October 2018

OCTOBER 2018

VOLUME 35 | ISSUE 10

Inside

12 Editor’s Note 14 Viewpoint

The Newsroom

16 In Brief An analytical view of the top monthly news

Investor Focus 18 Road to Recovery Is Egypt’s apparel industry a potential cash cow?

Regional Focus 40 Investing in EGX vs. Tadawul Choosing your best bet

American Impact

44 Shadow Banking Is the global economy approaching another crisis?

Market Watch 48 Not a Bear Market … Yet

© Copyright Business Monthly 2018. All rights reserved. No part of this magazine may be reproduced without the prior written consent of the editor. The opinions expressed in Business Monthly do not necessarily reflect the views of the American Chamber of Commerce in Egypt.

8• Business Monthly - OCTOBER 2018 OCTOBER 2018

VOLUME 35 | ISSUE 10

Cover Story

34 Egypt as a Cashless Society Public and private sector join forces to lessen the dependency on print money

Cover Design: Nessim N. Hanna

In Depth

22 The Long-Awaited IPO Program Egypt’s equity financing future

At a Glance

26 Investing in Egypt A market overview

Executive Life

50 A Beautiful Investment Investing in Egypt’s art scene

The Chamber

54 Events

63 Exclusive Offers

64 Media Lite An irreverent glance at the press

10 • Business Monthly - OCTOBER 2018 Editor’s Note

Director of Publications & Research Khaled F. Sewelam

Editor-in-Chief Nadine Abou el Atta

Contributing Editor Cultural Evolution Tamer Hafez Leah Bremer Kate Durham any lives, at least in my opinion, can be summarized in the struggle between the need to evolve and the comfort zone. The humankind is Consulting Editors conditioned to have both, one to help us connect continents and the Bertil G. Peterson other to keep us from slipping off a cliff, each triumphing at point in time. One of my favorite stories of this struggle is that of Pharaoh Akhenaten. He challenged Contributing Writers the norm of the Egyptian society by depicting his reign in a vastly different way from the Mahinaz el Baz rulers who came before him. He changed the religion of ancient Egypt from polytheistic Julian Nabil Menna Farouk tMo monotheistic, and moved the capital from Luxor where it has always been to the middle of the desert. Legend has it that he chose this location because the sun rises exactly Senior Art Director between two hills, representing the power of the god Aten. He promoted a different kind Nessim N. Hanna of art, life, and philosophy. Alas, as you visit his kingdom today in the outskirts of Al Minya, Senior Graphic Designer you will only find a little more than a patch of desert. What Akhnaten missed was the com 3 Emy Emile fort zone of his people. The culture wasn’t ready, and as soon as he passed away his son moved the capital back and the people went to the cultural practices they were comfort 3 Graphic Designer able with. Verina Maher For Egypt, this struggle today can be seen in the country’s pursuit of a cashless society. Advertising & Business Development With government plans, private sector initiatives, more FinTechs than Egypt has ever had, Director the near future is looking more and more paperless. However, cultural readiness and com 3 Amany Kassem mon perceptions remain a huge hurdle to overcome. Continuing on the financial track, the Egyptian government is following through on its Advertising Coordinator 2016 announced plans to list state3owned companies. We speak to experts on the expected Lamia Seleit potential and looming challenges, especially in light of the emerging markets crisis. Circulation Coordinator Despite the volatility witnessed in Egypt’s stock exchange, foreign investment is well on Dina Karara the rise. However, as Saudi Arabia reformed its regulations, encouraging foreign invest 3 ment in Tadawul, its international standing rose to compete with that of Egypt. This Photographers month’s Regional Focus compares the figures and performance of both stock exchanges. Karim el Sharnouby Shifting to other investment angles, Egyptian apparel brands are back on the interna 3 Said Abdelmessih tional wagon. However, the industry is still plagued with significant challenges that hamper Production Supervisor its growth locally and internationally. Business Monthly delves into the sector’s profitabil 3 Hany Elias ity analyzing its investment potential. Not all investment ventures are dry and figure3based. This month we chose to look into Market Watch Analyst the investment activity of Egypt’s contemporary art scene. Hidden in Cairo’s nooks and Amr Hussein Elalfy crannies are galleries making millions per sale, which begs the question: Are we missing out Chamber News Contacts on significantly appreciating assets? Nada Abdalla, Azza Sherif, Last but not least, we did things a bit differently this month. We swapped one of our in3 Susanne Winkler depth articles for a detailed visual presentation of the different factors that shape the potential of new investments, covering everything from cultural readiness, labor compet 3 itiveness, business environment, to technology penetration. Tell us if you would like to see more of this. U.S. address: 1615 H Street, NW • Washington, D.C. 20062 Please forward your comments or suggestions to the Egypt editorial office: NADINE ABOU EL ATTA Business Monthly DITOR IN HIEF American Chamber of Commerce in Egypt E - -C 33 Soliman Abaza Street, Dokki 12311 • Cairo • Egypt [email protected] Tel: (20-2) 3338-1050 • Fax: (20-2) 3338-0850 E-mail: [email protected] www.amcham.org.eg/bmonthly

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12 • Business Monthly - OCTOBER 2018 Viewpoint

Strength in Partnership

.S7Egypt relations are witnessing an upward trend. We just came back from a mini7doorknock, highlighted by a business dinner in honor of President Abdel Fattah al Sisi in New York. The meeting was attended by 21 distinguished U business leaders representing some of the top U.S. companies, both working and interested to work in Egypt. President Sisi articulated the case of Egypt and hit on all the right notes, he touched upon economic reforms, social inclusion, security, stability, citizenship, and continuing the reform agenda. The feedback from corporate America was beyond positive, unlike previous meetings where optimism was guarded by caution. Not this time. Further boosting Egypt’s positive image, we heard the meeting with President Trump went even better than the previous one. In Washington DC the positive sentiment regarding Egypt’s successful economic reforms by far takes priority as opposed to any concerns. In fact the message is keep doing what you are doing right. International financial organizations are impressed by Egypt’s ability to weather the emerging markets storm, in one striking comment: “It’s too good to be true” notwithstanding the imperative need and urgency for sectoral reform, which are needed more so than ever. Interestingly enough, no serious concerns regarding government debt were raised, as long as it is getting lower in percentage to GDP, not necessarily in absolute terms. October will witness the periodical review of rating agencies and donor organizations, along with annual WEF Competitiveness ranking. It will be interesting to see the outcome. Egypt still has a challenging time ahead, hot money flight, emerging markets stress, the rising price of oil, and the challenge of attracting foreign direct investments, which is yet to happen. In many ways it could be a blessing in disguise, prompting the government to push further to unlock the ill7famed bureaucracy. A sentiment that seems to gain traction within Egypt’s decision7making circles is again perceived as a bastion of stability in a treacherous region, and has a role to play in many different fronts, be it the Israeli7Palestine presumed peace initiative, the Libya file, or East Mediterranean economic coalition. Egypt foreign relations are back on track. On a final note, the Egypt7U.S. relations are highlighted by the release of 8195 million in military aid in August, the visit of Melania Trump in October, the 40th celebration of Camp David, and the honorary medal awarded to late President Sadat, and the resumption of the strategic dialogue between the ministries of foreign affairs and defense in both countries, along with the unequivocal support from the U.S. on our war on terror. For a change we come back this time with a positive note. TAREK TAWFIK President, AmCham Egypt

14 • Business Monthly - OCTOBER 2018 THE NEWSROOM IN BRIEF

Tourism Revenue up 77 Percent

Egypt's tourism revenue jumped 77 percent in the first half of 2018 to around C4.8 billion compared with the same period last year, a government official told Reuters in late August. The recovery is partly attrib @ uted to the flotation of the Egyptian pound, which halved the currency’s value, making the country a more attractive holiday destination through cheaper hotel prices. He added the number of visitors jumped in the first half of the year to 5 million, a 41 percent year@on@ year growth. “Indicators suggest the sector will earn about C9 billion by the end of this year,” the official said, adding there were expectations of greater traffic from Western Europe, Italy, Germany and Ukraine towards the end of the year. Last year the government pocketed C7.6 billion off the tourism sector, which has long been considered a pillar of Egypt’s economy and a key foreign currency earner.

Software Piracy Down

The software piracy rate in Egypt has fourth place in Africa. Egypt’s figures case. Under the law, offenders include dropped two percent in 2017, to 59 stand to further improve after parlia @ those who operate any information percent, according to a bi@annual ment in July approved the nation’s system, such as a website, account, or report by U.S.@based Business first@ever cybercrimes law, which is email, that encourages cybercrime. Software Alliance. The value of unli @ expected to limit the ability to down @ Those convicted can face up to a year censed software in Egypt declined load pirated software off the internet. in prison and fees up to EGP 100,000, from C157 million in 2015 to C64 mil @ This is made possible as the regulation depending on whether the defendant lion in 2017. The report ranks Egypt for the first time allows the court to was a distributer or solely a user of seventh on the Middle East and use digital evidence to prosecute a pirated software.

16 • Business Monthly - OCTOBER 2018 In Brief

New Assiut Infrastructure has also made significant Madbouly, they will either be included Investment Update progress, with underground pipework in Egypt’s recently@announced sover @ already complete, and the electricity eign wealth fund, if they pass certain cri @ New Assiut city is set to receive EGP grid work 95 percent finished. Lagging teria; used for different projects; or sold 247 million in investments in fiscal year are road paving, at only 50 percent com @ in open auctions to pay off the debts AFYB 2018/2019 atop the EGP 4.1 billion pletion, as well as cultivation works, accumulated by different government it has received to date. The New Urban which are 75 percent complete. This city entities. The findings were based on the Communities Authority ANUCAB has is part of an ambitious plan to build new work of a specialized committee that released a report highlighting invest @ cities on the outskirts of every major was formed a year ago to consolidate the ment figures for the construction of governorate in Egypt, including the New Assiut city, an extension of Assiut government’s assets nationwide. Last New Administrative Capital and New governorate which is 386 kilometers July, Parliament assessed the govern @ Alamein City. south of Cairo. It is built over 30,000 ment’s unused assets at EGP 1 trillion. feddans, of them, 6,600 feddans are 2,079 Unused Their recommendation, at the time, was that they should all be put under the allocated to real estate development. Government Assets This land is earmarked for a maximum sovereign wealth fund. This, they of 71,000 residential units, of which Egypt has 2,079 state@owned assets of argued, would allow each asset to be 12,700 will be built by NUCA. empty plots, buildings, and factory fully utilized as some of Egypt’s best Developers have already completed structures in 15 governorates, Prime investment experts run the fund. This is 11,280 units, with an additional 648 Minister, Mostafa Madbouly, the first time that the government has units under construction. Meanwhile, 15 announced during a press event. The made an official nationwide, cross min @ commercial centers have been complet @ cabinet is still discussing the optimal isterial, record of all of the government’s ed, with 22 still under construction. utilization of the assets. According to unused assets.

Petroleum Consumption Consumption of petroleum products in Egypt is on the Rise expected to reach 35.5 million tons by the end of fiscal year 2018/2019, a 10.24 percent increase over the previous fiscal year. That was the estimation of Tarek el Molla, minister of petroleum and mineral resources, when speaking to Al Shorouk newspa @ per in September. This comes as the government is working on reducing butane consumption by 4.87 percent, capping it at 3.9 million tons compared to 4.1 million last fiscal year. However, it is allowing consumption of other petroleum products to fluc @ tuate based on supply and demand. El Molla pre @ dicted that gasoline consumption will increase by 5.63 percent to reach 7.5 million tons by the end of this fiscal year. Meanwhile, diesel consumption will grow 8.88 percent to reach 14.7 million tons, while the highest consumption forecast goes to mazut, which is set to increase by 25.3 percent to reach 9.4 million tons. For the past three years, the govern @ ment has been resorting to raising prices of fuel products annually in an attempt to force people to use less expensive public transportation.

Business Monthly - OCTOBER 2018 •17 Investor Focus

Road to Recovery Egypt’s Apparel Industry Egypt’s homegrown apparel industry is undergoing a revival that is pushing it onto the international stage. Can domestic manufacturers overcome challenges to the “Made in Egypt” brand? By Menna A. Farouk

18 • Business Monthly - OCTOBER 2018 Investor Focus

wenty years ago, Hani Guweida built a business in Cairo based on selling imported apparel to domestic retailers. By 2014, the entrepreneur abandoned that strategy in T favor of bringing 100 percent locally-produced products to the market. “We realized how promising Egypt’s apparel market is, taking into consideration the high- quality materials we have and the country’s strategic location,” says Guweida, chief executive officer of Town Team Company for Readymade Garments. “We managed to establish a factory in Tanta, and we are now building another manufacturing plant in El Sadat City.” Despite such expansion, several challenges undermining growth not just for Guweida’s com - pany, but throughout a sector considered vital to the Egyptian economy. “The scarcity of trained workers and the high production costs,” he says, citing the two main areas of concern. “We are still trying to overcome them.” Guweida is among hundreds of apparel manufacturers who face soaring prices for raw mate - rials, and a lack of machinery and qualified workers, as well as the widespread perception that imported clothes are better.

Robust Industry According to the Readymade Garments Export Council, the apparel industry contributes 3 per - cent to Egypt’s gross domestic product, represents 15 percent of non-oil exports, and employs 33 percent of the industrial labor force. The council reported in January that Egypt’s exports in this sector rose 13 percent in 2017 to $1.4 billion, compared to $1.3 billion a year earlier, the first increase in three years. Previous exports declined year-on-year by 3 percent in 2016 and 8 percent in 2015, according to the council’s data. Meanwhile, imports of readymade garments declined 55 percent from January through August due to the devaluation of the Egyptian pound, the Ministry of Trade and Industry stated in an October 2017 press release. Last year, the U.S. topped the list of Egyptian apparel importers, receiving knit apparel worth $380 million and woven apparel worth $348 million, according to the Office of the U.S. Trade Representative. On the other hand, China had the lion’s share of apparels exported to the U.S. with $27.04 billion worth of products. Vietnam came in second with $11.56 billion, followed by Bangladesh at 5.06 billion and India at $3.7 billion, as per data released by the Office of Textiles and Apparel in the U.S. Department of Commerce.

