Is Egypt a rising tiger on the Nile?
Early signs indicate that Egypt is in the midst of a modest revival
The people of Egypt had spoken. During eight days in September, Egyptians from all walks of life came together, united toward a common goal. Was it a political protest? No. A big soccer match? Not that either. A funeral for a fallen martyr? No. What brought so many Egyptians together? A bond sale.
The Egyptian government issued $8.5 billion in investment certificates for a planned expansion of the Suez Canal, a vital artery of world trade and a vital artery of Egypt’s economy. Egyptians responded in overwhelming numbers, buying up more than 80% of the shares in both a display of nationalism and calculation: the certificate, after all, paid a 12% interest rate.
Few doubt Egypt’s potential. It could be an emerging market starAfshin Molavi
The Suez Canal expansion forms the centerpiece of a major push by President Abdel Fattah al-Sisi and Prime Minister Ibrahim Mahlab to breathe new life into Egypt’s economy through heavy investments in infrastructure, the creation of a more amenable environment for foreign investors, and policy reforms aimed at enabling private sector growth and a reduced subsidy bill.
The Suez Canal expansion could double the number of ships that pass through the Canal and nearly triple revenues. Last year, the Suez Canal Authority earned some $5.5 billion. With this expansion, revenues could hit $13 billion annually within seven years.
The project also involves the creation of industrial zones along the Canal and the creation of a new waterway. It’s a necessary move to keep up with the new trends in global shipping, and one with powerful nationalist undercurrents. After all, Gamal Abdel Nasser became a national hero after he reclaimed the Canal from the British in 1956.
Speaking of the British
Speaking of the British, more than 40 of the United Kingdom’s leading companies descended on Cairo this week in what was Britain’s largest trade delegation to Egypt in more than a decade. They came seeking projects in construction, real estate, consumer and energy sectors.
Many of those British companies will be back again in a couple of months to attend a highly touted Egypt investment conference to take place in Sharm al-Sheikh from March 13-15. On display will be dozens of infrastructure projects for foreign investors, but also something more intangible: a sense that Egypt has returned to the global emerging markets investment firmament after three years of political turmoil.
Before the ouster of President Hosni Mubarak, Egypt was growing rapidly and attracting record investment. The growth posted impressive macro numbers but less than impressive dents in unemployment and underemployment. There was also a pervasive sense of cronyism and corruption. These chronic ills helped fuel the uprising.
Those heady days in Tahrir Square gave way to three years of political instability, violence, and societal fractures that still divide the country today. The political turmoil hit the economy hard. Over the past three years, growth has hovered at 2% and investment and cash reserves declined dramatically. Without the support of several Gulf Cooperation Council (GCC) states, Egypt could hardly have survived the fiscal tsunami.
Paying a price
The Egyptian people have paid a price. According to the United Nations, hunger and poverty rates have spiked significantly in the past three years.
Early signs indicate, however, that Egypt is in the midst of a modest revival. Growth is picking up again. The IMF sees 3.8% growth in the 2014/15 period. In the past four months, both Fitch and Moody’s have upgraded the country’s investment outlook to “stable.” Smart global growth market private equity players like the Dubai-based Abraaj Group are placing strategic bets on Egypt’s recovery through targeted investments in consumer and health care.
Indeed, in a much-touted private equity battle that closed out the year 2014, U.S-based Kellogg 's, the world’s largest breakfast cereal maker, beat out Abraaj in a bidding war for Bisco Misr, an Egyptian manufacturer of biscuits, cakes and other baked goods. In a statement afterwards quoted in Bloomberg, Abraaj noted that the bidding process “clearly validates growing investor interest in Egypt,” and that it plans “significant activity in the country over the coming months given Egypt’s attractive growth potential and its recent positive economic traction.”
The end of 2014 also brought another milestone to Egypt: It ended the year as the world’s best performing stock market with “a total return including dividends and share price rises of more than 30 per cent,” according to the Financial Times.
The IMF has taken note. “The economy has begun to recover after four years of slow activity,” the IMF’s mission chief for Egypt Chris Jarvis said last November. “Policies implemented so far, along with a return of confidence, are starting to produce a turnaround in economic activity and investment,” Mr. Jarvis said.
Egypt throughout the late 20th century and into the 21st reminds one of what the late President Charles de Gaulle once said of Brazil: that it “has enormous potential, and always will.” Few doubt Egypt’s potential. It could be an emerging market star.
The key for a sustainable rise of an Egyptian tiger on the Nile will, however, be an emphasis on inclusive growth – rather than simply impressive macro numbers. Amid the Mubarak-era growth and investment boom, an Egyptian blogger famously said that he wants to be “a macro citizen” because the macro numbers sound so impressive, but that he failed to experience it personally.
As the global investor community circles, Egypt has once again become a part of the emerging markets conversation. The real test will be how that future growth translates into tangible gains in employment and development for the Egyptian people.
Afshin Molavi is a senior fellow and director of the Global Emerging and Growth Markets Initiative at the Foreign Policy Institute of the Johns Hopkins University School of Advanced International Studies (SAIS) and a senior research fellow at the New America Foundation, a Washington DC-based think tank.
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