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Diversification essential for long-term growth prospects

Article - March 8, 2016

Recently approved projects in infrastructure, oil and gas, industry, real estate and logistics will play a key role in Egypt’s future


Egypt has emerged from a tumultuous period in its history with a renewed focus on economic development and a government keen to diversify into new markets.

It’s a challenging combination but one that is designed to deliver widespread social benefits and long-term growth prospects. Following the ratification of the country’s constitution in January last year and the presidential elections that followed in May, Egypt’s government has embarked on a clear strategy to engage international investors and cement both economic and political stability.

All sectors have been targeted for reform, from microfinance and mining to politically sensitive markets such as the energy industry, where excessive subsidies were slashed by around 30 per cent. Elsewhere the tax system is being reformed and public-private partnerships are being created.

Magdi Kassabgui, chairman of the board at Egyptian firm Reliance Investments, has more oversight of the inter-locking nature of the country’s economy than most and is clear about the potential that his country’s geographical location and natural resources offer both domestic and international investors. Reliance has grown rapidly over recent years and now operates across multiple sectors, from logistics and mining to cement and ready-mix construction products. He says the Egypt Economic Development Conference in March proved that Egypt’s recent economic developments have not been simply superficial – although he admits there remains plenty to be done.

“The EEDC was not only glamorous; it was also an important event in which you could see how the world recognises what is happening in Egypt at the moment,” he says. “We see the government’s appetite to boost the economy. It is obvious that there is a political will to reform and plenty of economic reform policies have been discussed during the conference. The challenging part now is the execution of the programmes that were signed during the EEDC.”

“The private sector has the obligation to commit to being part of Egypt’s economic growth and to be responsible for bringing the right investment, the right projects, and to respond to the political will of the government.”

Magdi Kassabgui, Chairman of the Board, Reliance

The manufacturing sector has already enjoyed substantial growth this year –  up 29 per cent on the same period last year - and there are extensive plans to improve the support for Small and Medium-sized enterprises (SMEs) to encourage further growth. Sectors such as tourism have also seen noticeable upticks in demand, as confidence flows back into the country and investment helps to improve facilities. Elsewhere property tax laws have been relaxed, delivering a boost to the real estate market, and the country is expanding its downstream oil and gas facilities, building refineries and investing around $10 billion into the sector. The country’s financial sector is also primed for further growth, having remained one of the region’s most stable despite recent turbulence, and continues to attract the support of numerous international investors and institutions.

Certainly the figures attached to Egypt’s five-year plan agreed upon in 2014 outline some ambitious targets while the 2030 Vision reflects a similarly buoyant mood from officials. A sustainable GDP growth rate of 6 per cent by 2019 is top of the agenda but vitally there has also been an intense focus on job creation and ensuring that any prosperity is shared across the country’s population to avoid unrest. Officials are aiming to bring the unemployment level below 10 per cent – with a particular focus on youth unemployment – while greater domestic investment, better exports and spending on health, education and research and development will be increased.

To reach such goals, it is clear that the country will need to further develop its diversified economy and  Mr Kassabgui says both the public and private sectors must play their parts.

“The government has the major responsibility to set the right policies, to facilitate the execution of the programmes and to reduce the amount of time spent in bureaucratic formalities,” he explains. “The private sector has the obligation to commit to being part of Egypt’s economic growth and to be responsible for bringing the right investment, the right projects, and to respond to the political will of the government.”

Egyptian infrastructure – and particularly its megaprojects – is a major focus and there are already numerous proposals such as the expansion of the Safaga industrial port and a series of desalination plants planned for regions including Sharm el-Sheikh and Helwan. It is the expansion of the Suez Canal that perhaps best represents the country’s ambition however, designed to not only improve the flow of goods into Egypt but also the ability of local firms to move into new markets abroad.

“This project is putting Egypt on a totally different path,” says  Mr Kassabgui. “We will definitely see a larger volume of commodities being traded; we will see more logistics projects coming in, and more infrastructure projects in the area.”

The development has not only resulted in a huge amount of investment into the project itself but will allow firms such as Reliance to expand their own interests. The company has already set up a ready-mix concrete plant alongside the canal but it also has plans to increase its aggregates sales business and invest in intermediate warehousing and logistics hubs to create further added value in its activities.

Further infrastructure investment is clearly required and there are plans to build new ports as well as developing the country’s rail links, with a 10-year, $10 billion investment plan in the works. Such developments will be key to enabling Egypt to act as a gateway between Europe, Asia and Africa and  Mr Kassabgui is clear that embracing this potential will be key to further growth.

“Egypt is a country that has been blessed with natural resources and with a strategic geographical location. Egypt meets all the criteria needed to be one of the most important logistics hubs worldwide. It is unique, being positioned between the Mediterranean and in the Red Sea, and having the Suez Canal. With Egypt’s growing population, there definitely is the opportunity to create added value in those areas.”

Developing such a diversified economy will require further efforts from Egypt’s public and private sector but  Mr Kassabgui also highlights the role that international investors will play and outlines the substantial opportunities that his country can offer to foreign parties.

“Generally speaking, the fact that foreign companies are coming to Egypt is clear recognition of the political stability in the country. Egypt needs to see plenty of FDI coming in the short-term,” he says, adding that his company is also exploring the potential of investment from abroad.

“We have reached a size today in which we need to further grow through capital increase. At the moment, we are waiting on several opportunities in order to inject capital in the company, either by strategic investors, by private equity or through some European banks that have shown interest in Reliance diversifying its activities’ portfolio.”

Despite extensive developments across sectors – from improving tourism facilities to opening up the mining sector –  it remains clear that further economic diversification will be vital for Egypt to achieve the growth targets it has set for itself.

Yet  Mr Kassabgui is confident that the country’s skilled workforce and the government’s political strategies are paying off, and as the economy expands numerous more opportunities for international investors are beginning to emerge.

“Things are happening in Egypt, and there are not so many countries worldwide in which you feel that there are opportunities such as here,”  Mr Kassabgui adds. “Egypt is a fascinating country that has been blessed with its people, with its natural resources and with plenty of opportunities.”