On leveraging Egypt’s investment potential in the oil and gas industry
On leveraging Egypt’s investment potential in the oil and gas industryWhat is being done to meet the population’s growing demand for energy?
THORE LOHMANN: Egypt has undertaken a number of steps towards increasing its production of oil and gas in order to meet the growing demand for energy, which is driven by both population growth and industrial development. Over the past few years, the government has invested heavily in building power plants to expand power generation capacity, and more recently big steps have been taken towards developing alternative energy, which is increasingly becoming more popular. This is important because another aspect of the long-term development of the oil and gas sector in Egypt is the potential to develop downstream petrochemical industries.
How do you determine how much oil and gas should be devoted to power production and how much should be diverted to industry?
LOHMANN: The question of how to balance the distribution of oil and natural gas between power production and value-added petrochemical industries is a challenging one and requires the participation of all stakeholders. By reducing subsidies on oil and gas, as well as electricity, consumers and businesses have felt increased pressure on spending at a time when inflation and a devalued currency are already creating pressure. This has been a challenge, but it is an important step towards rationalising consumption. Meanwhile, the reduced cost of solar energy will encourage consumers to install solar panels, and manufacturers will implement changes to increase energy efficiency.
On a broader scale, these adjustments will contribute to achieving the appropriate balance in the allocation of oil and gas supplies. Egypt has significant opportunity to attract investment in this area if there is clarity regarding strategy and policy, and if this potential growth can be backed up by the country’s ability to meet liquefied natural gas demand without relying on imports.
To what extent are hard and soft infrastructure important factors in driving investment?
LOHMANN: Attracting foreign investment, particularly in industry, requires a number of factors. The broad economic reforms undertaken by the government since the floatation of the Egyptian pound in the autumn of 2016 have started to pay off as a number of indicators improve. The focus on regulatory reform to support investment and the ease of doing business are very positive, as are the significant ongoing investments in hard infrastructure. Roads, ports, refineries and power plants are the foundation for any significant investment in this area, so the government programmes in these areas will be attractive to potential investors.
However, it is also necessary to have land available at a reasonable price and in a location where good infrastructure is already in place, for example the Suez Canal Economic Zone and other industrial zones. The challenge now will be to continue this progress with the implementation of regulations.
In terms of technology, this is impacting every area of the economy, including construction and manufacturing, but one of the first areas it will have an impact is in the digitisation of bureaucratic processes. Greater clarity and efficiency when getting approvals and applying for licences will not only boost investor confidence, but will help businesses make decisions more quickly and enable them to be more reactive to market developments.
How important is access to African markets in drawing industry to Egypt?
LOHMANN: One of Egypt’s advantages is the size of its local market. The population is approximately 100m and is experiencing over 2% growth per year. This level of growth is of course a challenge, but it is also an opportunity for a huge cross-section of businesses that are consumer-facing or tied to consumer demand in Egypt.
The other draw Egypt has for industry is its geographic location and proximity to growing markets in Africa. There is an opportunity for Egyptian companies to serve not only the local boom in construction and infrastructure, but sub-Saharan markets as well. In addition to exporting products, developing the knowledge base needed to export services is a key step in this progression. With the recent signing of the Africa Continental Free Trade Agreement, which sets up the regulatory framework to allow for increased trade, a growing interest in investing in industry in Egypt with export in mind is expected. As is often the case, the agreement’s implementation will make all the difference.
Read More from OBG
