“We want to attract more U.S. investors to Egypt,” said Prime Minister Mostafa Madbouly at the U.S.-Egypt Prosperity Forum on November 18 at the Nile Ritz-Carlton Hotel. “We will facilitate all necessary procedures.”
That would complement recent improvements in official economic figures, thanks to reforms that began in 2016. “Economic indicators have improved greatly in a short period,” said Madbouly. “And I believe they will improve even more after the Central Bank recently reduced interest rates by 100 basis points.”
The reforms played a major role in Egypt being the biggest recipient of foreign direct investment in Africa last fiscal year. “We were among the top 10 recipients of FDI in the world,” said Madbouly. “We have been the gateway to Africa, and now we are capitalizing more than ever on that fact.”
Foreign direct investment in Egypt topped $13.7 billion in fiscal year (FY) 2018/2019 compared to $10.8 billion in FY 2013/2014. Madbouly emphasized that 1,500 U.S. companies invested $22 billion in FY 2018/2019, an increase of 22 percent compared to 2017.
Egypt’s GDP grew by 5.6 percent last fiscal year, compared to 2.1 percent in FY 2012/2013. Real GDP per capita nearly doubled during that time from EGP 22,000 to EGP 42,000 a year. That economic growth pushed the unemployment rate down to 7.5 percent last fiscal year, compared to 12.7 percent in FY 2011/2012. “For us, this benchmark tells us whether the benefits of our economic policy have reached all of society,” said Madbouly.
He noted that the reforms and economic achievements contributed to an inflation rate of 2.4 percent in October, compared to 17.5 percent in October 2018. The prime minister said the Takaful & Karama social program was developed to protect low-income citizens when energy subsidies ended. “Its budget is now EGP 18.7 billion, versus EGP 5 billion in FY 2013/2014,” said Madbouly.
From a trade perspective, Egypt is on course to achieve a 2 percent primary surplus, versus a 5 percent deficit in FY 2012/2013. The CBE’s foreign reserves, meanwhile, have reached an all-time high of more than $45 billion. “This is enough to cover 8.5 months of imports,” said Madbouly. In June 2013, reserves stood at $14.9 billion.
Madbouly also cited new legislation over the past five years allowing private investment in the distribution of natural gas as well as in solar energy, which feeds the power grid. The $2 billion Benban Solar Park is one of the biggest in the world, producing 1,600 megawatts of electricity.
In conclusion, Madbouly highlighted praise for the economic rebound from the IMF, World Bank, United Nations and others. “Egypt’s economic turnaround story is one to which all Egyptians contributed,” he said.
Trade and reforms
Khush Choksy, senior vice president of Middle East Affairs at the U.S. Chamber of Commerce, stressed that the “fabric of the relationship between countries is commerce.” The role of the U.S. chamber is to ensure ongoing dialogue between countries and businesses to capitalize on investment opportunities. “I see a rejuvenation of Egypt’s economic predominance in the region,” he said.
New U.S. Ambassador to Egypt Jonathan Cohen was optimistic about the future of economic and political ties, saying, “there is no doubt we are committed to enhancing trade and investment relations between both countries.”
Ian Steff, assistant secretary of commerce for global markets and director-general of the United States foreign commercial service, echoed Cohen’s sentiments. “We will have robust, enduring and productive relationships when the private sector [...] thrives, creates jobs and drives sustainable economic development,” he said.
That positive sentiment reflects ongoing deep reforms in Egypt. Hala el Said, the minister of planning, follow-up and administrative reforms, highlighted the poor condition of government finances in FY 2012/2013, when the economy was growing at an annual rate of 1.8 percent.
In 2015, the state published its Egypt Vision 2030 plan as a roadmap for Egypt. “It is our version of the U.N. SDGs (Sustainable Development Goals) 2030,” she said. “It aims to achieve macroeconomic stability, inclusive and sustainable growth, and restructured energy subsidies.”
Meanwhile, floating the exchange rate created a more open and competitive domestic investment environment, she explained.
El Said highlighted the government’s investments as part of the long-term plan. “We have spent on infrastructure alone EGP 2.9 trillion since we introduced the plan in 2015,” she said. That infrastructure work included building industrial and investment clusters and zones, and 14 new cities.
“For the past five years, the bank didn’t get reauthorization from Congress,” said Judith Prior, a board member of America’s Export-Import Bank. He added that it is now back in business with a pipeline of projects valued at $2 billion. “Mobilizing that amount will take some time. We don’t have a maximum allocation for nations or projects, and we have a $135 billion balance sheet.”
Soha Ali, who leads JP-Morgan Bank operations in Egypt, was equally optimistic. “Our researchers view Egypt as a great story with great momentum,” said Ali. “The main risks we face in Egypt are geopolitical.” She added that the most promising investment opportunities in oil and gas, infrastructure, tourism, healthcare and education.
Walid Labadi, country manager at the International Finance Corporation (IFC) operations in Egypt, Libya and Yemen, stressed the IFC in Egypt moved from funding only multinationals to local companies and is now looking at working with the government. Labadi pointed out the IFC mobilized $2 billion in project funding in the past couple of years. “We have financed a lot of manufacturing and agribusinesses,” he said. “However, we would like to see more infrastructure projects.”
