Dubai – Much More Remains to Be Accomplished with Egypt’s Reforms .Reforms that took place led to microstability, procedures taken by government for
future growth sustainability are correct Citibank Country Officer, Mohamed Abdel-Khader, told Daily News Egypt during an interview that, in general, Egypt’s situation looks promising, but it needs assurance of continued sustainability.
Egypt has adopted its economic reform programme in November 2016, which included the currency flotation, the gradual removal of subsidies, as a condition for a $12bn deal Egypt signed with the International Monetary Fund (IMF) in 2016.
“If we look at Egypt’s situation, we will find that the current account, and the balance of payment is performing quite well, in addition, the budget direction is moving in the right course. We are getting below 9% hopefully in FY 2018/19, and the unemployment decreased to 9.8% from 12.5%,” he emphasised.
In terms of the reforms that have been adopted by Egypt, Citibank Country Officer, Mohamed AbdelKader noted that they were essential and critical, noting that the presence of the IMF in the reforms, has given Egypt a good opportunity to gain the trust of investors, and that the continuity of the reforms is very vital.
All the reforms that took place led to microstability, and all the procedures taken by the government for future growth sustainability are the correct procedures, but perhaps Egyptians will discern the benefits in the long term, as those benefits will materialise on the long-term, according to the Citibank country officer.
Abdel-Khader elaborated further that during the period from 2004 till 2011, Egypt’s economy was booming, however, starting from 2011, due to the ‘Arab Spring’ revolution, and several other reasons, the economy began to decline in all sectors, then almost in 2018 Egypt’s economy began to recover one once.
Egypt witnessed many cycles through which the economic condition of the country fluctuated up and down for many reasons, either a financial crisis, the ‘Arab Spring’, and more. So he asserted that Egypt needs to maintain better sustainable growth.
In terms of what the government has undertaken in order to ensure more sustainable growth for Egypt, Abdel-Khader explained that the first steps of the reforms was removal of the energy subsidies, describing it as a significant move in the right direction.
When each subsidy was removed, the government received the oil indexation, which means that there will be no fixed cost for fuel prices in Egypt, thus this will remove several burdens from the government’s responsibilities, he explained.
Notably, cutting subsidies to reduce pressure on government spending is one of the country’s main goals, as it further enhances the reforms to revive an economy which has been struggling since the 2011 uprising.
Earlier in June, fuel subsidies were cut for the third time since November 2016, when Egypt adopted its ambitious economic reform programme supported by the IMF, and the fourth time since President Al-Sisi took office in mid-2014.
Moreover, the Egyptian government aims to cut petroleum subsidies by about 26%, and electricity subsidies by 47%, in the draft budget for fiscal year 2018/19 recently approved by the parliament.
Returning to the substantial measures taken by the government in order to ensure the sustainability of the economic growth, Abdel-Khader pointed out to the new gas discoveries, such as the Zohr field, is quite positive, as many international companies are currently attracted to Egypt once again, to conduct refinery projects, and discoveries in the country, which can also lead to Egypt’s self-sufficiency for a rather sometime, enabling Egypt to continue its discoveries of additional gas fields.
He explained why he said for ‘sometime’, stating that if Egypt become self-sufficient, any increase in its population, it can cause it become wanting again, so it needs to obtain more gas discoveries.
Notably, the Zohr field was discovered in August 2015, and it received the investment authorisation after just six months, in February 2016. It is the largest gas discovery ever in Egypt and in the Mediterranean Sea, and it will be able to satisfy a segment of Egypt’s natural gas demand for decades to come.
Egypt Wins Big
Tourism represents 15% of total sources of income for national economy, says Al-Mashat
Moreover, he stated that the third decision that the government took which was in the right direction, is the development of the infrastructure, including roads, and power plants.
In that context, several development projects are taking place in the power sector, as it is one of the most important sectors that investors study, he noted.
“So, the development that are taking place in the energy and the power sectors are essential for Egypt’s future,” he added.
Discussing the pound flotation and its impact on Egypt, he compared the situation before and after the decision, stating that before the pound flotation, the currency had two markets, as the Egyptian pound was a commodity itself, for the encapsulation of people, and it was not helping the investor to recognise if the market had the correct value for investment or not, and if devaluation occurs, half of the investments may be lost.
He continued that after the pound flotation, its value depreciated, but simultaneously it became more attractive, adding further that he does not think increased depreciation will take place.
“The tourism sector is one of the main sectors which benefited from the cheaper value of the Egyptian pound,” he underscored.