Market Edge Those interviewed stress the industry’s potential. “There is an increasing supply of workers, declining wages in comparison with other countries, and the availability of fertile land for growing long-staple cotton, which rarely exists elsewhere,” says Magdy Tolba, chairman of Cairo Cotton Center, a supplier of high-quality knitted apparel to Europe and the United States. Tolba adds that multinational companies have robust confidence in the apparel produced in Egypt, citing his company’s contracts with Macy’s, Gap Inc., Liz Claiborne, Levi Strauss, Nike, Adidas, Marks & Spencer, Calvin Klein. The float of the Egyptian pound in 2016 laid the foundation for an export-friendly economy. “Locally made products have become more affordable for consumers abroad, giving a large boost to the industry,” he says. Taking into account the encouraging market conditions in Egypt, Tolba says, his company is launching an international trademark inspired by the movement to promote Egyptian products. “The 100 percent Egyptian brand will go international and be sold across the world,” he adds, offering no further details. Furthermore, Egypt enjoys a competitive edge that has lured investors. Yehia Zananeri, chair - man of the Association of Readymade Garments Producers, believes Egypt’s apparel industry has drawn both local and foreign investors, which is encouraging expansion. “Egypt has a very

Business Monthly - OCTOBER 2018 •19 Investor Focus

20 • Business Monthly - OCTOBER 2018 Investor Focus

strategic location, being proximate to reputable history, it does not produce In September, the Ministry of Trade Europe, the Middle East, and Africa. adequate apparel products to cover and Industry signed a protocol of This enables the country to export eas - the local market. Most clothing we cooperation with EG-Gate, a platform ily to several countries. It also has have is from China, Italy, the U.S., developed to offer marketing services some of the best materials in the among others,” Mahmoud says. to local manufacturers to digitally world,” he adds. He adds that quality domestic promote Egyptian products. Nevertheless, Zananeri emphasizes readymade garments do exist, empha - According to the protocol, online that Egypt still must make efforts to sizing that Egypt has some of the finest stores will be set up for Egyptian com - compete. Turkey benefits from a simi - raw materials in the world. "What panies on the EG-Gate platform. lar geographic advantage and has cap - damages the image of ready-made gar - Enas Abbass, a marketing expert italized on its location near Europe ments in Egypt is random workshops and public relations consultant, said and the Middle East to surpass Egypt that are not monitored by the govern - the first thing the government has to in apparel exports. ment, do not apply international stan - do is address the widespread percep - Turkey’s exports of clothing reached dards, and produce poor-quality prod - tion about the quality of local prod - $17 billion by the end of 2017, up 3 ucts," he says. “Such low-quality ucts. “This can be done through mas - percent, according to a report by the apparel has reinforced the perception sive media campaigns,” she explains. Turkish Exporters’ Assembly, while that locally made products are not “Secondly, the government has to Egypt’s exports of apparel paled in worth the money.” improve the quality of Egypt’s apparel comparison at $1.4 billion. As a result, local products can’t products, intensify monitoring of their Experts cite Turkey’s qualified and compete with international brands, production, before launching online educated workforce, adequate invest - says Waleed el Masry, another shop and offline marketing campaigns.” ment in technology, world-class quali - owner in Wekalet el Balah. Moreover, Abbass says Egyptian ty, adherence to environmental and “Marketing is also added to the list of apparel brands should be displayed at health regulations, and competitive reasons,” he says. “We do not know large shopping malls in the country design as the country’s major advan - how to market our products abroad. alongside international brands to give the tages over Egypt. You know what? Chinese ready-made impression they are on equal footing. In order to boost its apparel indus - garments are very low-quality. try, the Turkish government increased However, there is demand for them. Investment Potential the number of private foundations People prefer to buy any foreign thing In addition to government efforts, and universities that specialize in fash - rather than a locally made product.” Egyptian fashion designers are spread - ion design. In addition, it raised the El Masry adds that with the devalu - ing the word about their country’s number of fashion exchange opportu - ation of the Egyptian pound, the pur - apparel industry. Several brands are nities with European countries. chasing power of Egyptians dramati - becoming known on the international In cooperation with the private sec - cally declined. “There is barely any stage over the past decade, including tor, the Turkish government also start - local demand for clothes,” he says. Marie Louis, Shahira Lasheen, Zak, ed to organize design competitions, “Prices of clothes have soared.” Rana Madkour Designs, and Sarah fashion shows at high schools and Bahaa Designs. shopping malls, and a fashion week in Government Efforts “This proves how strong Egypt’s its capital. In recent years, the government has apparel industry is and the potential for started to pay more attention to the it to be stronger. We can go internation - Challenges to Growth apparel industry. In July 2017, it al, but we just need a sound government All those interviewed acknowledged signed an agreement worth $1.7 bil - strategy that supports local manufactur - the challenges that persist despite gov - lion with the United Nations ing, addresses the challenges, and focus - ernment support and the potential of Industrial Development Organization es on marketing,” says Ahmed el the apparel industry. Sayyed and the Italian Agency for Shami, an economist and professor of Mahmoud, the owner of a small shop Development Cooperation to improve feasibility studies at Ain Shams at Wekalet el Balah, a marketplace the quality of cotton. University. “It seems the government is known for its affordability, says prob - Moreover, the government adamant about that, but this will take lems include the poor machines used launched a mass campaign under the some time to be felt on the ground. The in manufacturing, a lack of trained slogan “Made in Egypt” promoting passion is there and the government’s workers, rising prices of raw materials local commodities, including gar - curbs on imports are being implement - due to the exchange rate, and high ments. They further complemented ed. Egypt is heading toward a develop - production costs. the decision by imposing tariffs ment in the apparel market and the “Although the country has a strong on hundreds of imported goods, industry is expected to rebound and see apparel industry with a long and including 40 percent on clothing. unprecedented growth.” ■

Business Monthly - OCTOBER 2018 •21 In Depth

Equity Financing and Egypt’s Long-Awaited IPO Program

As the government takes steps toward launching its longFawaited IPO program, experts weigh in on implementation. By Mahinaz el Baz

After years of deliberation, Egypt CEO of SOLID Capital Egypt, an order to increase their overall capital is finally ready to list its stateFowned investment bank. “If the answer is to and profit, which will be invested in companies in the stock exchange. Of pump the profits directly into the sustaining the reform of the unsuc F late, it has taken steps to prepare for budget to reduce its deficit, then it cessful companies. Initial Public Offerings HIPOI for a should halt this program.” Reda “I believe that the program is a number of governmentally owned believes the rational very critical one,” says Omar el corporations in different sectors. The purpose of the Shenety, managing director of plan was officially announced in 2016 IPO program is to Multiples Group, an investment and is partially building on the last restructure unsuc F bank. “On one hand, it aims at listing public offering of stateFowned com F cessful public com F some of the governmentFowned com F panies, which took place in 2015. panies. This goal panies to generate cash to reduce the The IPO program intends to list 23 can be budget deficit. On the other hand, public sector companies on the achieved by listing the government entities is Egyptian Exchange HEGXI. The introducing aimed at improving governance and move is in line with the government’s other suc F professional management at those proposed national budget for fiscal cessful companies.” year HFYI 2018/2019. Plans include compa F Economic consultant Reham el offering EGP 100 billion worth of nies to Desoki explains that “increasing the shares in stateFowned companies, the number of stateFowned listed compa F according to a March statement by EGX in nies will enhance the performance of the Ministry of Finance. The IPO the stock market by giving it program is expected to be imple F more depth and JgrowingK market mented over 24F30 months. capitalization. The bigger the mar F However, investors are skepti F ket capitalization, the cheaper the cal as to whether this IPO financing methods.” program will benefit Egypt’s Moreover, IPOs could contribute economic prospects. “We to economic growth by forcing stateF should ask ourselves an owned entities to become more effi F important question. Why cient, Jenik Radon, a lawyer and does the government actu F adjunct professor at the School of ally list the stateF International and Public owned compa F Affairs at Columbia nies?” says University, told Egypt Oil Mohamed & Gas magazine in Reda, September 2017. “Making

22 • Business Monthly - OCTOBER 2018 In Depth

an enterprise more efficient, prof F Bloomberg in a June interview that gains remarkable profits annually. As a itable, and expanding a good enter F AMOC had replaced HDD for an result, investors would definitely wel F prise by investmentGthrough more October slot. Furthermore, Maait come investing in such a company’s capitalGwould obviously grow the had announced in September that a Jstock,K” says Reda. In 2017 the compa F economy,” he said. “In the end, the further 20 percent of AMOC will be ny recorded EGP 13.4 billion in sales, issue is making enterprises more effi F offered on the EGX. The Ministry according to an official statement. cient, which means more business, expects that the offering will gener F However, according to Reda, with more taxes.” ate around EGP 2.8 billion, Reuters 65 percent of its production spent on reported. raw materials, primarily imported The Plan’s Two Phases As for AMOC, the company tobacco, the company is vulnerable showed a 24 percent yearFonFyear to any change in foreign exchange The Ministry of Finance plans to increase in profit to EGP 1.05 billion rates. The company needs EGP 600 implement the IPO program over for the nineFmonth period ending in million annually to buy raw materials. two phases. The first will include sell F March. To secure eligibility to issue Reda believes the five companies ing additional shares of alreadyFlisted global depository receipts HGDRsI, are the optimal choices for the first Alexandria Mineral Oils Company the government is considering float F phase of the IPO program. They are HAMOCI and Eastern Company, ing some of its shares on the Nasdaq characterized by strong financial per F Finance Minister Mohamed Maait Dubai exchange after it is listed on formance, positive future insights, announced in September at the Euro the London Stock Exchange and increasing demand for their Money Conference. Abu Qir Eastern Company, a subsidiary of stock on the EGX. Fertilizers, Alexandria Container and the Chemical Industries Holding El Shenety agrees, saying the gov F Cargo Handling HACCHI, and Company, is an EgyptFbased joint ernment chose companies that would Heliopolis Company for Housing and stock company. It produces 94 per F satisfy the appetite of investors. “At Development HHHDI will follow by cent of all cigarettes sold in Egypt, the end of the day, investors want to the end of the year. and exports to 30 countries, accord F The government hopes to raise as ing to an August Ahram Online much as EGP 25 billion from the five report. IPOs, with EGP 10 billion going to “The Eastern Company is a monop F the state’s coffers, according to olistic company that controls domes F Maait. tic tobacco production. Demand for Eastern Company and AMOC will its products is exceptional, thus it pilot the program; the two compa F nies will introduce a new wave of their shares to the EGX. Eastern and HHD were originally slated to pilot the program, but Public Business Sector Minister, Hisham Tawfik, told

Business Monthly - OCTOBER 2018 •23 In Depth

“The belief is that the biggest gains happen From her side, el Desoki believes in the first few days, and I think this will “the more transparent the program, the less public criticism it will face. affect the view of individual investors.” Transparency increases investor con F fidence.” see companies with good financial panies. The downside internally could To assure success of the govern F statements, solid track records, and be related to manpower, where some ment’s IPO program, Reda explains reasonable forecasts,” he continues, layoffs may result from restructuring that three key elements must be met. “so the government had to focus on and this is a sensitive topic.” “I call it the success triangle: timing, some of the good companies and According to Reda, public compa F pricing, and promotion,” he says. institutions it has.” nies introduced to the EGX will be “First, the government should choose Preparations for the program’s sec F subject to governance, disclosure, the best time for listing stateFowned ond phase are on track as well, with and transparency practices. “Having companies. Secondly, price the stocks more stateFowned companies sched F a proper business plan, a clear vision, fairly. Third, promote the stocks of uled to tap into the equity markets in and an elastic structure are key ele F listed companies to attract both for F 2019, Maait says, adding that the list ments in sustaining the success of the eign and domestic investments.” of potential companies is still under program and increasing the ability to Deciding to Invest consideration. finance new projects,” he says. For the second phase of the IPO pro F Challenges can change due to the Dividing the program into two phases gram, Reda says, “Enppi is at the top of dynamic nature of both the econom F was important to boost investor confi F the list. It has diversified activities and a ic and financial markets. Those inter F dence. The first phase of increasing strong financial position in the market. viewed argue the potential challenges the free float and selling additional Maybe by then the government will that might face the ongoing program shares of the two alreadyFlisted com F decide to introduce national banks to are different than the previous chal F panies, AMOC and the Eastern the EGX in the second phaseFFBanque lenges that caused the earlier delays Company, will prepare the market for du Caire, for instance.” in launching the program. the second phase, according to Reda. The stock market has not been “The main purpose of including Implementation doing well lately, with disappointing listed stateFowned companies in the Hurdles trade volumes. “For the IPO program IPO program is to expand the private to succeed, there must be external sector’s stake,” el Desoki says. “This In principle, the IPO initiative could investors participating and injecting will support improving the financial be a good program, yet the devil lies fresh funds in the market,” says el performance of these companies.” in the details when it comes to execu F Shenety. “This is the wish of every F Furthermore, economic and financial tion, how proceeds will be used, and one, but it is not clear whether this experts agreed that any counseling ser F how companies will cope, el Shenety will happen. The looming emerging vice should be based on financial and explains. “I believe these are the cri F market crisis could definitely affect technical analyses. “For the first phase, teria that can define the success and the IPO program. I believe lots of investors have a clear vision, since the usefulness of the program.” efforts on promotion and fundraising companies already are listed,” says Reda. According to Reda, the program in the international markets for these “However, it is going to be more compli F was delayed by conflicts among IPOs are critical.” cated in the second phase. It will mainly stakeholders deciding what compa F Reda, on the other hand, believes depend on the availability of data for nies should be listed. In addition, to the main challenges are high interest each company.” contradicting plans due to the multi F rates, which cause lower levels of liq F El Shenety believes the stock mar F ple government entities involved. uidity and erode purchasing power. ket can be a lucrative investment “The ongoing IPO program is more “The government should consider channel with new listings. “It will give organized,” he says. “The Ministry of cutting rates to achieve IPO program investors a bigger set of opportunities Finance is the only official entity goals,” he says. to look at. I would recommend that responsible for the program.” Moreover, there is regional pres F they look at these opportunities and In the preFIPO phase, el Shenety sure from the Saudi IPO program. allocate part of their portfolios to explains that “a lot of organizational The Saudi financial market is seven these new listings,” he says. “The development efforts have to be done, times larger than Egypt’s and could belief is that the biggest gains happen including restructuring of these compa F attract foreign investments not only in the first few days, and I think this nies as well as building a solid corporate from Egypt, but also from other mar F will affect■ the view of individual governance system that would match kets in the Gulf, Reda explains. investors.” the requirements of publicly listed com F

24 • Business Monthly - OCTOBER 2018 At a Glance

Investing in Egypt A Bird’s-eye View of Egypt’s Business Climate

Investors seek a complete picture of the true trajectory of an foreign investors with an inAdepth perspective beyond news economy before financing new ventures, pumping extra updates. investments, or establishing a new business entity. Even the It additionally helps answer vital questions about the perfor A smallest details can be an important indicator that helps build mance of the Egyptian economy outside of progress, growth, or the right decision and more importantly, evaluate the business deterioration. It goes deeper into what makes Egypt’s economy prospects accurately. lucrative for foreign investors, analyzing indicators that reflect This report sheds light on two of the most effective interna A many characteristics, such as smoothness of operations, quality tional indicators, the Global Competitiveness Index BGCIC of labor, market development, technological readiness and signs and the Doing Business Index BDBIC. Both indicators provide of business’ adaptiveness.

