Interview: Osama Bishai
To what extent is the growth of the sector dependent on government spending?
OSAMA BISHAI: Today we find ourselves in a situation where Egypt’s major contractors have 50-80% dependency on government projects. We can divide government-initiated projects into two categories, the first being projects that are internationally financed, which are the most secure. The second are the projects that are 100% locally financed, and this is where the issue lies. These projects are a great stimulus to the economy, creating jobs and fuelling growth in multiple feeder industries. Even so, there is always a concern about the funds from a budgetary point of view, and questions about how long the construction sector can continue to stimulate the economy.
In the current economic situation – with foreign and local debt going up, revenues dropping and a shortage of foreign hard currency in the country – we are faced with many challenges with no easy solution. One is creating an environment conducive for foreign investment, which is a great opportunity now because the base cost is less for these companies due to the devaluation of the Egyptian pound, and operational costs are cheaper in Egypt comparison to its neighbours. But we have yet to make this happen, and we are hoping for more actions from the administration to encourage foreign direct investment (FDI) inflows. The other option is to secure more inflows of funding to maintain the stimulus for the next couple years, until the economy becomes self-sustaining, similar to the situation in 2005-07.
Reliable, feasible projects have no problem getting funding. The points that must be improved pertain to the procedures, regulations and red tape that are deterring investments currently, but have the ability to convince investors to come to Egypt and invest their money in the long term. It is no secret that we are operating in a market that is competitive, so every positive aspect must be focused on and enhanced before we lose out.
Within the current government stimulus, especially for infrastructure projects, there is encouragement for local contractors. We do appreciate this, and it does serve to accelerate our growth and capacities. However, it does not compensate for the lack of speed, clear regulations and quick decisions. I think now it is important for the world and the people to see how fast things can take place in Egypt. This has been demonstrated with the recent developments in the power sector and can be replicated in other sectors with the right mindset.
Where can greater clarity and incentives be placed within the country’s public-private partnership (PPP) framework?
BISHAI: The people have to believe that the PPP programme will work. Put simply, there are more people against it now than there are for it. There is a PPP unit in the Ministry of Finance that is doing great work, but neither the ministry itself nor the others promote the framework or understand the benefit that it holds. For example, when they look at the cost of a concession versus the cost of building a facility, of course at first glance it appears higher. What we need are more advocates of the programme to bring awareness about the PPP mechanism and how it can benefit the country. The government benefits from this programme by being able to avoid taking on more debt and by sharing the burden of financing critical projects. The private sector is more than capable of finding the funds and maintaining the asset for the allotted period. Developing the PPP framework will send a strong message that Egypt is open for business. It will attract more FDI, the banks will be able to play a larger role in national projects, and international expertise will feel more comfortable coming to Egypt. FDI is all dependent on trust.
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