Meeting obligations: The government is finding new ways to fund its growth agenda

One of the potentially positive results of Egypt’s improved economic situation is that it has compelled the government to get creative to meet social and fiscal obligations. Nowhere is this more apparent than in area funds – historically the preserve of financial houses, but recently a key area for the administration.

Starting Simple

The government’s effort to corral capital with which to further its growth agenda started in the simplest way possible, with the opening of a bank account in which Egyptians could deposit money to be used on development and service projects for the nation’s benefit. Dubbed the Tahya Masr (or “Long Live Egypt”) Fund, the facility was launched during the wave of patriotic fervour that followed the ousting of President Mohammed Morsi. Within the first two weeks of its launch some LE400m ($54.5m) was raised, with donations coming from the employees of the state-owned National Investment Bank and Arab Contractors; financial institutions like the state-owned National Bank of Egypt, Banque du Caire and the private Commercial International Bank; and even Cairo University. By August 2014, it was reported that the initiative would attract over LE5bn ($681.5m) and that the donation period would be open-ended. The following November, a significant contribution to this target came as a result of a tax dispute between Orascom Construction Industries and the government, which ended with the Netherlands-based company injecting LE2.5bn ($340.8m) into the fund.

In April 2015, the fund released some detail on a range of projects it will finance in partnership with government institutions, including hepatitis inoculation schemes, mobile clinics and development initiatives in informal settlements. Details were also made public regarding the formation of an executive committee to plan and run the fund’s projects, made up of prominent businessmen, including Naguib Sawiris, former Grand Mufti Ali Gomaa and a representative from the Supreme Council of the Armed Forces.

Longer Term

There is, however, a limit to how much this sort of funding can achieve, which has prompted the government to explore other alternatives as well. In June 2015 the cabinet approved plans for a sovereign wealth fund (SWF), which will be state owned via the National Investment Bank and known as Amlak. Traditionally, the SWF route has been taken by nations with sizeable fiscal surpluses that wish to invest for the nation’s financial future. Countries such as Norway, the UAE, Saudi Arabia, China and Qatar are particularly prominent players in the SWF arena. Egypt faces a different set of circumstances, with twin deficits and a hard currency shortage, but the SWF’s announcement was well received.

“Such a fund has the potential to support the development of Egypt’s economy and to contribute to both growth and social stability, particularly if its investment programme is professionally managed and structured to complement Egypt’s broader long-term national development agenda,” Patrick Schena, co-head of the Fletcher Network for Sovereign Wealth and Global Capital, told the press in June 2015.

Surplus Attraction

While full details of the fund’s structure have yet to be announced, it appears that it will depart from the traditional model based on domestic surpluses and instead attempt to attract the surpluses of other economies. According to statements by Mounir Fakhry Abdel Nour, the former minister of industry and trade, initial funding will come from the Russian Direct Investment Fund and a range of SWFs belonging to Egypt’s Gulf allies – already important supporters of the economy. Seen in this light, the putative SWF more closely resembles a state-backed private equity vehicle along the lines of Wessal Capital, the instrument used by the Moroccan government to co-invest with foreign SWFs in its tourism sector. Whether SWF or private equity fund, the Amlak initiative is another example of government creativity as it tackles serious economic challenges.