Banks have injected EGP 180bn into financing several economic projects within a year’s time and are still ready to inject more funds to support the economy in the coming period, according to Deputy Managing Director and Chief Risk Officer of the National Bank of Dubai (NBD) Sahar El-Damati.
In an interview with Daily News Egypt, El-Damati said that the government and the CBE have made positive moves to support the economy and develop the investment environment.
She pointed out that Egypt faces a lot of challenges, most notably the lack of foreign currency, but it can overcome them.
El-Damati believes that small- and medium-sized enterprises (SME) can help to quickly recover the economy, reduce unemployment, and produce alternatives to imported goods.
Emirates NBD entered the Egyptian market during a difficult time, she said, while adding that the bank believes in Egypt’s importance and their expansion plan has not changed. We are funding about 25 different economic sectors, El-Damati said.
She added that the bank tried to ease the US dollar crisis through offering foreign currency to import commodities and rationalise expenditures through e-payment cards
What is your opinion on the current state of the Egyptian economy?
The Egyptian economy has faced many challenges in recent years, but the recent period has witnessed many positive aspects, which can be a strong basis for any future investments.
To be more specific, the recent period has seen great interest in infrastructure projects in various governorates. These included the establishment of roads, bridges, as well as energy, sanitation, and a number of other projects that would interest investors who would want to enter the market here.
In the recent period, the government has solved the energy problem, not only for homes, but also for the factories that were complaining about the lack of energy resources.
The government has also sought to diversify its energy sources and has vowed to not rely on only one source. We now have coal, oil and gas, as well as new and renewable energy sources, and the government seeks to produce nuclear energy as well.
In addition, the government has started to build the infrastructure of the New Administrative Capital, which is considered a very positive move.
All of these serious moves by the government act as the basics of developing the investment environment in the country.
But, there are a number of challenges the Egyptian economy has faced recently. What is your take on these challenges and how can we overcome them?
The Egyptian economy is facing some challenges, most importantly the lack of foreign exchange and the increase of the US dollar’s price against the Egyptian pound to levels the Egyptian market has never seen before.
Over the past few years, the Egyptian economy has suffered from a great deficit in the trade balance due to unusual expansions in importing; hence, rationalising imports is extremely important. The goal is to solve the foreign currency issue as well as turn Egypt from a consumer country into a producing country.
We also need to support foreign reserves during the upcoming period in order to reach safe levels. This will cover Egypt’s expenses for importing basic goods for six months. This is also considered another challenge for the state.
I believe that an integrated system and plan was developed through cooperation between the Central Bank of Egypt (CBE) and the government. For the first time, we can see the coordination between both the fiscal and monetary policies.
The plan includes encouraging exports to increase to EGP 4bn in order to increase the volume of exports. In return, great efforts will be made to curb imports.
The government is also considering launching portions of bank and public companies’ shares in the Egyptian Exchange (EGX), which may attract several billions of dollars to the state. Moreover, it is considering initiating the procedures to launch US dollar bonds in global markets, as well as borrowing from the International Monetary Fund (IMF).
All of this can happen through the provision of suitable liquidity to Egypt through which it can overcome the US dollar crisis and support foreign exchange reserves.
A number of critics have voiced their concerns about borrowing from the IMF. What do you make of their concerns?
I believe that the fund’s agreement to lend to Egypt will greatly benefit the Egyptian economy. It should be considered an international confidence guarantee for Egypt’s economic reform programme. Moreover, Egypt actually needs US dollar liquidity to solve the US dollar issue and support reserves.
Here I would like to point out that the government’s reform programme focuses on bridging the budget deficit by 5.5% in the coming fiscal year.
But, for this to happen, subsidies must be cut down and confined to those who deserve it, in addition to increasing the state’s revenue through the application of the value-added tax (VAT), creating an investment-friendly environment, and opening new industries that decrease the unemployment rate and increase economic growth.
Moreover, we also need a new exchange rate policy—one that is flexible enough to respond to market developments.
Some say that the economic reform programme will hurt lower-income citizens. How could we protect them?
When the government implements the programme, it should consider a number of key factors. One of these is keeping inflation below 10% and maintaining a suitable subsidy system to support low-income citizens. This should be done through new mechanisms, not the ones we have now.
Do you think that the Egyptian economy needs certain type of projects to recover quickly?
SMEs—for which the CBE has launched an initiative to support—are the most capable of stimulating the economy. These projects produce new goods that replace imports; hence saving hard cash that is spent in importing. Moreover, [SMEs] are able to increase the need for labour and reduce unemployment.
I also think the projects the state aims to establish in the Suez Canal Economic Zone are of great importance for employment and securing foreign currency.
The reclamation of 1.5m feddans project is also very important for Egypt, for its role in securing food and reducing the demand on foreign currency needed for imports, in addition to expanding the inhabited areas.
Furthermore, the infrastructure projects carried out by the government are very important for citizens and investors alike. They could also activate other industries.
I hope Egypt can enter the automotive industry to manufacture cars locally, and not only being reduced to assembling them. It is time for that to happen.
How do you think banks can support the Egyptian economy?
Banks are always ready with liquidity, expertise, and competent experts to serve the economy at any time.
Perhaps the loans worth tens of billions granted to many projects, especially long-term projects, are an example of that.
If we follow the numbers and statistics released by the CBE on banks’ performance indicators, we can see that the banking sector has provided credit facilities to different economic sectors between 2014 and 2015 totalling about EGP 180bn. This is proof that banks are always ready to finance projects anytime as long as they prove their feasibility.
What role does Emirates NBD plan to serve for the Egyptian economy?
Emirates NBD entered the Egyptian market during the second half of 2013, after acquiring BNP Paribas. That was a very difficult time for Egypt, which indicates many things. For example, the bold move proved the bank’s support for Egypt, its confidence in the Egyptian economy and its ability to grow, as well as its confidence in the entire banking sector in Egypt.
Moreover, the mother bank in the UAE saw strong growth potential in the Egyptian market and huge investment opportunities on the horizon.
The bank provides financing for about 25 sectors in the Egyptian market, most notably the new and renewable energy, electricity, oil, telecommunications, construction, steel, cement, and food. In the coming period, we will focus on projects related to the energy sector, as well as major projects that Emirati businessmen will be founders or partners in.
The bank has granted funding worth EGP 2bn solely to the Egyptian Electricity Holding Company. This is the largest loan granted by the bank to one sector. It is also one of the largest loans the Egyptian market has seen yet.
Furthermore, the bank granted the Suez Canal Authority $100m, as part of a syndicated loan the authority obtained from a number of banks.
This illustrates the keenness of the bank to support and fund national projects in Egypt. No matter which sector the projects are in, as long as they prove feasibility, we will help. We are also considering injecting funding into a number of economic sectors in the coming period, but the details and information will come in the best time.
I expect the coming period to see a large number of syndicated loans, in favour of a number of major projects, especially with the trend of the government to implement projects in the water, electricity, and sanitation sectors, along with the infrastructure of the New Administrative Capital.
We are very interested in such national projects, and we have the adequate liquidity in local currency to finance these projects.
What is the bank’s role in alleviating the foreign exchange crisis in Egypt?
The bank is trying to help by providing hard cash for importing essential goods. We also rationalise the use of foreign by through limiting the use of different payment cards. We have further measures that will be revealed soon.