Egypt’s economy has recovered well since political turmoil subsided in 2014, with growth of 4.2% last year. But with 900,000 people entering the job market each year, Dr. Mohamed Omran, Chairman of the Egyptian Exchange, believes that sustained growth of 6-7% will be required to keep unemployment low. Moving forward Dr. Omran says that the Egyptian Exchange will play a strong role in economic growth as a source financing for the country’s big infrastructure projects. He also discusses the benefits of the government’s plan to list shares of some state-owned companies on the exchange.
Beginning with the global financial situation: in 2009 many people lost confidence in stock markets as a result of the global financial crisis. How can this trust be regained?
The 2008 and 2009 financial problems originated with the subprime lenders, which is quite a different situation than what we have now. We began 2016 with what is most likely the worst January ever for financial markets in the world, but the way I see it is that the turbulence in the financial market now is not coming from the structure of the financial market but because of the fear of the slowdown in the world economy. These are very separate issues. 2008 yielded fear in the financial element of the economy but this time many people fear sustainability in the real economy which is hurting investors’ sentiment.
You can see that in the world’s second largest economy, China, there was very slow growth. Many international financial institutions have downgraded economic growth forecasts for this year. Commodity prices are going down, oil prices especially, not necessarily because supply is high, but because a lower demand is being reflected in lower manufacturing and production rates.
In general you feel that there is a legitimate fear that the world economy will face problems in 2016. We’re not saying that we’re entering into recession, but the level of expectation is going down. With a slowdown of the world economy, this will affect many countries including Egypt as you can expect that the private capital flow and availability to attract foreign direct investment will decrease as well.
This is what’s happening in the world as well as neighbouring countries in the region which of course are very important to Egypt. Lower commodity prices will affect their budget, and lower their investments. It is a complex situation which gives investors a negative sentiment which is affecting the stock markets, making January such a terrible month.
And how has Egypt weathered such a situation?
We are no exception to the world economy. The Egyptian stock market has been similarly affected. Twenty-five percent of our daily trading is coming from outside the country, whether from Arabs or non-Arab nations, so many are rebalancing their positions and portfolios, which is affecting our stock exchange similar to what is happening in the world economy. Until we have a clearer picture of the direction of the world economy, we will have a higher level of volatility here in Egypt when looking at the stock market. Overall, the sentiment is not on the side of the financial markets. We hope that economic policies will end up giving trust and confidence back to the international investment community.
When you look at the general forecast for the Egyptian economy for 2016, what do you see?
Except for last year, the Egyptian economy was growing at a low rate, of 1-2% on average. Last year was around 4.2%. It’s good but it’s not enough, because you’re talking about a country that needs between 6 or 7% to keep the unemployment rate low, and absorb the newcomers to the job market, which number 800-900,000 people per year.
You have spoken in the past about both “good growth” and “bad growth” when referring to the income inequality gap. Do you believe that last year’s growth can be sustained and inclusive?
It’s difficult to say because we must achieve long-term growth through long-term action. You need sustainability as an equality-based strategy for how you are managing the country; not just the economic sector but other sectors as well. The government is confident that we can achieve these levels of growth in the future. We need flexible economic scenarios and plans. While we need a master plan, we must be flexible enough so that we can adjust our policies based on day-to-day variables. We need solid 6 or 7% growth to be sustained, and we need to make sure that this growth rate is sustainable for the citizens at-large, across all sectors and income levels. This is what I’m talking about with “good growth” and “bad growth”. Bad growth is when an elite benefit from economic progression, and good growth involves everyone’s participation and is for everyone’s benefit. You need to put policies in place to ensure that citizens at large will benefit, and not a small group of people.
As you oversee the Egyptian Exchange, how do you see the past four years since you’ve been there as Chairman?
There have been ups and downs as in all stock markets. The good thing is that I’ve seen a positive trend in the functionality of the stock market. Mobilisation of resources is improving. The ultimate goal is to help the listed companies to increase their level of investment, to get the needed financing, and to list new companies as well. The main objective of the stock market is to be a hub and axis for finance.
In 2014, the stock exchange was able to finance the listed companies an estimated LE 9 billion. In 2015 it was around LE 15 billion. Egypt in 2015 was able to list 15 companies which is the highest number since 2010, and in 2013 we were able to list 13 companies. In 2015 the Egyptian Exchange led the region with three big IPOs. What I can see is that the market is playing a strong role in supporting listed companies and the economy. We are trying to help the private sector finance infrastructure projects through the stock market. We are trying to be a part of what’s happening in Egypt’s transformation. Egypt will need huge investment, so we will adjust our financial tools.
The last initiative by the presidency itself was announcing the possibility to publicly list state-owned companies. This is an example of how the stock market can help not only the private sector but the public sector as well.
You have spoken on how the private sector must also be an engine for growth, not just government policies.
It is beneficial for the state to be a regulator to facilitate the best practices for investment; the majority of growth must come from the private sector. It has been proven everywhere that the private sector is better at managing assets and mobilising resources. I think the fact that the government is willing for state-owned companies to be publicly traded is a great move for the management of state assets.
It’s not only about capitalising the stock market and finance, but even for citizens at large. We need the tools to understand how these companies are managed, how they are performing. When these state companies are listed and traded, we see how the stock prices reflect the value of the company. It creates transparency and better governance.
What is on your agenda for 2016?
We want to improve Egypt’s economic ranking internationally, and are working hard on this issue. We are also trying to have more companies listed on our index. We want to make the life of the investor easier. Other things are out of our hands because of the global economic situation, but we are trying to improve our legal and IT infrastructure, and anything that can have an impact on how we do business here. We are getting closer to our stakeholders with better communication and having them engaged in our decision-making. •