In that regard, during the press conference on the side-lines of the Arabian Travel Market exhibition that took place in Dubai last month, the Egyptian Minister of Tourism Rania Al-Mashat announced that the number of tourists visiting Egypt has jumped by 30% during the first quarter of 2018 compared to last year.
She added that tourism now represents 15% of the total sources of income for the national economy.
Abdel-Khader said that Egypt must become a manufacturing country, explaining that in line with the pound floatation, and the reforms, Egyptian consumer patterns have changed, and their behaviours as well, thus saving energy, reducing excessive consumption, which will of course make a difference.
Talking about the bank’s future plans, he asserted that Citibank is not interested to operate in the retail market in Egypt again, “but we will focus in the next period on custody services, continuing to attract investments to the country on the fixed income front, as well as the equity front.”
Abdel-Khader stated that if the government entered the indexation or the Euroclear, this will give room for the bank to expand in that area, and see what opportunity it can occupy to operate with the government in those affairs.
“We will also focus on expanding and growing our portfolio of local corporates on a selective basis, as after the 2011revolution, our portfolio decreased in terms of local corporates,” he said, continuing further, “in addition, our target is to attract increased multinationals to operate in Egypt, which is our core business, as we are present in the Egyptian market with various specialties,” Abdel-Khader highlighted.
Citibank is a custody services provider in Egypt, and the bank accounts for about 60 to 65% of the custody services’ business in the market, hence the bank is interacting extensively with investors who invest in treasury bills, explained the Citibank Country Officer.
“Hence, Citi conducted several roadshows alone without the government, in order to attract increased investor demand towards Egypt, and we managed actually to attract 60% out of $21.5bn that were invested in Egypt in the form of treasury bill and bonds, in Egypt untill April,” he stated.
“But starting from April, the emerging markets began to be the reason why investors have been reducing their capital, noting that Egypt was their last choice to investment in,” he continued. In an attempt to assure investors that Egypt is attractive and an attractive market to invest in, as it provides the right level of interest rates, and continues to offer a low currency, however, it was quite apparent that the loses which could be incurred by investors in other emerging markets, make them decide to reduce their investment portfolio in Egypt, in order to reap some profits, rather than sitting on losses.
Citibank’s Role in Egypt’s Economy
Expectations of issuance of $5bn euro denominated bonds next year, as per Ministry of Finance, and I assume Citibank will be part of this mandate, says Citibank country officer
He explained that Citibank’s presence in Egypt dates back to 1954, then he continued that following the nationalisations in the late 50’s and 60’s, Citi re-introduced itself in the market in 1974, through its branch in Cairo, with a license to operate in foreign currency.
“During the period from 1974 till 1998, our main operation was always in the cooperate sector. Starting from 1998, we introduced in Egypt the consumer retail business, hence Citi is one of the pioneers in the consumer retail business,” he said.
He explained that, in line with Citi’s global strategy of focusing on markets with the greatest growth potential, Citi sold the consumer banking business to the Commercial International Bank in 2015.
“Since then, we have returned to the cooperate field, which has been our traditional business, and our major portfolio is full of global subsidiaries, and we serve them through various products including cash managements, trade, and markets products,” declared Citi’s Country Officer.
He also stated that Citi serves multinationals and global investor clients active in the Egyptian market, and fully supports their banking, investment, and credit requirements.
The second major segment that Citi works with is the government, and the public sector, noting that Citibank works with the government through various means, including the treasury level, and the markets level, he mentioned.
At the treasury level, “we buy treasury bills from our balance sheet; hence we have our own local treasury bills portfolio in Egypt,” he remarked.
“The second issue is that we cooperate with the Egyptian government, and we were the bookrunner and major organiser of the Egyptian euro denominated bonds, that was issued during the last four years,” he announced.
He expressed that Egypt has issued the euro denominated bonds during the last four years, worth $16bn, noting that Citibank was the major bookrunner and organiser of $15bn out of these.
He affirmed that Citibank did not participate in the rest $1bn issuance, as the government wanted to reach European banks to issue euro bonds in European channels.
“There are expectations of issuance of another $5bn euro denominated bonds next year, as the Ministry of Finance declared earlier, and I assume that Citibank will be a part of this mandate,” he disclosed.
What Citibank provides to the Egyptian government is within the field of their expertise, the greater client base, the network, the atypical solutions, according to Abdel-Khader.
“What distinguishes Citibank, is its globalism and its specialised projects, and products, so the government is benefiting,” he concluded.