Interview: Ahmed Heikal
How challenging is it for Egyptian companies to raise capital domestically? ?
AHMED HEIKAL: Investment holding companies usually trade at a discount, particularly in emerging markets, which makes it somewhat of a challenge to raise capital. In Egypt, this was aggravated by the unstable political environment prior to the presidential elections. As the country moves forward, the picture will become more defined, and with this the job of raising capital will become progressively easier. Changing regional and local risk perceptions will be essential to improving the future accessibility of capital for Egyptian companies. This is an issue that goes beyond regulation.
What do you see as the biggest challenges facing Egypt’s private sector? ?
HEIKAL: Although the legal framework in Egypt is solid, it could be refreshed to create a more suitable environment for doing business. The main challenge for the private sector over the past three years has been political instability, as well as the initial wave of public prosecutions of businessmen and public sector officials, which created substantial concern for those interested in investing in and conducting business in Egypt. I trust this will change under the administration of President Abdel Fattah Al Sisi, which has shown a willingness to tackle very tough policy questions, including the ongoing reform of the ruinous subsidy programme and the iteration of a coherent energy security policy.
In what ways can the government improve the skill set of prospective employees? ?
HEIKAL: There are many Egyptians who have left the country to study or work abroad over the last three years of turmoil. Today there is a dire need to reverse this trend and bring back these highly qualified Egyptians who can really benefit the country. The public sector also needs to become involved in ending the brain drain and attracting know-how back into the country. This should be at the forefront of any policy-making process. The private sector can also play a role by providing students with scholarships to the best universities in the world on condition that they return. In sum, the private sector must make a firm commitment to education.
How can independent power projects (IPPs) and public-private partnerships (PPPs) be encouraged?
HEIKAL: The government’s capacity to undertake large projects is hindered both by extremely high budget deficits and the loss of government officials over the last three years. Today the private sector is in the best position to make a substantial contribution in those areas. We are on the cusp of a drastic transformation in the regulatory framework associated with providing more power to the private sector.
However, changes in the regulatory framework are unnecessary because the IPP model is no longer valid. The central premise of an IPP is that the government provides gas and agrees to a power purchase agreement, but the state is neither capable of providing natural gas nor able to accept electricity. As for PPPs, the same concept applies; the public sector is unable to deliver. I think both the state bureaucracy and the general public have realised that their only alternative is to open the power sector to private investment.
What do you see as the greatest constraint to increasing foreign direct investment (FDI) in Egypt?
HEIKAL: The first determinant of FDI necessitates that investors in the West have access to enough capital to invest in emerging markets. This is not currently the case. FDI from Europe is shrinking due to the financial challenges that countries there face, while US capital is being reinvested within its own borders. In addition, we have to take into account that Africa and the MENA region are viewed as risky. That is why we expect the majority of FDI in Egypt to come from Gulf states in the next few years. Yet, with an expected population growth of 40m people over the next 17 years, the Egyptian market should be able to attract much higher levels of FDI.
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