Egypt’s Global Competitiveness Score 3.7 Egypt’s Global 107 118 119 116 115 100 20 2012/2013 2013/2014 2014/2015 2015/2016 2016/2017 2017/2018 12 Competitive Rank /2 3.6 01 3 20 13/2 In fiscal year 2017/2018, Egypt earned 014 its best GCI ranking in the past five 20 17 years. The country recorded a score /2 5 01 201 8 of 3.9 out of 7 points, approaching 4/ 2 201 0 6 1 1 6 levels of competitiveness similar to / 3.6 0 2 Rank 2 / 0 5 1 it's all time high of 4.04 recorded in 1 7 3.9 0 Score 2010, according to the GCI report. 2 3.7 3.7 Source: Global Competitiveness Index 2017-2018 Score is out of 7. Rank is out of 137.

Competitiveness of Regional Players On a regional level, Egypt’s economy ranked 11th out of the 13 Middle East and North 100 Africa BMENAC countries examined in the Egypt 105 report. Standing at 100, Egypt passed 65 Lebanon Lebanon’s 105 rank and Yemen which stood Jordan last in the report ranking 137. On the other hand, the United Arab Emirates was ranked as the most competitive economy in the region, 17 and holds spot number 17 on the global index, 71 UAE followed by Qatar and Saudi Arabia, that Morocco snatched spots on the top 30 places on global list, ranking 25th and 30th, respectively. Gulf Cooperation Council BGCCC countries 52 30 are generally undertaking the most intensive Kuwait Saudi Arabia efforts to increase the amount of available 44 seed capital to SMEs, yet other countries such Bahrain as Egypt have been more active lately in this market, the report states. Source: Global Competitiveness Index 2017-2018 Rank is out of 137.

26 • Business Monthly - OCTOBER 2018 At a Glance

Basic Requirements Rank

115 106 2017/2018 118 2015/2016 117 2013/2014 121 2016/2017 2014/2015

Source: Global Competitiveness Index 2017-2018 Rank is out of 137.

Basic requirements sub-index measures competitiveness through four pillars: institutions, infrastructure, macroeconomic environment, and health and primary education.

The institutional environment of individuals, firms, and governments The infrastructure pillar measures a country depends on the efficiency interact determines the quality of the the extensiveness and efficiency of the and the behavior of both public and public institutions of a country and modes of transport, electricity, and telecom private sectors. The legal and admin A has a strong bearing on competitive A networks. Infrastructure is crucial in ensur A istrative framework within which ness and growth. ing a well functioning of the economy.

64 2017/2018 71 2017/2018

87 2016/2017 96 2016/2017

87 2015/2016 91 2015/2016 Institutions Infrastructure

100 2014/2015 100 2014/2015

117 2013/2014 98 2013/2014

Source: Global Competitiveness Index 2017-2018 Rank is out of 137. Source: Global Competitiveness Index 2017-2018 Rank is out of 137.

Business Monthly - OCTOBER 2018 •27 At a Glance

The macroeconomic environ - The health and primary education their potential and will be less productive. ment rank tracks the overall level of indicator signals to the expected produc A In addition to health, this pillar takes into economic stability and is a signal to tivity levels of the local workforce. Workers account the quality of basic education, the level of competitiveness of Egypt. who have poor health can’t function to which is fundamental in today’s economy.

132 2017/2018 87 2017/2018

134 2016/2017 89 2016/2017

137 2015/2016 96 2015/2016 Macroeconomic Health and environment primary education 141 2014/2015 97 2014/2015

2013/2014 140 2013/2014 100

Source: Global Competitiveness Index 2017-2018 Rank is out of 137. Source: Global Competitiveness Index 2017-2018 Rank is out of 137.

As for the efficiency enhancers sub-index, it includes six competitiveness pillars, namely higher education and training; goods market efficiency; labor market efficiency; financial market development; technological readiness; and market size.

87 100 100 106 2017/2018 2015/2016 2016/2017 109 2014/2015 2013/2014

Source: Global Competitiveness Index 2017-2018 Rank is out of 137.

28 • Business Monthly - OCTOBER 2018 At a Glance

The higher education and training and services, given their particular sup A The labor market efficiency pil - rank reflects the economy’s ability to plyAandAdemand conditions, as well as lar analyzes the relationship between move up the value chain beyond simple ensure that they can be most effectively the efficiency and flexibility of labor production processes and products. traded. Additionally, market efficiency and the effective allocation of workers The goods market efficiency depends on demandAgenerating condi A in the economy that provides them measurement highlights Egypt’s abili A tions such as customer orientation and with incentives to put forth their best ty to produce the right mix of products buyer sophistication. effort in their jobs.

100 2017/2018 134 2017/2018

112 2016/2017 135 2016/2017 90 2017/2018 2015/2016 Higher education 111 137 2015/2016 112 2016/2017 Labor market and training 111 2014/2015 140 2014/2015 2015/2016 Goods market 115 2013/2014 118 146 2013/2014 118 2014/2015

Source: Global Competitiveness Index 2017-2018 Rank is out of 137. Source: Global Competitiveness Index 2017-2018 Rank is out of 137. 119 2013/2014

Source: Global Competitiveness Index 2017-2018 Rank is out of 137.

The financial market development The technological readiness pillar As larger markets have the ability to figure measures the financial mar A measures the agility with which an econo A allow businesses to exploit economies kets’ efficiency through the allocation my adopts existing technologies to of scale, Egypt’s size of market rank of the resources saved by a nation’s enhance the productivity of its industries, is an indicator of profitability. By includ A population, as well as those entering with specific emphasis on its capacity to ing both domestic and foreign markets the economy from abroad, to the fully leverage information and communi A in the measure of market size, the indi A entrepreneurial or investment pro A cation technologies BICTsC in daily activi A cator gives credit to exportAdriven jects with the highest expected rates ties and production processes for economies and geographic areas that of return rather than to the politically increased efficiency and enabling innova A are divided into many countries but connected. tion for competitiveness. have a common market.

25 2017/2018 77 2017/2018

2016/2017 111 2016/2017 25

2015/2016 119 2015/2016 24 Financial market 94 2017/2018 Market size development 29 2014/2015 125 2014/2015 99 2016/2017

2013/2014 2013/2014 29 119 2015/2016 Technological 98 readiness Source: Global Competitiveness Index 2017-2018 Source: Global Competitiveness Index 2017-2018 Rank is out of 137. Rank is out of 137. 95 2014/2015

100 2013/2014

Source: Global Competitiveness Index 2017-2018 Rank is out of 137.

Business Monthly - OCTOBER 2018 •29 At a Glance

113 113 111 101

2017/2018 2016/2017 104 2015/2016

2014/2015 2013/2014

Source: Global Competitiveness Index 2017-2018 Rank is out of 137.

Innovation and sophistication factors sub-index measures competitiveness using two pillars, business sophistication and innovation.

Business sophistication rank concerns Innovation measurement is directly erate the basic knowledge needed to build two elements that are intricately linked: the linked to the sufficiency of investment in the technology; extensive collaboration in quality of a country’s overall business net A research and development, especially by research and technological developments works and the quality of individual firms’ the private sector; the presence of quality between universities and industry; as well as operations and strategies. scientific research institutions that can gen A the protection of intellectual property.

84 2017/2018 109 2017/2018

85 2016/2017 122 2016/2017

2015/2016 2015/2016 Business 89 Innovation 120 sophistication 95 2014/2015 124 2014/2015

84 2013/2014 120 2013/2014

Source: Global Competitiveness Index 2017-2018 Rank is out of 137. Source: Global Competitiveness Index 2017-2018 Rank is out of 137.

Most Problematic Factors

The report explained that the most problematic factors for doing pil lar in the GCI report after the labor market efficiency pillar business in Egypt are policy instability, inflation, and corruption. B134thC. Since the Central Bank of Egypt BCBEC made its initial ten A The report notes that since 2011, Egypt has been facing political, tative adjustment to the exchange rate in March 2016, the rate of economic, and social instability. The economy had faced many inflation has fluctuated wildly. Following the initial currency deval A hardships when reforms began in 2016. The ongoing economic uation the headline consumer prices index rate of inflation hit an reform program is based on the shock methodology, which affects all time high in July 2017 recording 32.95 percent. The latest the macroAeconomic indicators negatively in the short term. announced figures date stand at 14.2 percent. Furthermore, social aspects and policies need more developments Egypt’s corruption rank came in 117th out of 180 countries on as well, according to the IMF’s third review for Egypt’s ongoing the annual Corruption Perceptions Index of the graft watchdog reform program. Transparency International, compared to 108/176 in 2016. Egypt As for inflation, Egypt’s macroeconomic environment, which recorded 32 points, compared to 34 points in the 2016 report, improved only by 2 ranks B132ndC came in as the second lowest witnessing a slight increase in corruption, according to the report.

30 • Business Monthly - OCTOBER 2018 At a Glance

Egypt’s Doing Business Index Rank and Indicators

In 2018, Egypt ranked 128th among 190 economies in the Ease Doing Business Index Report, dropping six spots from last year. Ease of Doing Business in Egypt averaged 120 over the last 11 years, reaching an allAtime high of 128 in 2013 and a record low of 106 in 2009. Egypt’sEgypt ’s DDoingoing BusinessB usiness RankR ank

128 112 131 122 128

2014 2015 2016 2017 2018

Source: Doing Business Report 2018 Rank is out of 190 countries

In 2016, Egypt had the biggest increase in the distance to frontier score over the past 14 years, though most of the gains occurred in the first half of that period, before 2009.

Starting a business is measured Dealing with construction permits Getting electricity is ranked based through the analysis of length of pro A is similarly measure by length of proce A on procedures, time, and cost of getting cedures, time, cost, and paidAin mini A dures and cost to complete all formali A connected to the electrical grid, the reli A ties to build a warehouse and the quality mum capital to start a limited liability control and safety mechanisms in the ability of the electricity supply and the company. construction permitting system. transparency of tariffs.

103 2018 89 2018

39 2017 88 2017

66 2018 2016 144 2016 Starting a 73 Getting Electricity Business 64 2017 73 2015 106 2015

2016 Dealing with 113 50 2014 105 2014 Construction

Rank is out of 190 countries Permits 142 2015 Rank is out of 190 countries Source: Doing Business Report 2018 Source: Doing Business Report 2018

149 2014

Rank is out of 190 countries Source: Doing Business Report 2018

Business Monthly - OCTOBER 2018 •31 At a Glance

Registering property index is based Getting credit rank is based on Protecting minority investors is on procedures, time, and cost to transfer the quantification of the movable col A measured by analyzing minority sharehold A a property and the quality of the land lateral laws and credit information ers’ rights in relatedAparty transactions and administration system. systems. in corporate governance.

119 2018 81 2018

109 2017 114 2017

90 2018 2016 122 2016 Registering 111 Protecting Property 82 2017 Minority 84 2015 Investors 135 2015

2016 79 2014 105 2014 Getting Credit 147

Rank is out of 190 countries 71 2015 Rank is out of 190 countries Source: Doing Business Report 2018 Source: Doing Business Report 2018

86 2014

Rank is out of 190 countries Source: Doing Business Report 2018

Paying taxes is measured through the Trading across borders rank Enforcing contracts pillar is payments, time, and total tax rate for a depends on the time and cost to export based on the time and cost to resolve a firm to comply with all tax regulations as the product of comparative advantage commercial dispute and the quality of well as postAfiling processes. and import automotive parts. judicial processes.

170 2018

168 2017 167 2018 160 2018

2017 155 2016 162 Trading across 162 2017 Borders 99 2015 151 2016 2016 Paying Taxes Enforcing 157 83 2014 Contracts 149 2015 152 2015 Rank is out of 190 countries 2014 Source: Doing Business Report 2018 148 156 2014

Rank is out of 190 countries Rank is out of 190 countries Source: Doing Business Report 2018 Source: Doing Business Report 2018

32 • Business Monthly - OCTOBER 2018 At a Glance

115 2018

109 2017

Resolving insolvency rank is based on the analysis of time, 119 2016 cost, outcome, and recovery rate for a commercial insolvency Resolving and the strength of the legal framework for insolvency. Insolvency 126 2015

146 2014

Rank is out of 190 countries Source: Doing Business Report 2018 Improvements

Despite the rank deterioration, the 2018 edition of the DBI From 2008A2017, Egypt took serious steps towards facilitating the highlighted Egypt’s success in passing legislation that start of any business, which slightly enhanced the country’s rank increased corporate transparency requirements, and thus in this indicator. increasing the shareholders' role in company management. In 2017, Egypt made starting a business easier by merging This translates into the protection of minority investors in Egypt. procedures at the oneAstop shop by introducing a followAup unit in charge of liaising with the tax and labor authority on In 2018, Egypt ranked 81 in Protecting Minority Investors: behalf of the company. In 2011, Egypt cut the cost to start a protecting minority investors. Since 2015, Egypt has been working business. In 2010, Egypt eliminated the minimum capital hard to protect minority investors. The country recently strength A requirement. In 2009, Egypt reduced the paidAin minimum ened minority investor protections by increasing shareholder rights capital requirement, abolishing bar association fees and and their role in major corporate decisions. automating tax registration. In 2008, Egypt lowered registra A tion fees, improving the process at the oneAstop shop and Egypt ranked 103 in starting a business. Starting a Business: reducing the minimum capital requirement. Deteriorating and Constant Pillars

One of the points of criticism was registering property in Egypt as vate credit bureau IAscore added retailers to its database, improving recently it was made more difficult and more costly to verify and access to credit information. ratify a sales contract. Paying taxes: Egypt ranked 167 in paying taxes. As a result, Registering property: In 2018, Egypt unfortunately made experts believe that the country should consider quicker and it more difficult to register property by raising the cost to ver A more developed tax reforms. In 2014, the state made paying ify and ratify a sales contract. The country ranked 119 in regis A taxes costlier for companies by increasing the corporate tering property. On the other hand, 2009 witnessed the last income tax rate. It has not enhanced the tax payment mecha A initiative by the state to expedite property registration by sim A nism since then. plifying administrative procedures, reorganizing the business In light of the ongoing economic workflow between the real estate registry and the Egyptian Trading across border: reform, Egypt followed a stricter methodology to reduce imports. Surveying Authority and introducing time limits for several The main reason is eliminating the balance of payments’ deficit and procedures. narrowing the gap between imports and exports. Egypt currently Enforcing contracts: In 2018, Egypt ranked 160 in enforcing ranks 170 in crossAborder trading. contracts. Over the past decade, 2010 was the only year that saw a This was a direct result to the country’s policies in 2017 that development in this issue, when Egypt made enforcing contracts made trading across borders more difficult by making the process easier by creating commercial courts. of obtaining and processing documents more complex.

