuts were inevitable. At the same time he positioned his company, formerly called Citadel Capital, to take advantage of new opportunities in power generation and transport once the distortions created by cheap fuel prices had been removed or reduced. "Over the next three to four years, our capacity for investment in energy is up to a couple of billion dollars," he says. "This country adds one million new people every five months. There are plenty of opportunities, and the state sector cannot fill them because the government is very highly leveraged. They will have to enlist the help of the private sector." Business people still complain of Egypt's extensive red tape, severe energy shortages and the lack of visibility on the government's economic plans. But even so, many say political risk appears lower, and they are encouraged by the government's large infrastructure stimulus funded by Gulf money and aimed at boosting the economy and creating jobs. "Now people are not talking about political risk," says Ahmed Ozalp, managing director of Akanar Partners, a corporate finance advisory group. "There is a sense we are in a more stable environment, but still fragile. Generally, people in Egypt are now willing to take the bet. We are increasingly finding external players, from the Gulf primarily, but also there is some interest from Europeans and Americans." Though critics may decry what they see as repressive government tactics to quell opposition and end street protests, many in the business community cheer what they consider the return of the authority of the state. "Manufacturers are hopeful but there is caution," says Mohamed El Seweidi, chairman of the Egyptian Industrial Federation. He welcomes the government's decision to adopt new legislation stipulating that state purchases had to include local components of up to 40 per cent of their value. "The government is the biggest customer in the country. This will provide a boost to stalled businesses across the board, from technology companies to small workshops." One sign of returning confidence, analysts say, is the growth of bank lending to companies. "A year or so ago, banks were looking at very slow loan growth – something which has changed following the presidential election," says Wael Ziada, head of research at EFG-Hermes, the regional investment bank. Official figures released this week show total investment in the fiscal year to the end of June was 12.9 per cent higher than the year before. The HSBC Purchasing Managers' Index, a measure of economic activity, reached a near-record 52.4 in September, signalling "a further improvement in the health of Egypt's non-oil private sector". The bank also notes that companies were hiring again, with staffing levels rising for the first time in more than two years. Ashraf Salman, Egypt's investment minister, told the Financial Times that the opening up of power generation to the private sector was an attempt to turn the energy shortages into an investment opportunity. "Energy is at the top of our priority list," he says. He adds that Egypt had secured $5.7bn in foreign direct investment in the fiscal year which ended in June. The financial backing Egypt has received from Saudi Arabia and the United Arab Emirates – which have linked their interests to the success of the Sisi regime and the defeat of his Islamist opponents – has underpinned investors' confidence. Gulf states have invested more than $20bn in Egypt in the form of grants, loans and petroleum products since last year's ouster of the previous president. The UAE is also funding an additional $8.7bn in energy imports in the coming months. Akanar Partners' Mr Ozlap says: "The common refrain we hear is that Egypt will find its way. But the implication is that support will come because it is not in anybody's interest to see it fail." Source: The Financial Times
