Business Day (SA)
As Egypt storms ahead with its ambitious and bold economic reform programme, it is attracting considerable investor interest.
Africa’s third-largest economy and, with 95-million people it is most populated after Nigeria and Ethiopia, Egypt is a compelling consumer play. Some of the world’s biggest multinational companies have deep roots there and plan to invest heavily in new products and manufacturing capacity in the next few years.
Mega projects in infrastructure, urban development and other sectors are driving new investment, both domestic and foreign. The government is targeting $10bn of investment in its fast-growing energy sector alone. This week, Uber launched its bus service in Cairo, with plans to spend $100m in Egypt in the next few years.
President Abdel Fattah el-Sisi is a man in a hurry. He began a wide-ranging reform process in 2014 and in late 2016 the IMF came on board with a $12bn loan agreement designed to deepen the programme and keep it on track.
The reforms are tough and the president has asked Egyptians to roll with the punches as he tries to stabilise the country and set it on a more sustainable growth path. He says the process is necessary to address entrenched practices that made Egypt inefficient, expensive and uncompetitive.
The IMF drove a hard bargain. Its conditions included the phased withdrawal of electricity and fuel subsidies as well as the floating of the currency. The Egyptian pound was in effect devalued by 50% overnight, while the subsidy withdrawals saw prices double.
In mid-2017 inflation hit a record high of 33.4% and interest rates went sky high as the authorities tried to moderate inflationary pressures.
Consumers have pulled back their spending and companies have had to adjust their operating models and consumer offerings and cut margins to survive rocketing prices. But the weaker currency has given impetus to the country’s ambition to become a manufacturing hub for the Middle East and Africa. Tourism, a critical sector for jobs and revenue, is also rebounding on the back of a weaker pound.
The government has introduced laws to make the operating environment easier and to attract new investment. Social safety nets and other measures have been put in place to try to offset the hardships for some at the base of the pyramid and there are numerous initiatives under way to build up micro, small and medium enterprises.
Critics point to the bad timing of the government’s massive spending on mega projects, particularly the $45bn new administrative capital under way outside Cairo, saying money would be better spent on less elitist projects at a time of increasing economic hardship for Egyptians.
But the government counters that new urban development is an investment in the future to accommodate population growth of more than 2% annually and to decentralise development and jobs away from Cairo, already one of the world’s largest and most congested cities.
There have been some quick wins. In 2017 Egypt reported its highest economic growth in a decade — 5.3%, up from 4.2% the previous year. Foreign direct investment increased by 24% in the first half of 2018 compared with the same period in 2017.
Inflation has come down to about 13%, and exports are rising. Egypt was also one of the best performers on the 2018 World Bank doing business index.
The political will behind the reform process is unprecedented, with ministers and officials tasked with implementing it under great pressure to deliver.
Sisi’s challenge is to maintain the momentum of reform. The multipronged strategy is finely balanced and needs the will of the people to keep it on track. Analysts say this requires consumers to start feeling the gains in their pockets. There are also concerns about the government’s intolerance of political opposition, the fact that Egypt is in a dangerous neighbourhood and the possible effect of negative emerging-market sentiment on the country’s big plans.
Business believes the reforms will be bedded down in two or three years and the real benefits will start to be felt. Consumer multinationals such as Mars Egypt, Unilever, Nestle and Pepsico Egypt have millions of dollars lined up for or already invested in the country. Investment in the energy sector increased by 300% in 2017 over the previous year.
Sisi’s bigger plan is to position Egypt as an export-led economic powerhouse in and for Africa within five years, using its geographical advantage as a gateway to Africa from the Middle East and Europe to best effect.
The rest of Africa is very much on Sisi’s radar and he has spent a good deal of time courting leaders from the continent. His election to the chair of the AU in 2019 is an opportunity to bolster Egypt’s long dormant ties with the continent.
Egypt’s longstanding membership of the Common Market for Eastern and Southern Africa (Comesa) has helped it maintain economic ties with the rest of Africa. It was one of the first countries to sign up to the Continental Free Trade Area launched in 2018. In December, Sisi hosted Egypt's third annual Africa investment event, together with Comesa's Regional Investment Agency, attended by several African leaders.
The rest of Africa is not new political territory for Egypt. Admittedly, the golden age of Egypt-Africa relations was a long time ago, under the rule of Abdel Nasser, a dedicated supporter of Africa’s liberation movements and Organisation of African Unity chair in 1964. However, following his death in 1970, the engagement has drifted as subsequent leaders focused more on the Arab world.
Egypt was suspended from the body for a year in 2013 following the military overthrow of Mubarak’s successor, Mohamed Morsi, head of the Muslim Brotherhood party. But relations are now back on track and since 2014 Sisi has been actively building political and economic ties.
Egypt is becoming a force to be reckoned with as investors consider their options in Africa. While SA and Nigeria, long viewed as essential partners in Africa’s development, are diverted by domestic issues, other centres of power are starting to develop.
Politically, Sisi has been courting old foes such as Ethiopia to solve longstanding issues over the waters of the Nile, a river Egypt shares with nine other African countries.
Tanzania has provided a quick win, with an Egyptian construction and energy consortium recently winning the contract to build the $2bn Rufiji hydroelectric dam. Sisi’s visit to Tanzania to lay the dam’s foundation stone was the first by an Egyptian leader since 1968.
A year at the helm of the AU will allow an economically strengthening Egypt to position itself as an influential force in the rest of Africa. With a big vision, strong political leadership determined to deliver that vision and an increasingly competitive private sector, the country is set to become a key player in Africa’s near-term future.
• Games is CEO of advisory company Africa@Work and has been doing research in Egypt