Dealing with construction permits: In 2018, Egypt ranked Resolving Insolvency: Egypt’s current rank stands at 115 66 in dealing with construction permits. The country did not take in resolving insolvency. Data show no action, whether positive any recent steps to help deal with construction permits. The or negative, in time, cost, outcome, and recovery rate for a last action took place in 2010, when the country made dealing commercial insolvency and the strength of the legal frame A with construction permits easier by issuing executive articles work for insolvency since 2008 until now. It is noteworthy that implementing its new construction law and by eliminating a new bankruptcy law was passed in 2017; however, it is yet to most preAapprovals for building permits. be enforced. Fluctuations witnessed in Egypt’s insolvency rank are attributed Egypt ranked 90 in getting credit. The ease of Getting credit: to the changes in other countries, and as a result their ranks. getting credit has not seen any changes since 2010, when the pri A

Business Monthly - OCTOBER 2018 •33 Cover Story

Coming Soon A Cashless Society As the government attempts to make Egypt a cashless economy by pushing its agencies to accept only payments made online and cards, challenges persist.

By Tamer Hafez

34 •Business Monthly - OCTOBER 2018 Cover Story

Despite having an increasingly stronger position in the “These people delib erately avoid banks. No matter what you local market since 2012, 85 percent of Jumia’s cus - do, they still won’t be banked.” He cites the example of those tomers in Egypt choose the ‘pay on delivery’ option,” who withdraw all their salary as soon as it is deposited. “Even “says Hisham Safwat, Egypt’s CEO of Jumia, an e-com - though they are banked on paper, in reality they are no different merce website operating in 21 other African countries. “E-com - from unbanked individuals,” says Sharkawy. “Those people can merce is supposed to help increase cashless transactions. Yet never go cashless without strong campaigns to make them despite our best efforts [periodic promotions and discounts believe in the [banking] system.” when paying online] buyers just want to pay in cash.” This distrust dates back to the 1990s, according to Tarek Egyptians love using cash, even when buying something off Helmy, a board member at Suez Canal Bank. “There can be no the internet. A 2018 McKinsey report noted that only 2 percent denying that confidence in the system was lacking with the of Egypt’s payment transactions were cashless in 2017. Last year, bankruptcy of a few high-profile non-bank investment firms, cashless transactions accounted for 4.4 percent of Egypt’s GDP, which were not supervised by the Central Bank of Egypt,” he according to the report. says. “Now, however, it is a completely different world.” This comes at a time when the government is pushing to make A major factor in the successful shift to cashless transactions Egypt a cashless society to create a more stable financial system, in other countries stems from fear of being mugged or robbed, as all transactions would be recorded in the banking system. Sharkawy points out. One such example is Sweden, where about This is vital as such transactions would help achieve the goals of 1 percent of the value of payments nationwide is done in paper the country’s Vision 2030 plan, Hala el Saeed, minister of plan - money and coins, according to Riksbank, Sweden’s Central ning, follow-up and administrative reform, noted during a con - Bank. "We wanted to minimize the risk of robberies, and it's ference in August. Such a system would include cashless pay - quicker with the customers when they pay by card," Victoria ment options for government agencies, individuals, and busi - Nilsson, who manages two bakeries in Sweden, told the BBC in nesses, making them faster, safer, and simpler. September 2017. Enabling such a switch is an array of consistent Yet many believe that neither Egypt’s society nor infrastruc - and strong legislations, such as banning the use of currency on ture is ready for cashless payments on a national level. Such pay - buses. ments would not solve imminent or nagging problems for locals, In Egypt, however, being safe from mugging is not a high pri - such as the fear of being conned. In addition, infrastructure ority. Yamen Sobhy, a 40-year-old civil engineer, bought his new needs major updates to withstand extra loads. “To push ahead car with cash. He took the money from selling his old car, with - with infrastructure investments and force civil servants to do drew his savings, went to a second bank to withdraw a loan he things differently on a national level needs a serious and strong had previously secured, and took his brother to the car show - commitment from the government,” says Mohamed Shawky, room, where they paid in cash. deputy head of the customs clearance officers committee in the Alexandria Chamber of Commerce. Cashless Groundwork Despite cultural barriers and limited infrastructure, Egypt Perception 1.0 should have a lot of potential when it comes to adopting cashless For many Egyptians, the idea of not paying for goods and ser - transactions because of its predominantly young population, say vices with paper notes is alien. “I generally don’t like to use cred - those interviewed. According to a report by Canadian it cards because I need to feel how much Hootsuite, in 2017 there were 49.23 million—out of a popula - money I am paying for a product tion of nearly 100 million—already online. That is a 41 percent or service, and not just increase compared to 2016, stated the report. give the seller a card and type However, most Egyptians don’t use smartphones to access the in some numbers,” says Khadiga internet. As of July, smartphone penetration remains low at 34.2 Amr, a 51-year-old university professor. percent of all mobile users, according to the ministry of commu - Meanwhile, factory manager Yassin el Gammal, nications report “ICT Indicators in Brief” 35, avoids using his card in general as he fears his Another factor that could make people stop using paper information could be stolen. “The only exception is the ATM money on a daily basis is access to financial services and usable machine, as it is owned by the bank,” says el Gammal. tools. According to CBE Governor, Tarek Amer, during a July Such attitudes constitute a major obstacle for the govern - interview with The Egyptian Economist magazine, the number ment. “As banks, our biggest challenge has always been the of bank accounts equals 33 percent of the 60 million people eli - parts of society that believe banks are evil,” says Adnan el gible to have them. However, as it is common practice for Sharkawy, former head of the Egyptian Real Estate Bank. Egyptians to have multiple bank accounts, the actual number of

Business Monthly - OCTOBER 2018 •35 Cover Story

banked unique individuals is likely less. among the private sector, CBE, and and e-Finance to allow students to pay “I believe that 10 million unique Ministry of Information and tuition using mobile-oriented tools Egyptians have at least one bank Communication Technology (MCIT). including NBEPay and mVisa. A further account,” says Shawky. “This is one crucial factor, in my view, part includes equipping farmers with The CBE doesn’t publish figures on as there is a definite mutual need for smart cards to pay for their subsidized how many bank accounts exist or how banking and ICT infrastructures to seeds and fertilizer. many individuals are banked. However, work together,” says Mohamed el “These projects are excellent exam - according to the 2018 McKinsey Report, Itriby, chairman of Banque Misr. ples of the government working with there were 22.95 million debit, credit, and He explains the main role of the CBE the private sector on the payment prepaid cards in circulation as of 2017, of is to ensure the security and soundness front,” Saeed said during a February which only 3.5 percent of debit cards and of the transactions as the nation moves conference organized by the Egyptian 1.4 percent of credit cards were used to from banknotes and checks to online Federation of Industries. make a purchase in the year. While all can and cashless transactions. Meanwhile, Another major government project is be used to pay for goods and services, the MCIT and private sector are needed converting the Egyptian Customs only the 2.8 million credit cards in circu - to help banks get services online as well Authority (ECA) payment system from lation can be used online. Nevertheless, as offer more ways to access the inter - accepting only cash to requiring online the report highlighted that these figures net. Sharkawy of the customs clearance payments starting 2019. The project represent a 17 percent increase in com - union believes the introduction of 4G was announced in November 2017. parison to the number of available cards high-speed internet helped facilitate the Currently, payment in banknotes and a year earlier. integration as it ensured real-time checks is allowed for amounts under updates whenever a transaction was EGP 100,000. Larger amounts must be Building the System executed, which is vital for security. paid through the ECA website. If that is For the government, the first step to “Having a 100 percent reliable infra - impossible, cash payments would be build a cashless society was to create structure is step one,” he continues, accepted with a fee added. the National Council for Payments “you can’t rush this step.” Moreover, under development at the (NCP), which has a higher authority Lobna Helal, the deputy CBE gover - CBE are upgrades to the mobile pay - than ministries and is headed by the nor, explained during an August confer - ment system for better regulation and President Abdel Fattah al Sisi, accord - ence that the bank’s strategy is to build transparency, according to Ayman ing to Helmy. Established in February finTech tools and services that potential Hussein, CBE sub-governor for pay - 2017, the NPC has a mandate to users would find useful, enticing them ment systems and business technology. reduce the use of banknotes outside the to make the switch. “We want people to This is in addition to the development banking system as well as develop a put their money in banks,” she said. of a system that allows cashless inter - national payment system that would “Then they would want to pay for governmental payments, he adds. In the achieve financial inclusion. everything using their cards, and this long term, the CBE is working on creat - The NCP has met only three times, would push businesses to offer this pay - ing a unified payment card that would most recently in September. According ment option.” She noted that a senior be used in any transaction with the gov - to a press release after that meeting, staff delegation from the CBE and ernment. According to Maait, talking to Amer said the CBE was working on a banks traveled to Sweden to learn from the press in September, as of next April, “general framework for a transition to its experiences. any citizen not paying the government a less cash-based society” with the first using a payment card will be fined EGP concrete announcements to be made by National-Scope Projects 10,000 plus 10 percent of what is owed. the end of 2018. The release further One of the first projects under the CBE The system should be up and running noted the CBE will have cybercrime umbrella was implementation of a cash - by January and include prepaid cards training for those overseeing the new less payment system in 2017 that issued at government agencies. It is system. It added that Finance Minister, includes ATM machines and converting unclear whether these agencies will Mohamed Maait, has completed con - salary payments for 5 million govern - accept commercial credit and debit version of payroll to e-payments for all ment employees from cash to bank cards. civil servants, while the Interior account transfers, accessible via debit The private sector has also been Ministry is researching the issuance of a cards. In addition, the project saw 10 investing cashless-transaction projects. new national identification cards with government universities equipped to In October 2017, the Commercial smart chips, opening the door for using collect education fees using debit and International Bank and Careem-Egypt ID cards to gain access to government credit cards. In March, Helwan agreed to develop a digital wallet for the services, including subsidies. University announced a partnership ride-sharing firm’s drivers for quick Such tools require cooperation with the National Bank of Egypt, Visa, transfer of payments with the company

36 •Business Monthly - OCTOBER 2018 Cover Story

as well as clients who have a compatible wave of innova - electronic tool. Furthermore, in tion sweeping October, AlexBank signed a memoran - through the dum of understanding with the world of finan - National Council for Women to offer cial technolo - digital payment services and tools gy promises to encourage nothing short of a revolution […] It will change the nature of money, shake the foundations of central banking, and deliver nothing less than a democ - ratic revolution for all who use financial services,” said Mark Carney, the Governor of Bank of England last January. The Egyptian government understood the best way to create a cashless society was integrating cashless payment options within startups from day one. To that end, in September 2017, the Ministry of Investment and International Cooperation along with the U.N. Development Program and investment bank EFG-Hermes women launched Fekretak Sherketak (Your to have bank accounts, as Idea, Your Company) accelerator, an a step towards formalizing entity that works with entrepreneurs on their business under the turning their business plans into star - one-man-show company tups. Projects supported by EFG- law or micro-enterprises Hermes include fintech tools that make law implemented since fis - them cashless enterprises. cal year 2017/2018. A Barclays Bank and Flat6Labs, an month later, in November, entrepreneurship support organization, Vodafone Egypt signed an established finTech focused 1864 agreement with AlexBank to Accelerator in May 2016. It is a 14- support the mobile money week program that focuses on commer - transfers. cializing finTech ideas. Supporting these companies as well is the AUC Venture Lab Fintech accelerator, established by FinTech Downscaling the American University in Cairo and These large projects are complement - the Commercial International Bank. In ed by small-scale businesses that are addition, Payfort incubator, an organi - merging and tailoring technology and zation that works on growing young financial services (finTech) to encourage startups, is known as a finTech factory. individual companies and laymen to It is a subsidiary of Amazon that switch to cashless transactions. “The

Business Monthly - OCTOBER 2018 •37 Cover Story

“Even though they are banked on paper, in “I [spoke] to people on the inside, and reality they are no different from unbanked they said it was because the network is individuals.” overloaded with requests.” This is hurting their business and raising costs, launched in 2016 and serves the with the state before opening a corpo - as paying in banknotes or checks adds MENA region through its Cairo office. rate bank account and apply for a an administration fee that can’t be However, the incubator accepts only credit card license. However, the feasi - passed on to clients. Currently, no gov - businesses that can benefit Payfort. bility of such businesses is based on the ernment agency accepts credit card This rise of accelerators and incuba - premise of avoiding government paper - payments. tors signals strong potential for work and hassle to reduce costs as well Another potential obstacle is Egypt’s finTechs in Egypt and that local entre - as expedite the startup phase. “It was inconsistent legal infrastructure. “One preneurs are willing, and have the perhaps the easiest and quickest deci - important thing we need to consider is skills, to capitalize on the anticipated sion I ever took to become a profes - that banks are heavily regulated. boom. “FinTech is one of the most sional photographer. I just took some Meanwhile, tech companies are not prominent spaces in the startup com - pictures, posted them on social media heavily regulated,” says Itriby. “To cre - munity in Egypt,” says Kennedy and mentioned that I am a freelance ate a cashless society, there has to be a Kitheka, Seedstars managing director photographer,” says Wael Saleh (not legal convergence, or balance, between in Egypt. “Early entrants are gaining his real name). Now, whatever he is the two sectors.” That has proved a traction, and stronger, more structured paid is not reported to the state, despite challenge thus far as the CBE is heavily concepts are popping up. The model of charging several thousand pounds per regulating banks, for better or worse. Fawry [Egypt’s first finTech, estab - event and securing at least one gig a A case in point is that mobile money lished in 2009], has demonstrated the week. transfers haven’t been a runaway suc - validity of such business models.” Yet he is starting to rethink his status cess, in part because of restrictions on Despite this growth, many believe fin - as an informal professional, as it transferred amounts, according to tech is still hampered by Egypt’s low becomes increasingly uncomfortable experts. Currently, out of all smart - level of financial inclusion. “FinTech carrying wads of cash. “I offer clients phones in Egypt, 9.5 million are sub - startups usually have small markets if the option to pay me via a bank trans - scribed to mobile money services. their services are not targeted toward fer, but nearly no one is doing it,” he According to Hussein, they belong to 8 improving financial inclusion,” says says. “I believe that if they can pay me million unique users. However, he is Abdelrahman Elsharawy, co-founder of with a credit card, it would definitely optimistic such transfers will eventual - Vapulus, a finTech firm specializing in be much better for both of us.” ly gain traction. online payment software and hardware. However, the hassles he expects to face For some, having a hybrid legal sys - when registering still outweigh the ben - tem and strong oversight to balance efits. “I am in a holding pattern, so to Informal Economy security with flexibility should prove speak. If my business gets any bigger, I straightforward because the Financial Conundrum may have to register,” he says. Regulatory Authority has a strong Another major factor in deciding how track record of regulating non-bank cashless can Egypt ultimately become Problematic Infrastructure financial institutions. The key question rests with informal businesses. “I am a A major challenge to going cashless on probably will be how much the CBE is fan of businesses that are cropping up a large scale is the tech infrastructure. involved in fintech. on social media. They are inexpensive A case in point is the repetitive net - Regardless, going completely cash - and offer unique products and services. work crashes that plague the ECA less is likely to take years, if not I stopped going to brand names since the law forced companies to pay decades. “I think my granddaughter because they are too boring and expen - on the website. “We have been trying will not use cash at all,” says Amr, the sive,” says Sara Sobhy, a 41-year-old to work with online payments for a university professor and reluctant card middle manager at a real estate firm. few months, and it’s actually worse for user. “My sons, who are in their 30s, This is despite the inconvenience of us because the network keeps crashing, already use cards when buying devices, having to withdraw cash from an ATM and we are left unable to pay due cus - and sometimes for groceries or out - whenever she needs to buy something toms for days,” says Shawky of the ings. Their culture is noticeably differ - from unregistered online businesses. “I customs clearance officers committee. ent from mine.” ■ would like for them to offer payment by credit card, but if not, it wouldn’t be a deal breaker,” she adds. “I generally don’t like to use credit cards To offer a cashless payment option, because I need to feel how much money I am informal businesses need to register spending.”

