After several years marked by turbulence and uncertainty, Egypt’s economy encountered numerous challenges, from political unrest and declining tourism, to foreign currency and fuel shortages, which led the government to adopt an economic reform programme to improve Egypt’s public finances.
Now the economy started to reap the benefits of the reforms, and improvement across all economic indicators are starting to become visible. Daily News Egypt sat down for an interview with Bassem Azab, chief executive officer of Beltone Financial Holding, one of the fastest growing investment banks in the Middle East and one of the region’s leading financial services firms, who believe that Egypt’s economy is on the right track. The transcript for which is below, lightly edited for clarity:
How do you view Egypt’s economic reform programme?
In the last few years, there was a great reform momentum, and naturally if you want to boost the economy, you need to start with infrastructure projects, which is a very labour-in- tensive sector, and for decades there was no major infrastructure project undertaken in Egypt.
These expansions had a variety of positive effects, both direct such as achieving growth, creating plenty of jobs, or indirect by creating demand
in other industries such as cement, building materials, steel, etc.
Following the normal economic cycle, these infrastructure projects led to an increase in capital expenditure, but on the other hand, the currency was losing value, and inflation was soaring.
From our point of view, the monetary policy adopted by the government was spectacular, paving the way for Egypt to enter into the safe zone, handling the currency flotation, in addition to managing to get the International Monetary Fund (IMF) support, which in turn improved investors’ confidence in the Egyptian economy, which can be seen in huge treasury bonds inflows.
Can you share your forecast for inflation, interest rates, in near term?
Well the inflation has been on a constant downward path, we expect inflation to reach single digit levels in 2019, and as a result interest rates will decrease as well.
Consequently, the average citizen’s feeling of struggling against high prices will start to diminish. In recent years, across all income-groups, purchasing power was diminishing, as a result of high inflation.
When the Central Bank of Egypt (CBE) raised interest rates, they man- aged to absorb major cash flows into the banking system. As a result, the expected interest rate cuts, investment spending is forecast to increase, leading to more job creation, and lower
unemployment rates.Following the devaluation, plenty of investment opportunities occurred, as many consumer products which we used to import, will be domestically produced. I personally find the CBE’s initiative to support small and medium sized enterprises (SMEs) is great, as SMEs are the real catalysts of economic growth.
Editor’s note: The CBE introduced in 2016 an initiative to finance SMEs, allocating 20% of bank loans for SMEs funding, also setting an interest rate of 5% for lending to micro-enterprises with an annual turnover of EGP 1m and small companies with a turnover less than EGP 20m.
How would Argentina’s current currency crisis, which led their central bank to set interest rates at 60%, as well as Turkey’s currency crisis affect Egypt?
I do not believe it would directly affect the CBE’s evaluation of interest rate cuts, as it is solely dependent on inflation, although you can now direct your cash inflows to invest in Argentinean T-bills with the 60% interest rate, and then the currency gets devaluated by over 70%, and the same can be applied to Turkey’s case.
Could Beltone Financial $1bn fixed income investment fund be used to indicate foreign investor appetite in Egypt’s debt instruments, confidence in Egyptian economy?
Not necessarily, although our fund mainly deals with investors interested to buy Egyptian, or African T-bills or bonds, but if you want a real indicator, take a look at the net foreign reserves, in the recent period, a significant amount of foreign cash flow entered Egypt.
Positive indicators clear as day, the country is moving forward, yes there is still competition, however, you cannot be certain what can happen next, with the ongoing economic warfare, look at Turkey for example, one of the world’s top ten economies, it crumbled in just two weeks, following the economic sanctions.
Egypt is different, its economy is very resilient, which makes it harder to crash. It is a huge market, with 100 million consumers, non-stop demand on real estate, consumer products, all of that in addition to improvement in stability, and security, in general what define a strong economy are four main pillars; ease of capital movement, security, investment opportunities, and incentives.
How can we increase foreign direct investments inflows?
There is plenty of space for further improvements in ease of conducting business, especially, the time needed to acquire the required security clearances, licenses, and paperwork.
There should be clear and direct instruments, to attract Foreign Direct Investments, and harmony between different government agencies, and apparatuses, to achieve such goals.
Setting a time-frame for these processes, as well as offering clear incentives, are the way to go, such as tax cuts, utilities, lands, etc.
What can you tell us about Beltone’s current total assets under management (AUM)?
Our total AUM (assets under management) currently stand at around EGP 33bn, including market funds,
equity funds, and portfolio, up from EGP 18bn last year, marking an 83% increase, and we are currently negotiating with various interested investors in allocating funds, especially, in equities.
‘Egypt Opportunities’ which we seeded in April, is our best performing fund, even in bad market conditions, the fund aims to achieve long‐term capital appreciation primarily through investments in a diversified equity portfolio, including equity and equity‐related securities, especially, any non-visible opportunities, that are not on the Egyptian Exchange (EGX) 30, where we can have a strong position.
It is a weekly redemption, open-ended fund, one of the fund’s features is the ability to offer preinitial public offering (IPO) placements, and the fund currently manages seven companies, and by October it will be open for subscriptions.
How many IPOs do you plan on, near-term?
For us in Beltone, our client is not only the one selling the company, but also the one who is going to buy, the main priority for us, is that an IPO must be fair to all parties involved, creating a win-win situation.
We are mainly monitoring companies achieving high growth, in promising sectors, not just based on demand.
Look at the Egyptian market at the moment, the most promising sectors, are mainly the consumer focused ones, such as retail, as well as oil and gas, either upstream, downstream, or service.