Interview: Karim Awad
How has Egypt managed to maintain its attractiveness as an investment destination?
KARIM AWAD: Market conditions around the globe are not optimal. The drop in oil prices and the slowdown in China are, in particular, weighing on emerging markets as a whole. That said, I think what makes the MENA region, and Egypt in particular, slightly different from others is its young and growing population, which will always make it attractive to multinationals and local players that are looking to expand their businesses. Egypt is a case in point. Recently, the Central Agency for Public Mobilisation and Statistics announced that there are now 90m Egyptians living in Egypt and 8m living abroad, meaning that this is a very large market with a very young population in need of a number of products and services.
Looking at Egypt and the region as a whole, you notice that the penetration level for a number of industries remains very low, from banking – in Egypt fewer than 10m people are banked – to consumer finance and heavy industries. Egypt is also special in that it has a diversified industrial landscape; it is not solely dependent on oil and gas or real estate, for example, but has everything from heavy industries to service to telecommunications to a large financial sector. The financial sector, in particular, is advanced enough to allow it to finance the large infrastructure projects the country is in need of. And you can see today a clear government focus directed at improving infrastructure in a meaningful way.
So, what we will hopefully see going forward is not just a large market, but also a market with the proper infrastructure in place to make it attractive to a large amount of foreign direct investment. The other attractive selling point of Egypt is that it has an educated population; there is not only an abundance of manual labour but there is also a significant pool of highly educated people. It is also increasingly seen as a manufacturing base for both Europe and Africa, where most countries are very under-penetrated in terms of products and services.
What has been the impact of government efforts at fiscal consolidation and structural reform?
AWAD: I think this is a work in progress. The partial removal of subsidies when the president came into office in 2014 was a clear step in the right direction. Subsidies were becoming a huge burden on the government’s annual budget, and dealing with the issue had become critical. Although a lot of people have focused their attention on hydrocarbons, we also witnessed the removal of subsidies on other goods, from electricity to wheat.
The next step we see in terms of fiscal consolidation is the value-added tax (VAT), which should go into effect at the beginning of the 2016 calendar year. This is important because it will capture a greater part of the manufacturing and services chain, and therefore should add quite a bit to the government collection on an annual basis. Some estimates put it at LE30-35bn ($4.1bn-4.8bn). The VAT is part of a broader step by the government to implement a clearer tax regime, which is very positive. The move to a 22.5% tax for businesses has quelled a lot of uncertainty and has been critical in attracting more investors to Egypt, who are impressed by our reforms.
In what areas of the economy do you expect to see the most activity?
AWAD: We see a lot of interest in consumer-related products, of which there have been many recent examples: for instance, Kellogg’s acquisition of two Egyptian companies, an acquisition by Danone of a small cheese factory and Valeant’s acquisition of Amoun pharmaceuticals. Another sector ripe for investment is infrastructure and logistics, which will become even more attractive now that the Suez Canal Economic Zone is moving ahead on schedule.
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