38 • Business Monthly - OCTOBER 2018 Cover Story

Business Monthly - OCTOBER 2018 •39 Regional Focus

EGX vs. Saudi’s Tadawul Where should you invest?

As part of ongoing reform efforts, Saudi Arabia is opening its stock exchange to foreign investors, a move that could make the EGX less attractive. By Julian Nabil

ven as stock market volatility EGX Lures with investors being able to make spreads from developed to In line with economic reform measures money in bull markets on the way up emerging economies world C undertaken by the Egyptian govern C Ebeing longF,” el Alfy explains. With Ewide, investors are turning the long position, the investor buys a ment as part of the International their attention to countries like Egypt Monetary Fund loan program, the EGX stock with the expectation that it that have undertaken financial sector has embarked on a plan designed to will rise in value, and thus benefit reforms. At the same time, Saudi Arabia improve the capital market, including from its upward price movement. is becoming a potent competitor since increasing its daily volume and trading Some experts, including el Alfy, it began implementation of its Vision through a number of new measures. An believe shortCselling activity could 2030 initiative by gradually opening its example of which is targeting younger complement the longCposition strat C market further to foreign investors, investors. “Those who are 40 years old egy that dominates the EGX. removing most restrictions on partici C and younger make up 75C80 percent of Therefore, the stock exchange has pation in Tadawul, its stock exchange. the population, yet only 30 to 34 per C been studying the implementation of A recent Bloomberg article described cent of them are investors, we need to short selling, which involves shed C emergingCmarket stocks as one of the increase this percentage,” Farid said dur C ding shares at higher prices then safest places for investors as they are ing the Euromoney 2018 Conference in reacquiring them later at lower “cheaper today than they were before September. To achieve greater partici C prices. the U.S. presidential election, compared pation, the EGX wants to introduce The Financial Regulatory with U.S. and developedCmarket equi C incremental savings, an approach used Authority told Reuters it would final C ties. The lower valuations and growing in many capital markets for longCterm ize rules for short selling by the end earnings estimates may give the comfort investments, he added. of September, adding, “We will be investors need in times of turbulence.” Amr Hussein el Alfy, head of ready for implementation in early Foreign investments in the Egyptian research at SHUAA Securities, 2019, then wait for an official deci C Exchange EEGXF leaped from EGP 1.6 believes raising awareness is the key sion to start using it.” billion before the floatation of the to attracting young people, saying Furthermore, the EGX plans to pound in late 2016 to EGP 25 billion in universities should do more to introduce derivatives, including April 2017 and EGP 73 billion EG4.1 bil C expose undergraduates to economics futures that allow buying and selling lionF by the end of last year, EGX and finance. To that end, Farid of stocks at a specified price and Chairman Mohamed Farid said in announced the EGX is working with date, which investors use to hedge December. For Saudi Arabia, Tadawul’s the Ministry of Education on a their risk. “This will take 12C18 reports show the total value of shares finance curriculum, including invest C months to be finalized because of purchased by foreigners reached SAR ing in the stock market. information technology require C 34.6 EG9.23 billionF in 2017, in compari C Another obstacle is making mar C ments, such as developing trading son to the slightly less SAR 33.91 billion kets more exciting. “Egypt’s stock and management systems,” Farid EG9 billionF in a year earlier. exchange model is still plain vanilla, explained.

40 • Business Monthly - OCTOBER 2018 Regional Focus

Adding futures to the mix would boost liquidity and provide investors with more tools. “This will all add to the market depth and drive more efficiency, in my opinion, and attract new types of investors,” says el Alfy. Also in the works is restructuring some indices to focus on certain sectors based on an international standard. “We want to add a total return index to allow people to see actual returns associated with the market and not only price returns,” said Farid. Total return indices track the gains of a group of stocks over time and assume that cash distributions are reinvested back into the index. Additional Tadawul Comes into Play reforms include lower C As part of the Saudi regulatory reform ing asset require C program launched in 2015, Tadawul has ments from G1 bil C seen new measures aimed at luring for C lion to G500 million eign investors. and increasing the per C The country overturned policies that centage of shares that limited direct investment in TadawulC QFIs and their affiliates listed shares to Saudis, resident foreign C can own from 5 to 10 per C ers, and GCC investors. Before this cent. Other changes include decision, foreign investors could only the ability of QFIs’ qualifying gain exposure to SaudiClisted stocks subsidiary and individually man C indirectly through derivatives and aged funds to trade on Nomu, investment funds, according to FTSE Tadawul’s equity market. Nomu Russell, a global provider of bench C serves as an alternative platform for marks, analytics, and data solutions. companies to go public, and invest C Amending the regulations of foreign ment is restricted to QFIs. investment in its stock exchange is “a In September, Tadawul announced a crucial step in longCterm efforts to grow plan to introduce exchangeCtraded and diversify its economy,” according to derivatives in the first half of next year the statement. involving a futures index based on a This new policy set eligibility and reg C tradable index jointly developed with istration rules for qualified foreign insti C MSCI, a global stock index provider. tutions EQFIsF, overseen by the coun C Other significant market develop C try’s stock market regulator, the Capital ments include the introduction of secu C rities borrowing and lending, shortCsell C Market Authority ECMAF. A QFI appli C Tadawul’s ing frameworks, and establishment of a cant must be a financial institution quest to grow and diversify. FTSE central counterparty clearing entity licensed by a regulatory authority and Russell classifies stock markets as responsible for overseeing settlement incorporated in a jurisdiction recog C Developed, Advanced Emerging, and obligation fulfillment in all trades. nized by the CMA. Secondary Emerging, and Frontier. Last March, FTSE Russell upgraded Furthermore, the CMA issued new rules Saudi Arabia’s Secondary Emerging Saudi Arabia’s status from Frontier to effective last January to further ease qualifi C Market status is expected to reduce the Secondary Emerging marketDthe same cation requirements for QFIs seeking to weight of Egypt and others on the index, as EgyptDon the FTSE Global Equity purchase listed securities and increase the but that should not have much of an Index Series, marking a milestone in the number of eligible institutional investors. impact on the overall market, says el Alfy.

Business Monthly - OCTOBER 2018 •41 Regional Focus

Comparing Figures performance has been volatile. followed MSCI Emerging Market index. The EGX had a fruitful year in 2017, “While the index is currently up This has placed Egypt on the radar of registering the highest growth of all around 5 percent for the year and global investors, according to el Alfy. Middle East stock markets at 19 per C more than 18 percent versus a year Adding investment tools such as short cent, according to an EGX press ago, it has been below its endCofC2017 selling and futures, and the IPO state ment. level all year,” el Alfy says. pipeline of both stateCowned and pri C The main EGX 30 index rose 21.66 However, Ahmed Abou el Saad, vate sector companies is expected to percent to more than 15,019 points by Chairman of Rasmala Egypt Asset attract Egyptian and foreign investors the end of last year. Tadawul’s primary Management Company believe the looking for diversification and exposure. All Share Index closed 2017 at 7,226.32 EGX is poised for an overall recovery Yet el Alfy argues that this is not points, a gain of 15.89 points over the heading into autumn. It’s recovery over enough, as timely disclosure on the part of previous year. the past six months has laid the ground C listed companies and tight scrutiny of Egypt's market capitalization of listed work for the market to reach higher lev C market manipulation will have to go hand companies increased to EGP 825 billion els, he says. in hand with any market development to EG46 billionF at the end of December, In Saudi Arabia, Tadawul has largely ensure a level playing field for all investors, according to the 2017 EGX annual avoided the emerging market sellCoff, both institutional and individual. report. Tadawul saw market capitaliza C rising continuously over the past three Farid believes the stock exchange tion rise by 0.45 percent yearConCyear to months and pushing yearCtoCdate gains reform program will give it an edge SAR 450.56 billion EG120.1 billionF. to about 17 percent, according to a among emerging markets. “Reforms are International players were signifi C report published by Jadwa Investment usually difficult to implement, but the cant contributors to the EGX’s posi C in July. Active investors entering the government is doing its best to alleviate tive trend, with nearly 1,150 foreign market prior to actual inclusion are any adverse impact,” he added. investment funds and institutions expected to drive Tadawul’s perfor C While competition is fierce, explained entering the Egyptian stock market in mance even higher, the report states. Farid, “we have to be up to the challenge 2017, compared to 900 in 2016. During Can Egypt Lead? in terms of regulations and ease of doing the same period, 118 foreign institu C business. The ultimate target for any tions registered to invest on the Saudi The EGX has long been important in the exchange is having a vibrant market, by stock market . MENA region as one of only three further activating the capital ■market In 2018, however, the EGX 30’s emerging markets included on the widely through minimizing challenges.”

42 • Business Monthly - OCTOBER 2018 American Impact

Spotlight on Shadow Banking A decade after the global financial meltdown, signs are emerging of another on the horizon as lending by non-banks is on the rise once again. BY TAMER HAFEZ

s governments around the is “inherently unstable, simply shutting of Lehman Brothers set off a domino world push for higher eco - it down risks damaging liquidity [...] in effect worldwide. “At the heart of a nomic growth, many busi - the real economy,” stated a WEF paper shadow banking bust is an acute short - A nesses are taking risks to titled: Is shadow banking good for the age of good collateral, resulting from grow, increasing the appetite for credit. economy? risky investments made during the With many conventional banks averse Nevertheless, if shadow banks con - boom,” said the WEF paper. For to risk, non-banks, also known as tinue to grow unchecked by regulation Lehman Brothers, it was a cascade of shadow banks, such as investment or government supervision, another defaults from subprime mortgages. firms, hedge funds, insurance compa - global crisis might be ahead. “Risk nies, and crowdfunding are filling the never disappears. Regulators were The Bigger They Are... gap. worried about banks lending too much Given that shadow banks can be any - The collapse of investment firm to highly leveraged companies. So they thing from an individual investor, to a Lehman Brothers a decade ago set off cracked down on that,” Greg Ip, chief large or small investment firm, to an the global financial crisis and remains economics commentator at The Wall investment fund, determining what a symbol of the consequences of risk. Street Journal, told CNBC in constitutes a shadow bank and the Nonetheless, lending by shadow banks September. “As a result, a lot of this scope of the sector is not easy. “It is again is on the rise, and they remain a banking has migrated to shadow very difficult to separate out the shad - crucial part of the world economy. banks [...] Do we really know if risk ow entities, they are so intimately relat - The World Economic Forum (WEF) has been reduced or has it just changed ed to the conventional banking system has attributed the importance of shad - form?” I’m almost loathe to call [them] entities. ow banks to their ability to fund high- A meltdown could happen with little They are activities [within the system],” risk ventures. Even though the system warning, as in 2008 when the demise Freya Beamish, chief Asia economist at

44 • Business Monthly - OCTOBER 2018 American Impact

Pantheon Macroeconomics, told The cent and Japan at 6 percent. leverage levels that regulated banks Telegraph in October 2017. The While many countries, most notably wouldn’t have done a year ago,” Financial Stability Board (FSB), which China, are using legislation to curb Richard Farley of the law firm of monitors the global financial system shadow lending, it is booming in the Kramer Levin Naftalis & Frankel LLP from its headquarters in Switzerland, U.S. despite federal regulations intro - told Bloomberg in July. placed two definitions of shadow bank - duced in the aftermath of the global U.S. federal agencies are similarly ing in its 2018 report. financial crisis intended to limit such enticed by shadow lending. The U.S. Under the “narrow definition,” activities. As a result, U.S-bound shad - Postal Service, for example, has shadow banks are “entities that may ow banks’ assets reached $18 trillion announced it would lend to companies be engaged in credit intermediation in 2017, compared to $16 trillion for at interest rates, independent from the that involves liquidity/maturity trans - banks, according to the KBW report. Federal Reserve. The House of formation and/or leverage.” As per this Data collected by Bloomberg shows Representatives received a memo in definition, shadow bank assets topped that while the top 10 regulated banks July from the Bankers Association and $45.2 trillion worldwide in 2017. in the U.S. underwrote 73 percent of three other financial industry bodies However, the FSB’s broader definition all domestic loans in the first half of urging that the Postal Service be of shadow banking includes all non- 2013, they underwrote 54 percent in banned from all banking services. bank financial intermediation, such as the first six months of this year. “We It is a “race to the bottom,” said insurance companies, and adds $160 believe that our strong client relation - Frank Ossino, senior portfolio manag - trillion to last year’s figure to reach a ships and innovative financing solu - er at Newfleet Asset Management, on total of $205 trillion. Based on FSB tions will enable us to continue to be PYMNTS, an online portal, in July, data, total global financial assets successful in the context of any regula - referring to the creditworthiness of the topped $336 trillion last year, with tory environment,” Peter Nolan, a companies borrowing from non- more than 61 percent of lending not senior managing director at Antares banks. regulated by a central bank. Capital, a non-bank investment and During the first half of this year, the financing firm, told Bloomberg in July. S&P financial sector index saw non- Shadow banking puts the U.S. econ - Egypt a Safe Haven, bank financial stocks increase 7 per - omy in a precarious position, since for Now cent. Meanwhile, assets of shadow non-banks often rely on selling bonds Amid this growth and attempts to reg - banks grew 5 percent, versus 2 percent comprised of various loans, such as ulate shadow banking in the U.S, for commercial banks worldwide, subprime mortgages. Bond sales allow Egypt’s existing regulations are likely according to the report. shadow banks to offload their portfo - sufficient to keep non-bank lending at The actual percentages are likely lios and build capital to reinvest. Such bay. All shadow banks already operate higher, as shadow banks have long bonds are rated by international agen - under the FRA. “We introduced a def - relied on loans from conventional cies as non-investment grade—com - inition for shadow banking in 2014 to banks. Therefore, banks can be monly referred to as junk bonds—as be able to monitor their activity. This exposed to the same default risks faced they finance non-investment grade allows us to introduce more legislation by shadow banks. Interestingly, banks companies. Last year the number of if we need to,” said Gamal Negm, a seem to be forthcoming about lending these bonds rated as junk by all three Central Bank of Egypt (CBE) deputy to non-banks, according to a 2018 global credit agencies increased by 18 governor, during a July meeting of the report by Keefe, Bruyette & Wood percent in the U.S., currently reaching Arab Banks Union. “Keeping a close (KBW), a U.S. based investment firm $2.3 trillion in value, or about 11.8 eye on this activity is important to specializing in financial services. percent of U.S. gross domestic product, maintain Egypt’s banking sector stable as reported by Bloomberg in July. and secure.” U.S. Lead Moreover, foreign banks have been In Egypt domestic banks are allowed It should come as no surprise that the drawn to the U.S. shadow banking to establish non-bank financial firms largest economy in the world, the U.S., boom. Deutsche Bank AG announced that are not regulated by the CBE, has the most shadow banking activity, it will allot $16 billion for non-invest - including investment funds and even accounting for 31 percent of global ment grade debt this year, up from $12 full-fledged subsidiaries. Banking activ - shadow bank assets, according to the billion in 2017. The bank is regulated ities are overseen by the CBE, while FSB report. China and the Cayman by the central bank in Germany, but non-bank operations fall under the Islands, with 16 percent apiece, come can operate as a shadow bank else - FRA. This can make life complicated, next, followed by Luxembourg at 7 per - where. “Deals are getting done at as neither agency coordinates its efforts

