As the world begins to recognise Egypt’s recovery and its massive growth potential post development conference, we sit down with Dr. Mohammed Taymour, Chairman of Pharos Holding for Financial Investment for his take on the tenure of this new government so far and the long awaited reforms within the civil service. He also offers his perspective as to why some foreign investors are wary of entering into the Egyptian market, which is in places somewhat blighted by an overly complicated tax system – he gives us his proposals.
The world is beginning to notice a recovery in Egypt and its growing potential. How optimistic are you at the moment regarding Egypt’s future and why?
The potentials are great as there are a number of things that are meshing together to make this possible. First, a president with the true support of the people was elected. He was brought to power by a popular movement. He is sincere, diligent, hard-working, and believes in the importance of the private sector as a mover of the economy. Secondly, there is a group of ministers that are knowledgeable of their subject, willing to work and make decisions. Egypt has suffered for a long time from the inability to make decisions by its top people. Thirdly, the type of financial and economic support that we are receiving from the Gulf States is something that benefits this country enormously. There have also been changes, either in the process of or have been completed, in the laws and regulations, which make it easier to do business in Egypt in general. We still have some problems such as the security situation, though it is improving. Another challenge lies in the government’s 2nd tier of management. They still do not have the right attitude or willingness to do things that are “out of the box”. The reason for this, particularly after the revolution, is that there was a lot of persecution for making the wrong decision in the past, thus people are afraid to make decisions. This fear is hampering the civil service and delaying progress. The government is working on changing the laws to deal with this problem.
How can you really address this issue?
There are laws in Egypt which would actually allow the General Prosecutor to prosecute a bureaucrat’s bad decision, which may have squandered public money, after a period of up to ten years. This could be punishable with imprisonment. However, with this in place, no one will make any major decision. There are things in the criminal law that need to be changed. Civil servants need to be empowered and allowed to make decisions. I hope we’ll begin to see solutions to this problem.
What do you think really needs to be done in terms of reforms? Do you feel that the reforms this government has put in place have been effective, and what else could they be doing better?
There is a package of laws and regulations that needs to be amended. Some of them have already been amended, such as the investment law, however the tax law still needs to be revised. They are working on the labor law, but I don’t think that will be completed before we have a parliament. We need to streamline the processes of getting licenses or approvals.
This month the tax on capital gains was introduced, which has really affected the stock market.
I have spent 90% of my time fighting this. We met with the Prime Minister and the Ministers about this. Egypt, until very recently, did not have taxes on capital gains for listed securities unless the security was taxed at the normal tax rate. This helped the stock exchange to move. We’re not against the tax per say, but the way it has been presented has been complicated as there is double taxation. For example, if the tax on the dividends is paid, whatever remains is entered into another tax bracket. A 10% tax becomes something more like 30%. We don’t think this is the right time to have these kinds of taxes. Secondly, if you want to have this kind of tax, you shouldn’t apply it to foreigners because they additionally pay taxes in their own countries. Personally, I invest in stocks outside of Egypt, and I’ve never paid the tax there, I pay it here in Egypt. This is really causing the foreigners to think twice about entering the market. Not only that, the system for foreigners is very, very complicated. If the government insists on having taxes, which we don’t recommend at this time, they should deduct the 10% from residents through a clearing system, and the investor receives the rest. Non-residents should not be taxed. Many won’t invest simply because dealing with the tax authorities is a nuisance, particularly because we have a very high interest rate, and they can put their money in the bank instead. Since the law has become effective, the stock exchange has gone down. I know it is being discussed at the Ministerial level.
In your honest opinion, do you think the government would benefit more from not having any tax and just allowing the investment to come in or do you think that the tax is necessary?
The tax is not necessary at all, and we didn’t have it for the last 20 years. Why bring it now when encouraging investments? If the government insists on it, the tax needs to be implemented in a way that people are not frightened off. Hopefully, they will simplify the law.
