Price inflation, at around 9 per cent, is a constant worry, and a number of the Minister’s opponents (he’s a member of the ruling National Democratic Party’s General Secretariat) are starting to ask when the country’s new wealth, GDP touched 7.5 per cent in 2007, will trickle down to the one-in-five Egyptians currently living in poverty.
But a welcome distraction for this articulate, British university-educated politician and economist is the reform of Egypt’s E£700bn (€82bn) capital market. A series of market initiatives, reinforcing strides already made in fixed income, foreign exchange and stock market development, are slated for this year.
New powers will be given to the Capital Markets Authority, the market regulator, to build support for companies using the debt market to access finance. And since the start of this year, small and medium-sized firms now have their own bourse – Nilex – which is part of the Cairo & Alexandria Stock Exchange (CASE) and the first mid and small cap market in the Middle East and North Africa (Mena) region.
“We are aiming to promote and establish Egypt as a location for financial services, but not necessarily as the financial centre for Mena,” the Minister explains. “When London was building and developing its financial base, it would never claim to be the global financial hub that it is today. Instead, its reputation was based on credentials not propaganda, through the infrastructure and openness of the market and depth of human capital. We want to do the same for Egypt”.
In the bond market, a five-year, local currency denominated Eurobond valued at E£6bn was launched last year as Egypt went to the international markets, “in order to connect them to our own domestic capital markets”. The offer was 2.5 times oversubscribed, so presumably untainted by the credit market fallout experienced in the West.
The Cairo & Alexandria Stock Exchange has grown by 1000 per cent in trading volume since 2004 and around 1.7m Egyptians, from a population of 80m, are shareholders. CASE received foreign capital inflows through net accumulated investments of E£21bn last year and has a market cap around 107 per cent of GDP.
Dr Mohieldin also says the ministry is looking at ways of opening up the insurance sector and the mortgage finance market to greater competition, “though in Egypt, it’s a case of no subprime, just prime”.
Inward investment, at $21bn (€13.3bn) a year, is running at record levels, encouraged by recent deregulation of state-owned industries and a continuation of the government’s privatisation programme (which began in 2004 and coincided with Dr Mohieldin’s cabinet debut). The two-thirds sell-off of Banque du Caire, owned by the central bank of Egypt, is expected in May and $1.6bn has already been raised via the auction of 80 per cent of the Bank of Alexandria to Italian bank San Paolo.
Amendments to Egypt’s capital market law will also include preventing the use of insider information. “Developed markets are performing well due to implementing proper financial policies, continuous improvement of markets and the introduction of new financial instruments, in addition we want to minimise the possibility of insider trading,” the Minister outlines.
Trickle to nowhere?
Rates of absolute poverty in Egypt have increased from 15 to 20 per cent since 2000, according to figures supplied by the World Bank. “All the talk is about the ‘trickle-down’ effect, but I don’t believe in this,” says Dr Mohieldin, in a sideswipe at supply-side economics.
“You need to put in the investment and have an all-inclusive system, getting people educated and providing access to the right training and skills needed and in all regions – not just Cairo or Alexandria but in rural Egypt too.”
Dr Mohieldin is looking for more integration with the developing and developed markets in 2008, as he puts it, “more coupling, not decoupling”, despite the credit scenario being played out in a number of these regions. Additionally, extra connectivity with the capital markets of China, Turkey, and India and not just the US and the UK, the country’s largest sovereign investor, are on his wish list. “We want diversification and not to be exposed to any single market,” he says.
In the past month, the Minister has met state officials in Japan, China and the UK, promoting Egypt’s capital market and asset management growth story. Egypt has one of the largest public pension systems in the Mena region, though facing the same longevity and funding issues as the retirement systems in the West. Government estimates put funding costs at four per cent of GDP in 2007, rocketing to 25 per cent of GDP by 2050.