Business Monthly - OCTOBER 2018 •45 American Impact

shadow lending in Egypt has been difficult to define and regulate as increasing at a rapid pace since they take full advantage of doing 2008, with the only drop-off com - business via the internet, where they ing after the 2011 January revolu - can adopt whatever business model tion. Insurance companies and they want. According to the think mortgages account for most shadow tank Chicago Booth Review, the rise lending in Egypt, according to of new financial technology tools Salem. will give informal businesses and However, she believes local shad - SMEs, especially those rejected by ow lending will not take off like it banks as too risky, more avenues to has in the U.S due to oversight by secure funds outside the banking the FRA, which can quickly enact system. It further noted that finan - new regulations to curb excess activ - cial technology is designed to cater ity. As a result, Salem argued, there to businesses that prioritize quick is little chance Egypt will go through access to funds over yields. It also a financial crisis or instability in its allows more flexible repayment banking system even if there were a options, as well as plans negotiated massive default of shadow loans. on a case-by-case basis. Salem further noted the situation Similarly, tech tools can attract could be bad news for Egypt’s infor - lenders that want to make loans mal companies, micro-enterprises quickly, often without performing a and small and medium sized enter - risk analysis. A direct consequence is prises (SMEs). When such compa - that companies can access a large nies need financing to expand, they global pool of lenders to choose usually seek out shadow sources, their best option, and vice versa. including microfinance institutions A possible side effect is that and NGOs. shadow banking supported by That practice, Salem wrote in her financial technology could make paper, can contribute to inflation as formal businesses drift into infor - it increases the amount of currency mality, safe in the knowledge they in circulation. “There should be can still secure financing. In the coordination between the CBE and meantime, thriving formal busi - [FRA] to control the money supply nesses can head to shadow banks if in the economy and inflation.” the latter can keep up with their In the long term, shadow banking needs via innovative and more or ensures that regulations are activity likely will be affected by accessible services. “I [am] con - aligned. “This is a ‘Twin-Peaks’ how well conventional banks can cerned about the non-bank finan - model where two institutions per - finance SMEs given that regulations cial institutions,” Christine forming the same activities are being require 20 percent of banks’ lending Lagarde, managing director of the regulated by two sets of laws and portfolios go to SMEs by 2020. In IMF, told CBS News last year, regulations,” wrote Yasmeen Salem, 2015, the government earmarked adding that a lot of these transac - an economist and PhD holder, in a EGP 200 billion for SME financing at tions are already happening with June 2017 research paper titled: 5 percent interest, compared to the no supervision. While there is both “How Far is Shadow Banking in prevailing double digit rates at date. good and bad shadow banking, Egypt from International she said, “what matters is that this Experiences?” Future Driven by Tech sector has to be supervised and Salem’s findings differ from Globally, shadow banking will only regulated” to guard against anoth - ■ Negm’s statement. She shows that grow and likely become increasingly er global financial crisis.

46 • Business Monthly - OCTOBER 2018 MARKET WATCH Stock Analysis The Market Falls on Fears of Emerging Markets Contagion

nvestors, especially individuals, need to remember that The period saw declines outnumber advances by a ratio of 3 to Egypt’s stock market is not isolated from its global peers. As 2. Investors were afraid that the risk sentiment surrounding Ione of the three emerging market exchanges in MENA, as emerging markets would catch Egyptian stocks. Interestingly, classified by MSCI EM index, Egypt’s stock market is subject < while foreign investors have been net buyers since the Egyptian ed to global sentiment. Over the last five months or so, emerg < pound flotation, by EGP 20 billion, they turned net sellers in ing markets have been at the center of attention of both August for the first time in 10 months. During the first half of investors and the financial media. As the U.S. Federal Reserve September, they turned back to being net buyers following a continues its monetary tightening by 25 basis points every quar < drop in stock prices as they hunted for value. ter, the dollar has been strengthening vis<à is does not tell the full story, as the index succumbed later in the sorely needed for the upcoming stock offerings. As for the lat < month to pressure from individual investors locked in margin ter, any rate hike throughout the remainder of 2018 may put a calls as stock prices fell. Meanwhile, the EGX 70 index inched lid on economic growth stepping into 2019. As always, only 0.3 percent higher to 742.7, still down for the year =10.3 percent>. time will tell.

Exports represent more than 60 percent of Oriental 11.36 11.34 Weavers Carpet =ORWE> sales. Despite the Egyptian 11.29 11.26 11.25 11.33 pound ﬂotation, the stock has been down by 35 per < 11.23 11.24 11.24 11.12 cent year

its currency plummeted more than 40 percent. More 10.34 recently, the company revealed that recent US tariffs 10.15 imposed on China could actually work in their favor 9.91 as they compete with Chinese products in the United 9.83

States. Still, the company’s stock fell during the peri < 8 8 8 8 8 8 9 9 9 9 /1 /1 /2 /2 /2 /3 /3 /6 /9 /1 6 9 2 5 8 1 / /1 /1 2 /1 /1 /1 /1 /1 /1 1 8 8 /1 8 8 8 8 8 8 8 8 od by 15.5 percent after 14 million shares worth EGP 152 million changed hands.

48 • Business Monthly - OCTOBER 2018 Capital Markets

Egyptian price indices - EGX 30

16009.41 15922.96

15835.73 15852.36 15803.17 15821.92 15740.06 15750.94 15606.18 15628.43

15488.49

15273.39 15308.62 15239.03 15295.97 15236.64

8 8 8 8 8 8 9 9 9 9 9 / /1 /2 /2 /2 /3 /3 /6 / / / 1 9 2 5 8 1 / / 9 1 1 6 / / / / / 1 1 /1 2 5 /1 1 1 1 1 1 8 8 8 /1 /1 8 8 8 8 8 8 8 8

757.42

753.8

751.26 751.69 751.15 749.46 747.38 747.16

745.3 745.97 743.19 742.74 740.28 739.31 738.6 738

8 8 8 8 8 8 9 9 9 9 9 / /1 /2 /2 /2 /3 /3 /6 / / / 1 9 2 5 8 1 / / 9 1 1 6 / / / / / 1 1 /1 2 5 /1 1 1 1 1 1 8 8 8 /1 /1 8 8 8 8 8 8 8 8

Egyptian price indices - NileX

465.82 465.26 465.27 465.66 465.8 464.79 465.19 464.08 464.04

462.98 461.68 461.35 461.67

459.83 459.26

458.64

8 8 8 8 8 8 9 9 9 9 9 / /1 /2 /2 /2 /3 /3 /6 / / / 1 9 2 5 8 1 / / 9 1 1 6 / / / / / 1 1 /1 2 5 /1 1 1 1 1 1 8 8 8 /1 /1 8 8 8 8 8 8 8 8

Business Monthly - OCTOBER 2018 •49 Executive Life

Investing in Contemporary Art

By By Leah Bremer

What does a share in a company names, such as Fouad Kamel, Abdel look like to you?” asks Waleed Hadi el Gazzar, and Hamed Nada are Abdulkhalek, founder and direc- also among the top 10 artists in the tor of Al Masar Gallery, when region in terms of sales volume, and “ r- asked about investing in Egyptian art. along with Said, account for 60 pe “Nothing, right?” A secretive smile cent of sales at Gulf auction houses, spreads across his face as he points to a according to Adsum Art, an art con- jarring mixed media piece by Kareem Al sulting firm. Qurity, a contemporary artist featured in The remaining 40 percent was gen- the gallery. “When you own art, you erated by non-Arab artists, helping don’t just receive your dividend at the end solidify Egypt’s reputation as the of the quarter or year–you see it and feel Mecca of Middle East art. “I don’t it. You experience your dividend every think Egypt will ever have competi- day.” tion as the regional art hub,” says Abdulkhalek presides over some of Mohamed Talaat, founder and cura- Egypt’s most valuable pieces in a domestic market that has seen tor of Gallery Misr in Cairo’s upscale strong appreciation since the 1990s, as well as within a region- Zamalek neighborhood. “Egypt has 100 mil- al art market that is now producing strong sales numbers lion people and 25,000 artists. A market like fueled by the establishment of auction houses in Persian Gulf Lebanon, for example, does well for its population, and the countries. Lebanese are good business people that market themselves It was a bumper year for the global art market in 2017, smartly. But they can’t compete with the size and talent in the which saw $63.7 billion in sales, a 12 percent increase over Egyptian market.” 2016, according to The Art Market 2018 report compiled by Abdulkhalek disagreed, noting that Syrian and Iraqi artists Art Basel and UBS. garner a lot of collectors’ attention. Egypt has an edge, he says, While a large chunk of those billions comes from high-end because it started earlier, founding the region’s first art school sales, art fairs have similarly generated a healthy portion of in the early 20th century that began churning out talent since sales, increasing by 17 percent last year alone to reach more 1912. “The second Arab art movement didn’t happen until 50

than $15 billion, lending hope for emerging artists at smaller to 60 years later in the Levant, so Egypt was always seen as the markets like Egypt’s who want to tap into the global art scene. founder of the region,” he says. As museums and foundations in the wealthy Gulf nations Topping the Region have begun building permanent collections, the reputation of While global sales are concentrated in the U.S., which leads contemporary Egyptian art as the storyteller of Arab history with 42 percent, China with 21 percent, and the U.K. with 20 has solidified. Egyptian art made up 92 percent of sales for percent, western art dealers have over the past decades increas- Bonhams, 21 percent at Christie’s, and 39 percent at Sotheby’s. ingly looked to the Middle East for new cultural acquisitions, For this year, sales for the main auction houses are down to which have become more trustworthy with the development of $7.8 million, after a high of $20 million in the first six months a secondary market. of 2016, according to research by Adsum Art. Auction house giants like Sotheby’s and Christie’s have Those numbers could reflect an insular nature of the established operations in the Gulf that have produced headline Egyptian art market, which began shunning foreign money sales for Egyptian artists. Amid wild applause, Mahmoud and artists in an effort to protect cultural hegemony in a post- Said’s Les chadoufs sold for $2.4 million in 2010, a record for colonial world, says Abdulkhalek. an Egyptian artist at the time. Said’s work lead overall sales in Abdulkhalek believes that before the 1990s, Egyptian collec- Dubai’s auction houses this year at $1.8 million after a record- tors favored foreign acquisitions, however, a special bond with- breaking portrait sale of his Fille à l’Imprimé. Other Egyptian in the Egyptian school of artists began turning them

50 • Business Monthly - OCTOBER 2018 Executive Life

inward toward their own national identity. interest, and budget,” she notes. “A large number of collec - “Egyptianism pushed collectors tors are willing to take a chance on new to start acquiring only Egyptian artists because of their trust in the gallery and art,” he explains, “because because it is usually more affordable.” identity is key, and you will find Businesses looking for collections to outfit identity in Egyptian art.” offices are a large part of a gallery’s clientele. He relays a story about a Mowafy’s gallery has an art advisory service Syrian artist who tried to break that helps companies build collections. “We into the art market, as if it were have a very active B2B department that deals a cautionary tale. “I told him with businesses and corporations looking for ‘do not come to Egypt,’” he artwork for either their own space or those of remembers. “But he came, their clients,” she explains. opened a gallery, and was Cultural authorities and businesses looking closed within six months.” to amass permanent collections may not nec - Lina Mowafy, an artist and founder of essarily be looking for value, but rather a piece of history. ArtsMart, which boasts the largest online Non-profit cultural foundations like Al-Ahram and Pharos gallery of contemporary Egyptian art in the Arts Foundation, as well banks like Commercial world with more than 4,000 pieces, says International Bank, preside over invaluable collections that that in spite of their digital platform offering Egyptian greatly benefit from the regional drive for collecting cultur - artist to collectors around the world, most of her clients ally or historically significant works. Talaat of Gallery Misr are Egyptian. However, she adds, collaborations with explains that since places like the UAE are striving to become international platforms has helped ArtsMart expand art hubs, yet lack the homegrown talent, their cultural beyond the country’s borders. “We receive a lot of interest authorities often come to Egypt, ready to buy. “We have col - from the Gulf and the U.S. through our partnership with lectors from Morocco to Saudi Arabia coming for one thing: Artsy,” Mowafy says, referring to an online platform for Egyptian art,” he says. “They buy up works here to take collectors. back home for their showcases.”

