Interview: Hussein Choucri
What impact is the new investment law likely to have on foreign investment in the country?
HUSSEIN CHOUCRI: The law is well prepared and a lot of effort was spent to make it as comprehensive as possible. However, at the end of the day, whether a tool is successful in attracting investors or not depends on how well it is implemented. In the past Egypt has been known for its complicated bureaucracy, which is not conducive for new investment. I am hopeful that we will see foreign direct investment begin to pick up soon, as potential investors become more comfortable with Egypt’s business climate, especially now that the foreign exchange issue has been resolved. Understandably, a devalued pound has made Egypt, with its large consumer market, a more attractive investment destination.
How has the currency float affected the attractiveness of Egypt’s equity markets?
CHOUCRI: The flotation of the Egyptian pound, in addition to being a necessary change to the existing economic and monetary policy, was a positive development in the market that has helped attract flows from Egypt and abroad. The market appreciated close to 100% after the devaluation and it helped Egyptian exporters boost their foreign sales, leading to an improved balance of payment. Until recently, a gradual improvement of the Egyptian pound against the US dollar was expected. This view seems to be under review by most research houses, as the Egyptian pound has moved higher against the US dollar in the last few weeks. This in part can be explained by the rise in the price of oil from $50 to $65, which put additional pressure on Egypt foreign exchange resources and the country’s budget deficit.
A second possible reason why the potential appreciation of the pound is not taking place as expected is the lack of significant progress in tourism flows from Russia and the UK. These two countries were expected to resume their direct tourist flights to Sharm El Sheikh in 2017, but this had not happened as of early 2018. We have also started witnessing a gradual decline of the inflation rate, with the annual rate falling from over 30% to 26%. This positive development is likely to lead to lowering interest rates in the market in the near future.
In what ways could the volume of foreign portfolio investments in Egypt be increased?
CHOUCRI: Foreign investment flows into Egyptian equities are subject to the same factors that apply to other markets. Foreign investors are usually attracted to economies that are on the verge of a breakout, where there is a clear path for increased economic activity and higher GDP growth. Other factors that are important to investors include the ease of investing in the market as well as the ability to convert the value of portfolios into foreign currency and transfer these proceeds to home markets.
Foreign investors also depend to a certain extent on local brokers to provide research and insights into the market, a role that Egyptian brokers are able to fulfil. Trading and settlement systems in Egypt are adequate and are judged to be consistent with efficient markets. Furthermore, a supply of new listings is also helping to increase trading volume, for both domestic and foreign investors. Transparent taxation rules – that are not introduced too suddenly – are equally important. Investors at large demand stable rules and regulations.
What new trading tools are being considered?
CHOUCRI: Over the years we have recurrently heard about the possibility of introducing derivatives and short selling as tools to help manage risks. I believe that now – some 25 years after enacting the Capital Market Law – it seems like an appropriate time to introduce these measures to the Egyptian market.
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