Oil and gas potential
Oil and gas investments have long been a darling of American companies. They are also a priority for the local government as part of the Egypt Vision 2030 plan. “In the oil and gas sector, we are adopting a new strategy to unlock the potential of the sector’s value chain, establish financial sustainability and become a regional energy hub,” said Tarek El Molla, minister of petroleum and natural resources.
The new strategy allows Egypt to achieve natural gas self-sufficiency since the end of 2018. “We were net importers before, now were are net exporters,” said Molla. That is thanks to oil production at an all-time high of 1.93 million barrels a day. “We couldn’t have reached those levels without committing to pay our arrears to international oil companies in Egypt,” he said. “We have paid 80 percent of them.”
He also highlighted 65 upstream agreements and $30 billion in new investments.
Other government investments in the sector include connecting 1.2 million households to natural gas in FY 2018/2019. That compares to 600,00 last year, and a total of 2.6 million between FY 2014/2015 and FY 2017/2018.
Oil and gas infrastructure also saw new investments: whether increasing the number of refineries or upgrading existing ones, establishing two petrochemical plants or updating oil and gas transmission networks.
Molla also focused on streamlining the ministry’s processes and procedures. “We created a new structure within the ministry. We also started to focus on leadership and succession plans for middle management, as well as enhancing and automating decision-making processes,” said Molla.
To cement Egypt’s position as a regional energy hub, Molla launched the East Mediterranean Gas Forum to align decision-making, initiatives and strategies of Mediterranean countries.
Additionally, the minister launched the U.S.-Egypt Strategic Energy Dialogue in 2018, which aims to increase cooperation, allowing American companies to partner with the Egyptian government on oil and gas exploration, and investments.
During the accompanying panel discussion, David Chi, Apache country manager, said Egypt is in a region with a vast amount of hydrocarbon reserves. “We still see a lot of untapped reservoirs,” he said.
Chi also commended government support to the sector and efforts to create an investor-friendly environment.
Meanwhile, Brian Essner, Noble Energy country manager, sees a lot of potential in natural gas explorations. He praised the government’s support on various levels. “We see an excellent foundation for resolving any issues that may arise,” he said.
Egypt’s digital era
Another important sector for Egyptian and American businesses and officials is information, communication and technology (ICT) projects. In 2020, the sector is expected to add 130,000 new jobs.
To sustain such aggressive growth, ICT Minister, Amr Talaat launched the Digital Egypt project. “It is much broader than just digitizing government services,” he said. “Our aim is to stop asking citizens to get documents from another government agency.”
The project started in Port Said in June 2018 with 18 state services. Next year, digital versions of traffic, notary and supply services will be available nationwide via service centers, call centers, post offices, websites and mobile apps, said Talaat.
Additionally, he said digital platforms are being developed for the Universal Health Insurance system and farmer’s cards.
Training is high on Talaat’s agenda. “We have six initiatives here,” he said. “Last fiscal year, the ministry trained 4,000 people. This year, we are on track to train 15,000. Next year, we plan to train 25,000.”
Looking ahead, the government is building a Knowledge City on 211 feddans in the New Administrative Capital. “The city, which includes a new R&D center, will work on solving real-world problems using artificial intelligence and the internet of things,” said Talaat.
Those centers will rely on an upgraded fiber optic network that cost $1.6 billion. “Internet speed, reliability and voice services are pivotal,” he said, adding that government agencies will not be connected to the internet because they will have their own network.
Talaat currently is working on drafting legislation dealing with e-commerce, cybercrime, data protection, consumer protection and intellectual property.
A panel following Talaat’s presentation discussed how private companies are assisting in the transformation. Hoda Mansour, managing director of SAP, highlighted the German company’s work with Egyptian General Petroleum Corp., the private sector arm of the Ministry of Petroleum and Natural Resources, and with IBM.
Country Manager Wael Abdoush says IBM Egypt is partnering with the state on training as well as supplying equipment to complete the state’s digital strategy.
Magdy Hassan, general manager of MasterCard Egypt and Pakistan, highlighted the importance of digitizing payments. “Creating a digital economy means businesses have new business models that can only work in the digital space,” he said.
Khaled Hashem, president of Honeywell Egypt, highlighted his company’s role in creating smart cities, citing the New Administrative Capital. “It took us two years to develop the city’s model with the help of key stakeholders from government, the private sector and civil society,” he said.
Martin Roseke, Google’s public policy and government relations manager for MENA, stressed the importance of protecting information while creating a “vibrant economy and data flow. That requires smart regulations.” Roseke, however, pointed out the difficulty of reaching a balance that satisfies all stakeholders, saying, “we spent 12 months talking with the government on the data protection law.”
Concluding the daylong forum, Greg Lebedev, head of the U.S. Chamber of Commerce, emphasized how Egypt-U.S. relations have grown stronger over the past four decades. “The U.S. Chamber has no better partner than the Egyptian business community,” he said.
Lebedev then praised President Abdel Fattah el-Sisi’s reform plans. “It wasn’t easy, but we must celebrate the achievements,” he said, while warning against complacency. “It must continue its reforms to solidify the remarkable gains it has achieved.”
He stressed that future reforms need to address issues involving fiscal, monetary and currency exchange. They must ensure the inclusion of women and youth in the economy, as well as improve local legislative and administrative environments. “Perhaps the most important thing is to move toward a more market-oriented economy, which will create a lot more jobs.”