While businesses and foundations might set out to own What Collectors Want pieces of history, private collectors are more driven by market Whether from home or abroad, higher-end clientele have expe - and mood. “Lots of people mistakenly think the art market is rienced a sea change in attitude, discarding emotional connec - linked to real estate,” says Abdulkhalek, “but it is actually tions in favor of investment value. joined to the stock market.” “They used to acquire by heart,” Abdulkhalek says. “It was “In my experience, when the market goes up and down, up love plus money. But now there is a value craze, everyone wants and down, that’s good for art,” Christophe Van de Weghe, a to know the value upfront. It went from ‘we don’t buy to sell’ New York dealer, told Bloomberg in April. “Over the past 30 to ‘where will the price go?’” years, volatility has been very good for us dealers, because that’s When he describes the appreciation of some pieces, it is easy when people want to buy a hard asset.” to see why; prices can often double within just a few years. “I Ahmed el Dabaa, founder of Ubuntu Art Gallery, disagrees, have clients who bought a piece for EGP 180,000 and sold it for noting that 80 percent of his clients are furnishing houses. He EGP 280,000 after three years because they were buying a believes “what ultimately sustains the market here is people buy - house,” he says. ing what they like to fill their homes.” Mowafy, whose clients come from a wider socioeconomic While the devaluation of the Egyptian pound in late 2016 background, says taste still matters. “They ask about promising hurt Egyptians’ purchasing power, Abdulkhalek says it didn’t artists, and what they end up choosing depends on their taste, hurt sales. “Nothing will stop a collector except the mood to

Business Monthly - OCTOBER 2018 •51 Executive Life

acquire. When the mood is not there, Knowing an artist’s full body of work system in place for assessing value,” the market slows.” is important not only for recognition, says el Dabaa of Ubuntu Art Gallery. “If When asked to describe that mood, el but also in order to be able to spot a you buy a piece from me and my gallery Dabaa says that while the art remains rare piece. Mahmoud Said’s Les der - closes, what are you going to do when exceptional, the mood is not currently viches tourneurs sold for $ 2.5 million you try to resell? We don’t have critics strong, possibly validating Abdulkhalek’s not only because of his status as the here to guide collectors and provide theory about the link to the stock mar - leading contemporary Egyptian artist, value frames. You just have to have ket, which is currently shedding value in but because the work was a rare piece faith that what I’m selling has value.” a downturn amid widespread sell-offs in within his collection, which consists Furthermore, the dash for value has emerging markets. mostly of portraits and landscapes, led to what Abdulkhalek calls “fast according to el Harakany’s article. art,” when buyers snap up pieces with - A Different Kind of Seeing which Egyptian artists receive out doing the research and try to resell international recognition is an impor - quickly. Online platforms have fueled Dividend tant factor in gauging a work’s potential this type of buying, which can affect not When investing in Egyptian art, cura - investment value. “International recog - only authenticity, but the human con - tors normally point out overlapping fac - nition can definitely appreciate the nection as well. “I had a buyer who was tors to watch out for. In a 2016 article value of an artist’s name and artwork,” after me for a long time to acquire a for Rawi Magazine on the Egyptian art Mowafy explains. “Being featured in an piece for him he had seen online. He market, Saida el Harakany, founder of international set-up (art fair, gallery, was feverish about it,” he remembers. Adsum, named an artist’s consistency, a auction house, etc.) increases their “When I tracked it down and he finally work’s uniqueness, and provenance as exposure and, if there is a positive saw it face to face, he felt nothing. The the three points to consider when response, fame and value.” connection has to be there, in person.” investing. “There is no doubt that However, others like Mowafy see dig - Egyptian modern art is a sound invest - ital platforms as adding value by creat - ment given recent market activity,” she Creating Value Dealers and curators see several chal - ing some transparency for Egypt’s insu - said. “Art patronage, smart investment, lar art scene. and curation of cohesive collections are lenges evaluating the Egyptian art mar - ket. Despite the volume of homegrown Ultimately, whether online or in per - good ways to start.” son, anyone worried about plunking Researching the art market to learn artists and regional prominence of its art school, a lack of awareness persists. down tens of thousands of dollars for a about artists, their full body of work, Surrealist painting from Hamed Nada and their peers underpins these fac - The auction houses of Dubai promote artists, engage in marketing, and pro - can take solace from the soothing tors. “Collectors must do their home - words of Sir Joseph Duveen, an influen - work,” says Abdulkhalek. “The dili - vide security in things like tracing own - ership; these types of structures are still tial British art dealer who made his gent ones go to galleries, read about mark in the early 20th century: “When the contemporary art movement, and lacking within the Egyptian market. “Egypt has no secondary market, no you pay high for the priceless, you’re visit international art fairs.” actually getting it cheap.” ■

52 • Business Monthly - OCTOBER 2018 CHAMBER NEWS

COMMITTEE LEADERS (July 2018 to June 2019)

Agriculture and Food Security Insurance Chair: Abdel Hamid Demerdash, Agricultural Export Council Chair: Alaa El-Zoheiry, Arab Misr Insurance Group | gig Co-Chairs: Amr Salah, Cargill Co-Chairs: Axel Bromley, CHUBB (Formerly ACE Life Insurance Co.) Hatem El Ezzawy, PICO Agriculture Elena Butarova, MetLife, Life Insurance Company Tamer Mosalam, PepsiCo Sherif ElGhatrifi, Medmark Insurance Brokerage BOARD OF International Cooperation Banking and Finance Chair: Walid Labadi, IFC International Finance Corporation GOVERNORS Chair: Ahmed Issa, Commercial International Bank (CIB) ˚ Co-Chair: Catarina Hansen, European Bank for Reconstruction Co-Chairs: Akef El Maghraby, Banque Misr and Development (EBRD) PRESIDENT Hassan Hussein, El Taamir Mortgage Finance – Aloula Soha Ali, J.P. Morgan Chase Bank Investment Tarek Tawfik, International Company for Agricultural Tarek Azmy, Corporate Leasing Company Egypt (CORPLEASE) Chair: Hazem Badran, CI Capital Holding Co. Production & Processing Co-Chairs: Moustafa El Chiati, EFG Hermes UAE Capital Market Sherif El Kholy, ACTIS EXECUTIVE VICE PRESIDENTS Chair: Karim Awad, EFG Hermes Holdings, SAE Legal Affairs David Chi, Apache Egypt Companies Co-Chairs: Hesham Gohar, CI Capital Holding Co. Chair: Hani Sarie-Eldin, Sarie-Eldin & Partners Legal Advisors Ahmed Abou Ali, Hassouna and Abou Ali Law Offices Omar El Labban, BPE Partners G Co-Chairs: Mohamed Serry, Serry Law Office Said Hanafi, MHR & Partners in Association with White & Case VICE PRESIDENT, MEMBERSHIP Corporate Sustainability and Responsibility Dalia Wahba, CID Consulting Chair: Tamer Younes, Procter & Gamble Egypt Ltd. Marketing Co-Chairs: Mireille Nessim, Takatof Association for Development Chair: Tamer El Araby, Egypt & Levant, Nielsen Egypt, Ltd. VICE PRESIDENT, PROGRAMS Nadine Abou El-Gheit, United Nations Development Programme – Egypt Country Office Co-Chairs: Heba Saleh, Procter & Gamble Egypt, Ltd. Sarah El Battouty, ECOnsult Moataz Kotb, Cultark Khaled Abu Bakr, TAQA Arabia Omar El Masry, Danone Egypt Customs and Taxation VICE PRESIDENT, LEGAL AFFAIRS Chair: Hassan Hegazi, Master Trading, SAE Oil & Gas Tarek Mohanna, MHR & Partners in association Co-Chair: Hossam Nasr, Allied for Accounting and Auditing - Ernst & Young Chair: Hesham El Amroussy, ExxonMobil Egypt, SAE with White & Case Co-Chairs: Mark Konecki, Apache Egypt Companies Ossama Halim, Halliburton Entrepreneurship and Innovation TREASURER ÇÇÇ Chair: Alaa Hashim, Giza Seeds and Herbs Co-Chair: Mohamed Rahmy, Endeavor Egypt Power Aladdin El-Afifi, Pharos Holding Chair: Khaled Hashem, Honeywell Egypt Co-Chairs: Ahmed Ramadan, General Electric International Operation MEMBERS OF THE BOARD Health & Pharmaceuticals Morten Langsholdt, Scatec Solar Solutions Egypt Chair: Mohamed Roushdy, Amoun Pharmaceutical Co., SAE Hashem El Dandarawy, Team 4 Security Co-Chairs: Ahmed Ezzeldin, Cleopatra Hospital Group Real Estate Girgis Abdel Shahid, Shahid Law Firm Ramy Koussa, MSD Egypt Chair: Mohamed Abdalla, Coldwell Banker Affiliates of Middle East & Greater Africa Tamer Said, GE Healthcare Co-Chairs: Abdalla El Nockrashy, Majid Al Futtaim Properties-Egypt Seif El Din El Sadek, Agrocorp for Agriculture Investment Yousri Nawar, Pfizer Egypt Magued Sherif, Six of October Development and Investment Co. (SODIC) Nadir Shaikh, Citibank, NA Egypt Human Resources Transport and Logistics Sherif Kamel, AUC Chair: Somaya El Sherbini, RIGHTFOOT Chair: Marwan El Sammak, Worms Alexandria Cargo Services Co-Chairs: Emad Nasr, Lecico Egypt t Co-Chairs: Ahmed El Fangary, DHL Express PAST PRESIDENT Maisa Galal, Coca-Cola Bottling Company of Egypt (TCCBCE) Alfred Assil, Menarail Transport Consultants Anis A. Aclimandos, Transcentury Associates Tarek Fahmy, Mediterranean Shipping Company Industry and Trade ADVISOR TO THE BOARD Co-Chairs: Ashraf Bakry, Unilever Mashreq Travel and Tourism Hisham A. Fahmy Mostafa El Halwagy, Youssef Allam & Co. Co-Chairs: Haitham Nassar, Hilton Pyramids Golf Resort, Hilton Omar El Derini, FAOM Consult Red Wing J Worldwide CHIEF EXECUTIVE OFFICER Karim EL Minabawy, Emeco Travel Sylvia Menassa Information and Communications Technology Moataz Sedky, Travco International Holding, SAE Chair: Bassel Mubarak, Oracle Egypt, Ltd. Co-Chairs: Ayman Elgohary, Cisco Systems International Women in Business Reem Asaad, Raya Holding Chair: Manal Hussein Abdel Razek, Orascom Development Yasser Shaker, Orange Egypt for Telecommunications Co-Chair: Nahla Kamal, Nestlé Egypt

American Chamber of Commerce in Egypt – Tel: (20-2) 3333-6900 – Fax: (20-2) 3336-1050 For more information about AmCham services and news, please visit www.amcham.org.eg or our US mirror site www.amcham-egypt.org Events

MONTHLY LUNCHEON Egypt’s Reform Trail

“Our reform focuses on stable macroeconomic indicators, social inclusion, and deepening structural reforms,” said Finance Minister, Mohamed Maait, at a September 19th luncheon meeting with AmCham members at the Cairo Marriott Hotel. “This includes reforming everything including taxes, manufacturing, social safety nets, healthcare, education and housing.” These reforms continue to exact a heavy toll on all Egyptians, Maait acknowledged. However, he noted that if we compare Egypt’s economy between 2011 and November 2016, when serious reforms began with the floating of the pound, we can conclude that the country is moving on the right track. He cited three major national problems between 2014 and 2016 that led to the firm belief that hard reform is the only way forward. The first was electricity cutouts that lasted for over six hours a day, affecting both households and factories. The sec B ond was the need to secure from the government G15 million to import virus C medication after banks could not support the Ministry of Health. The third major issue appeared when wheat suppliers started demanding upfront payment for shipments, fearing that Egypt won’t have foreign currency to pay for the goods. “I think it is always important to remember how bad things at the start of fiscal 2017/2018 and a bankruptcy law passed were to realize how effective our reforms are, despite them a few months after. being hard and harsh for everyone,” said Maait. He further Maait praised ongoing efforts to improve, digitize, simplify, added that delaying reforms to retain prices is one of the main and unify taxes and customs procedures. “We are not looking at reasons the current impact is compounded. increasing rates. The modifications are administrative and These reforms resulted in better macroeconomic figures and upgrades to existing systems,” said Maait. “They aim at creating government finances. He noted the GDP growth rate, which a better investment environment, which we need to build a topped 5.5 percent in fiscal year 2017/2018 compared to 2.3 per B stronger and more sustainable economy than ever before.” cent on average between 2011 and 2014. “Net exports registered Accordingly, Maait estimated that GDP growth rate would a surplus for the first time since 2011,” Maait added. Meanwhile, top 5.8 percent by the end of this fiscal year. “We are aiming for investment’s contribution to the GDP growth went from 1.2 inflation Chovering around 13 percentD and unemployment to percent in 2014 to 2.5 percent in fiscal 2017/2018. drop to single digit figures,” he added. “Industrial and touristic investments saw the most growth,” However, Egypt is facing a lot of challenges moving ahead, he noted adding, “Natural gas as well saw notable growth, which especially with the unfavorable developments hurting emerging will increase as we are planning to seize its imports next year as markets. Maait gave an example with planned oil prices and the we reach selfBsufficiency.” USD exchange rate the current fiscal year budget was calculat B Other figures Maait pointed out were a declining in ed upon, as both elements are currently growing so is the unemployment from 13.3 percent in fiscal 2012/2013 to 9.9 deficit. “Meanwhile, interest rates are still high,” he said, adding percent in fiscal 2017/2018. Overall deficit dropped from that the stock market is also suffering, which is hurting Egypt 16.7 percent in fiscal 2013/2014 to just under 10 percent in economically as well as hurting the government’s plans to go 2017/2018. “We are aiming for 8.4 percent by the end of this public with a number of governmentBowned enterprises. “We fiscal year,” noted Maait. Of this deficit, primary deficit are trying to manage these difficult times. Our economy is changed to a surplus for the first time with plans to further resilient and diversified. When tourism fell, other sectors car B extend it from 0.3 percent to 2 percent during this fiscal year. ried its load,” Maait noted. “If we continue to absorb these “We will use these savings to spend on human capital develop B external pressures and deal with it, showing resilience, then this ment, investments, education and healthcare,” asserted Maait. will be a great success story for Egypt especially that many Moreover, the government reform program included leg B emerging markets are dealing very badly with these global islative reforms including an allBnew investment law passed changes.”