At the EEDC, there were over $130 billion worth of MOUs and close to $40 billion in actual agreements signed. It was a great success for the country. Do you think Egypt is ready to handle this amount of investment?
Oh yes, why not? We are 90 million people. These projects are not all going to be invested in one year either. Some of them are 10, 15, and 20 years away.
What do you feel are the most important steps that need to be taken post-conference to make sure that the momentum and the results of the conference are really cemented into real progress?
Completing the packages that were presented at the Conference along with streamlining the process of implementation is of tantamount importance. The country is ready for this. The banking sector is strong and can finance quite a lot of these projects.
Is this the job of the government or the private sector?
The private sector is ready to do anything. The government is now willing to hear what we are saying. The dialogue between the government and the private sector now is quite substantial. This allows government to know what is happening, and what is keeping us from doing this or that. That is one of the things that gives us all a sense of optimism. As an investment banker, I see the amount of interest in Egypt now with the acquisition deals and IPOs.
Directly after the conference have your inquiries sky-rocketed?
It’s been going on, but it has also increased. The conference was successful in every way. It explained things to people. It showed that we are on the right track. It’s true that we don’t have a perfect system, but at least we are working in the direction of having such a system. The conference was like giving everyone a vital shot in the arm.
During the conference, you had $22.5 billion worth of projects that investment banks were responsible for handling. One of the MOUs was signed already. There was also the October Oasis Project, which you are responsible for. Can you comment on these projects, their success during the conference and the interest that you are getting?
The interesting sector for investors was in real estate simply because we have a problem providing the right housing for people. We have huge land banks that are available in the desert. Of the 2 projects Pharos has, one has an MOU and the other has several suitors for it. Then there is the oil refinery, which there is a lot of interest in. The oil refinery is a more complicated project, and we are talking with a number of interested international companies, but it will take more time than the real estate projects because further details must be studied. It involves technical things that have to be secured before signing anything.
Almost $60 billion of MOUs were focused on real estate. The Capital City Project was one of the biggest projects and highlights of the conference. What are your honest thoughts on this project and its reality?
I’m not very sure about it frankly. I don’t believe the project is bad per say, but it is too large. How does it fit into the general picture for the country as a whole? How will it be done? How will it be financed? What kind of housing will be there? Those things have not been explained yet. Do we need something like this? Yes, we need it. However, we need to see a plan.
What makes this so different from the October Oasis Project when that was in its conceptualization?
It’s probably 10 times the size of the October Oasis which was 42 square kilometers. It’s very important that these real estate projects cater not only to the wealthy. For these projects to be reasonable, including October Oasis, it has to have a component of houses that are affordable to the middle class. How to mix it with the villas and golf courses needs quite a lot of planning.
What do you think the impact of the Suez Canal Project will be on Egypt, and do you have any or do you plan to have any involvement in the project?
We will have a role one day when they begin to have specific areas for specific projects. Then we can come in and bring investors. I think it’s a very, very important project, and it’s more important than the new capital. Special areas have succeeded in other countries, and there is no reason for Egypt not to succeed in this. It means commercial traffic and commercial activities. It has great potential.
Pharos Holding is one of the largest investment banks in Egypt. To what do you attribute the success of the company?
We will celebrate our 10th anniversary next year. I believed I was retiring 10 years ago, but then my son approached me about starting our own company. He started the brokerage firm, then we added asset management, investment banking, and now we are adding private equity. This particular year is beginning to be a very good year, especially with M&As in the area of food, retail, industry and real estate. We think there are great opportunities for investments in Egypt in companies that are mid-sized and need to grow or need direction in handling their finances. We just sold a company for approximately 500 million Egyptian pounds to an Egyptian group. We were also part of the group bidding for Bisco Misr, however it was awarded to Kellogg’s. We have 4-5 deals that we’ll hopefully do before the end of the year, some of which are quite large.