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Long-term investment in Egypt to provide higher ROI than government debt instruments: Gadallah - Daily News Egypt

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Long-term investment in Egypt to provide higher ROI than government debt instruments: Gadallah

Large real estate projects best option for government to bring about rapid development, solve problem of unemployment, says vice chairperson of Egyptian Arab Land Bank

Vice chairperson of the Egyptian Arab Land Bank, Amr Gadallah, conveyed a message to foreign investors through Daily News Egypt that the long-term investment in Egypt is better than quick investments in government debt instruments, especially, after the implementation of the economic reform programme, as well as strong infrastructure and long-term investment’s return better than anywhere else.

DNE sat down for an interview with Gadallah, who stressed that the government’s tendency to establish large real estate projects, such as the New Administrative Capital, was the best option for them to achieve rapid development and solve the problem of unemployment.

According to Gadallah, decision making is usually easy, but implementation of these decision is difficult—something the Central Bank of Egypt (CBE) has excelled in, adding that the economy has taken much less time than expected to recover, even if the fruits of this improvement would take time for citizens to feel.

He stressed that the banks are fully prepared to finance any projects as long as their economic feasibility has been proven, noting that their role will increase during the coming period. He pointed out that the bank’s management aims to convert it from a bank that finances to buy properties into a commercial and an investment bank that finances various projects.The transcript for which is below, lightly edited for clarity:

DNE sat down for an interview with Gadallah, who stressed that the government’s tendency to establish large real estate projects, such as the New Administrative Capital, was the best option for them to achieve rapid development and solve the problem of unemployment.

Can you share your vision for Egypt’s economy, especially, after implementing bulk of economic reform programme, plus what does economy need to grow bigger, faster?

First, I have to be clear that we expected the economic recovery to take a long time to improve as the reform programme began, but the post-flotation steps taken by the CBE had the greatest impact on accelerating and

improving the economy. I think it is possible to make decisions, but more importantly is how these decisions are implemented, which is what the CBE has done very well and very professionally.

It is no secret that the CBE’s decisions have accelerated the growth of the economy and curbed inflation. All expectations were that inflation would remain at between 20-30% for two to three years.This did not happen and inflation was cut to very promising levels. The foreign exchange reserves reached unprecedented levels, which makes me optimistic that we are on the right track, especially, with the im- proved outlook of the international rating institutions of the Egyptian economy, which is a testimony to the success of the economic reform pro- gramme and the success of the measures taken by the CBE.

But all this success, which you mentioned about being still intangible to citizens. Why?

This still needs time. The government has embarked on a plan to improve the living standards, especially, those most impacted by the economic reform programme and the float of the pound.

We are now talking about a significant growth in the financing of small and medium-sized enterprises by banks after the CBE launched an initiative to finance these projects. Growth in funding such projects has hiked to 40%.

There is also great interest on the part of the political leadership and the CBE in microfinance, either directly by banks or through associations and institutions operating in this activity.

The importance of this type of funding is important, as it affects the improvement of citizens’ conditions directly and quickly, especially, in Upper Egypt and some areas of Lower Egypt—areas that need to see their residents’ living conditions improve quickly.

However, we need would still need time to feel the outcome of these moves on the conditions of citizens. This step is much more difficult to implement the reform programme itself.

In your view, what projects or sectors can drive economic growth for further improvement?

I think that we should focus heavily on the complimentary industries, which are involved in the manufacture of products to work on increasing exports.

We also have great opportunities in the pharmaceutical sector, especially, after Egypt became one of the cheapest countries in the world to produce medicine. Today we have the markets of Africa, East Asia, and Europe, which we can penetrate by this industry, thus; raising exports.

Some talk about the importance of agriculture, which is, despite its prominent importance, would require time. At least, we should focus on crops that will achieve self-sufficiency and cut imports.

But the key is the industry, where the impact is faster. This highlights the role of the Ministry of Trade and Industry, then the General Authority for Investment and Free Zones (GAFI), and then the role of banks in financing—which is a role we are ready to fulfil.

What role can banks play in supporting, revitalising country’s economy?

The role of banks is indispensable, because it is the main engine of any project, from micro, small, medium or even large projects.

We are keen at banks to fund projects, after conducting credit studies for these projects. And I believe that the role of banks will increase further in the coming period.

What type of role Egyptian Arab Land Bank plays in this regard?

We at the Egyptian Arab Land Bank have began to change the bank’s strategy of action, shifting from a bank that finances the purchase of real estate, and thus finances consumption, to financing projects that benefit society more.

Yes, we are continuing to finance real estate, but with different ideas, where we are currently focusing on financing the establishment of schools, universities, and hospitals.

What matters most to us is that we use our license as a commercial bank, not just a real estate one, to finance small, medium and micro enterprises, as well as major projects.

The best proof of this is that we have already taken part in a joint loan to finance the Egyptian General Petroleum Corporation (EGPC), as well as injecting funds into the fertiliser, pharmaceutical, and gas sectors, as well as operating credit facilities for grain import companies.

Banks have been criticised for investing in government debt instruments—still happening?

Certainly not, if we compare the banks’ investments in these instruments by the end of 2015 and 2017; we can see a significant decline.

In contrast, there is a large increase in loans and credit facilities for various economic sectors, especially, small and medium-sized loans, as well as loans of large companies, despite the large rise in interest rates.

This in itself is an indicator of the positive Egyptian economy, where there are those who wish to borrow from banks at a high-interest rate because they know that the return of investment will be higher than the interest rate they have to bear.

Would you like to say something to foreign investors who will attend Euromoney Conference this year?

I say to them, instead of investing in government debt instruments that give you a high return for a short period, you have to invest in long-term projects, especially, since Egypt has established a very strong infrastructure that allows investment for many years and a much higher return than an investment in debt instruments.

What happened in the electricity sector and the extension of the road network in various parts of Egypt, as well as major real estate projects carried out by the state, such as the New Administrative Capital and others, is truly an unprecedented achievement.

Yet those who criticise government for large expansion of real estate projects exist, what do you think of this?

The problem here is the lack of knowledge and lack of awareness of the importance of these projects.

These projects are very important for the growth of the Egyptian economy and improving the indicators of unemployment and poverty, as there are between 130 to 150 small feeding projects.

Here I would like to point out that after the World War II, all the countries whose economies were affected by the war resorted to these projects to regrow them again.

I believe that the real estate sector is really the engine of any economy to succeed. Such projects are the fastest and most powerful ways to address the problems of poverty and unemployment, because of the size of the labour that they absorb.

If we talk specifically about the East Asian countries and Europe, we find that it grew rapidly because of these large real estate projects, such as Singapore, for example. The country, until 1977, was made up of slums, until the state decided to replace them with major real estate projects.This is the same that is happening in Egypt now. And such movements contributed to Singapore’s revival and economic growth.

Some people talk about the possibility of building factories to achieve growth and prosperity of the economy. I agree, of course, on the importance of industrialisation, but I think that setting up factories and starting production will take a long time, and I do not imagine that the government would wait.

Yet fears looming of a real estate bubble in Egypt or crises similar to what happened in US, Europe in 2008?

Real estate prices in Egypt may actually drop, but I completely rule out any crises like those in the US and Europe, because mortgage loans in Egypt are not as big as they could result in crises, and the real estate crisis had other reasons for how banks dealt with mortgage loans. We are far from this

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