54 • Business Monthly - OCTOBER 2018 Events

ENTREPRENEURSHIP AND INNOVATION COMMITTEE Starting the Conversation: The Entrepreneurial Ecosystem and its Six Components

“We are not going to solve the world’s problems today, but I need, EthenF fill in what you are missing,” he added. The think this will be the start of a conversation,” Faris Alami told a third is creating obstacles to entering the system through September 6th meeting of the Entrepreneurship and licensing procedures and other paperwork. Innovation Committee. Alami is founder and CEO of He moved on to highlight the difficulty of defining some International Strategic Management and an adviser for the aspects of the ecosystem, such as, “What is an incubator?” Goldman Sachs 10,000 Small Business Program. Another question to be avoided is, “What exactly is a suc B The theme of the meeting was “Global Lessons and Best cessful startup?” “Success rate and market growth are Practices for Egypt’s Growing Entrepreneurial Ecosystem.” It benchmarks I don’t like because they depend on the type was structured as an interactive discussion in which attendees of business,” said Alami. For example, retailers should helped identify the characteristics of an entrepreneurship employ few people in the first few years, while a tech com B ecosystem and how to push for its development in Egypt. pany might not need to hire anyone. Alami started the conversation by breaking down the var B He went on to discuss basic best practices for ecosystems. ious components of an ecosystem. “Many people talk about Altogether, these include establishing a longBterm vision; local it and many are in it,” he said, highlighting the importance and personal plans that respond to a specific ecosystem’s capac B of starting with a clear definition of what constitutes an ity and needs; allowing space for inclusion and competition; and entrepreneurial ecosystem before discussing its challenges measuring progress by collecting data from the six components and strategies for overcoming them. in order to inform policy making. Alami defined ecosystems by focusing on six pillars: policy, Alami then asked those in attendance what could be done to finance, culture, supports, human capital, and markets. “Each help advance ecosystems in general and in Egypt in particular. one of them has several subtopics,” he said, emphasizing that Overall, the discussion included providing stakeholders with government policy is the critical first step, however, all of the access to services, such as financial institutions; curating talent pillars are connected and that whenever one changes, all the with an entrepreneurial mindset; managing the expectations of others are affected. “The key to understanding and clearly iden B entrepreneurs; and building an acceptance of failure. tifying this ecosystem is to frame it. Once that happens, every B He stressed that connecting all parts of that ecosystem is a one will see the same exact thing,” Alami explained. “Without must to make it grow and achieve its full potential. A case in the frame, we would be running around in circles because every B point is that some fundraisers and support organizations limit one has his own vision of what it is supposed to be rather than themselves to talking to companies that are at a particular stage what it really is.” of development or have been in businesses a certain number of Furthermore, he outlined things that should be avoided years. This, Alami noted, would help neither a business nor the when creating an entrepreneurial ecosystem. First is tradi B community. tional investments and incubators without a vision that is In closing, He encouraged ecosystem stakeholders to start at least 10 years in the future. “Because then you will not scheduling regular meetings between various support organiza B see anything,” said Alami. “In fact, during those 10 years tions, which could then become more frequent and expand to you will feel like you are going backwards.” The second involve more players. This communication and linking the var B thing to avoid is copying other successful ecosystems ious parts of the ecosystem would help sustain the conversation believing they will work for you. “You have to tailor it to and move it forward. “The key is to tailor it to Egypt’s unique your community, based on what you have versus what you environment,” Alami said

Business Monthly - OCTOBER 2018 •55 Member News

NOVO NORDISK BARON PALACE SAHL HASHEESH

The General Authority for Health Insurance and Novo Nordisk, a global Baron Palace Sahl Hasheesh’s Bella Vista Restaurant & Lounge has won manufacturer of insulin and hemophilia treatment, inaugurated the first two awards from World Luxury Restaurants Awards (WLRA). The first cat - Center of Excellence for the treatment of hemophilia patients at Atfal Misr egory was Best Fine Dining Cuisine 2018 and the second was the Most Health Insurance Hospital in El Sayeda Zeinab. The center will be operat - Luxurious Ambience 2018. Moreover, last year the restaurant became ed by the authority, while Novo Nordisk Egypt will provide technical sup - the only one in Egypt to receive the Jeunes Restaurateurs award. The lat - port and training. The total cost of the new center is approximately EGP est WLRA awards are the 16th international award given to a restaurant 2 million. and bar inside the Baron Palace Sahl Hasheesh.

CAIRO MARRIOTT HOTEL & OMAR INTERCONTINENTAL CAIRO CITYSTARS

Marriott International has announced that it is merging all three of its InterContinental Cairo Citystars hosted a press conference in which Dino loyalty programs into one comprehensive benefit program. Guests can Activations announced the return of ‘Disney Live’ performances in Egypt, now earn and redeem points from any Marriott, Ritz-Carlton, and in the presence of Rania Al Mashat, Minister of Tourism. This is the result Starwood property in the world. The program covers all of Marriott of joint efforts of the Ministry of Tourism, Ministry of Investment and International’s 29 brands, with more than 6,700 participating hotels in International Cooperation and Feld Entertainment, the producer of 130 countries and territories.This also applies to Elite status members Disney Live Show. El Mashat said during the press conference that this is who can now earn 20 percent more points for every $1 they spend at the a vital step to promote a new kind of tourism hotel.

56 • Business Monthly - OCTOBER 2018 NEW MEMBERS

Agriculture Pharmaceuticals/Medical/Health The Egyptian International Co. for Land Reclamation (Belco) Hikma Pharma Egypt Mohsen ElBeltagy Masoud Abdelmajid Vice President Territory VP- Egypt Address: 19 Abo El Feda Street, Zamalek Address: 12 Esraa Street, off Lebanon Tel: (20-2) 2735-7213 Street, Mohandessin Fax: (20-2) 2737-0037 Tel: (20-2) 3304-9071 Membership Type Fax: (20-2) 3305-0739 Membership Type Website: www.belco.com General Associate Resident Website: www.hikma.com/home/ Construction/Engineering

Global for Contracting and Engineering Omar Taha Elsegaey Affiliate Members Member of the Board

Address: 134 Nile Street, Agouza Diplomatic Missions Tel: (20-2) 3338-2204/270 Catarina Hansen Fax: (20-2) 3338-2110 Membership Type Associate Resident Deputy Head of Egypt, The European Bank for Reconstruction and Development (EBRD) Industrial Machinery & Equipment Financial Sector Tanta Motors Co. S.A.E Abou-Freikha Ines Kadri Amr Aboufriekha Head of Communications & Sustainable CEO Development, Credit Agricole Egypt, SAE Address: 9 Elriadah Street, Nasr City Tel: (20-2) 2404-0116 Information Technology Fax: (20-2) 2402-9060 Aisha Mostafa Website: www.tantamotors.com Membership Type Chief Executive Officer, Information Technology of Associate Resident Egypt Corporation, SAE (ITE Corp.) Mining Alaa Fahmy Real Mining Services Chairman of the Board, Information Technology of Muhammad Zaher Egypt Corporation, SAE (ITE Corp.) CEO Aly Shash Address: 2 Ibn Sina Street, off Orouba Accounts & Business Development Director, Sarhank Road, Heliopolis Group for Investment Tel: (20-2) 2291-7363 Fax: (20-2) 2291-7363 Membership Type Associate Resident Pharmaceuticals/Medical/Health Mohamed Abdel Daim Insurance Human Capital Director, Hikma Pharma Egypt Nasco Egypt, SAE Mikel Hitti Saad Stephan General Manager Finance Director, Hikma Pharma Egypt

Address: Office 502, Building 238, 2nd Textiles Sector, City Center, New Cairo Ashraf Morsy Tel: (20-2) 2811-0008 Membership Type Member of Board of Directors, Oriental Weavers Co. Fax: (20-2) 2811-0008 Associate Resident Website: www.nascoinsurancegroup.com

58 •Business Monthly - OCTOBER 2018 NEW MEMBERS

New Replacements in Member Companies

Category: General Anan Marzouk Category: Affiliate Saad Amin Mahdy Sector: Pharmaceuticals/ Sector: Food & Beverages Senior Category Manager and Deputy CEO, Dar Al Fouad Medical/Health Department Head Hospital

Mohamed Bedeir Category: Affiliate Alaaeldin Hegazy Category: General Deputy CEO & Chief Banking Sector: Finance Chairman and CEO , Sector: Petroleum Services Officer, Bank Audi, Engineering for the Petroleum SAE & Process Industries (ENPPI)

Taner Sensoy Category: Associate Egypt Country Manager & Vice Non-Resident Sadik Mohamed Category: Multinational President, Noble Energy EMEA Sector: Petroleum General Manager Sales Egypt, Sector: Transportation Ventures Limited Lufthansa German Airlines

Changes Change in Member Company: Amal Ragheb Group Financial Consultant, ECG Engineering Consultants Group, SA

For any change to contact information, please contact the Membership Services Department at the Chamber’s office Tel: (20-2) 3333-6900, ext. 0016 Fax: (20-2) 3336-1050 E-mail: [email protected]

Business Monthly - OCTOBER 2018 •59 Announcements

Jobs

AMCHAM RECRUITMENT CENTER

Code Vacancies Company Name 113349 Security Manager CONTRACK FM S.A.E 113278 HSE Supervisor Egyptian Kuwaiti Foundry 113320 Project Manager Intelligent for Field Marketing 113427 Senior Service Engineer Youssef Allam Group 113540 Personal Assistant to the CEO MANAPHARMA - Mohamd Maged El Menshawy 113563 Staff Assistant CID Consulting

For more information about these jobs and others, visit: www.amcham.org.eg/recruitment – e-mail: [email protected], Tel: (20-2) 333 88 220 Ext. 1513 - 1514 Fax: (20-2) 333 73 779

Top Tenders TOP TENDERS FROM TAS

Bid bond Description Client Deadline Specs fees Sectors Revamping of an 800 mm. size quadratic rolling machine. Ref. 9/ 2018/ Helwan Co. for Non Ferrous Industries, Ex Factory October 10, EGP 200,000 Industry 2019. 63, Foreign Purchases Committee 2018 EGP 500 Industry

Conducting the rehabilitation of the escalators serving all three mero lines in Egyptian Co. For the Metro Management & October 10, EGP 200,000 Transport Greater Cairo. Documents to get from comany's building in Hammamat El Operation [ Ex Cairo Metro Operation Agency ] 2018 EGP 10,000 Transport Qobba Metro Station Building in Cairo. .

Beneficiary Sectors Generating Sectors www.amcham.org.eg/TAS For further information, contact the Business Information Center at AmCham Egypt Tel: (20-2) 3338-1050 – Direct: (20-2) 3761-9641 • Fax: (20-2) 3338-9896 • E-mail: [email protected] Website: www.amcham.org.eg • US Website: www.amcham-egypt.org

U.S. Exhibitions

Listings are now available on our website: www.amcham.org.eg Exhibitions related to the following sectors are scheduled for the upcoming months.

Sector Show Name Website Embassy Contact Person TEL. November Healthcare - The Greater New York gnydm.com Rania Mekhail 2797-3487 Medical Equipment Dental Meeting December POWER-GEN International Energy power-gen.com Dina Bissada 2797-2340/2330

For more information about these exhibitions, please contact: The Commercial Service at the U.S. Embassy Tel: (20-2) 2797-2330/ 40 - E-mail: [email protected]

*Please refer to the Commercial Service at the U.S. Embassy for any updates on the exhibitions.

60 • Business Monthly - OCTOBER 2018 Exclusive offers

Exclusive Offers

BAVARIAN AUTO GROUP (BAG) LE MERIDIEN PYRAMIDS HOTEL & S PA

Exclusive Tailored Discounts on BMW Car Models, Services & Insurance Packages. Le Meridien Pyramids Hotel & Spa is pleased to offer AmCham members, a 20% dis - 1- 2% discount on BMW line sticker prices. count on food & beverages consumption including local alcohols published prices at 2- Original car carpet & Key chain as a gift on your car. Gardenia outlet only, excluding hard liquors, and a special accommodation rate: 3- BMW insurance with different packages, services and Premium Classic City View special rates: Special Rate for Foreigners & Egyptians (After Discount): 4- Trade with the best market price in all BMW and non-BMW cars through the Single: 800 EGP Double: 900 EGP trade in dep. Supplements: Premium pool view: USD 20.00 5- Several Bank finance program on all of BMW range. Premium deluxe pyramids view: USD 25.00 Triple occupancy with breakfast on double rate: USD 12.00 *Discounts will be granted to AmCham members upon Junior suite: USD 70.00 presenting their AmCham 2018 membership card* Premium deluxe suite: USD 95.00 Presidential suite: USD 250.00 For more information, please contact: *Discounts will be granted to AmCham members upon Karenza Jane Hanna presenting their AmCham 2018 membership card* Mobile: (20-10) 6104-0005 Email: [email protected] For more information, please contact: After Sales: Ahmed Ezzat: Reservation Department: Mobile: (20-10) 0481-6939 Tel: (20-2) 3377-7070/ 3377-3388 Email: [email protected] Emails: [email protected] Please visit AmCham Cyberlink on http://www.amcham.org.eg/cyberlink Please visit AmCham Cyberlink on http://www.amcham.org.eg/cyberlink for for more information on AmCham benefits more information on AmCham benefits This offer is valid until December 31, 2018 This offer is valid until December 31, 2018

NATIONAL TRADING COMPANY (A PPLIANCE ) SAFIR HOTEL CAIRO EGYPT Appliance is pleased to offer its unique solutions and services to AmCham Member Safir Hotel Cairo Egypt is pleased to offer a 20% discount to AmCham members on companies accommodation published rates, and on food & beverages in all restaurants; Palm’s Up to 20% on National Trading Company (Appliance) Products to AmCham Members Coffee Shop, Asia Boutique Restaurant, Gazerit Al Dahab (Oriental Restaurant), Blue 1- Appliance Electronics: 4% discount on Mobile Phones Pool Café, Corporate Café, excluding alcoholic beverages and service charge and taxes. 3% discount on Note Book In addition to a 20% discount on the Health Club and SPA. 15% discount on Mobile Accessories The offer is not applicable during special promotions and public holidays. 10% discount on Notebook Accessories 2- Appliance Furniture: 10% discount on all furniture products *Discounts will be granted for AmCham members upon 3- Appliance IT Solutions: 20% discount on Digital Signage solution presenting their AmCham 2018 membership card* 10% discount on GPS services 10% discount on security systems You can check our website for more info.: For more information, please contact: www.appliance-eg.com, www.appliance-eg.com/b2b For room reservations: Phone number: (20-2) 3748-2424 / 3748-2828 Mobile: (20-10) 0160-4108 • Email: [email protected] For more information, please contact: For food and beverages reservations: Ahmed Omar Muhammad Hamdi • Phone Number: (20-2) 2670-6627/ 2670-6320 Phone number: (20-2) 3748-2424 / 3748-2828 Mobile: (20-12) 2030-0071 • Email: [email protected] Mobile: (20-10) 0518-2457 Waged Abdel Halim • Mobile: (20-12) 2222-2525 Email: [email protected] Email: [email protected] Mobile: (20-10) 0518-2457 Please visit AmCham Cyberlink on http://www.amcham.org.eg/cyberlink Please visit AmCham Cyberlink on http://www.amcham.org.eg/cyberlink for more information on AmCham benefits for more information on AmCham benefits

This offer is valid until December 31, 2018 This offer is valid until December 31, 2018

The BUSINESS MONTHLY Classifieds section is open exclusively to AmCham member companies. Text ads are £E 150 for up to 30 words, £E 5 per additional word. Abbreviations, phone numbers and e-mail addresses count as one word. Display ads are £E 100 per cm in height, per column (max. 20cm in combined total height). Discounts are offered for regular advertisers and repeat bookings. Insertion orders, payment and ad content must be received by the 15th of the month preceding publication. All classified ads subject to editorial approval. For more information, or to place a classified ad, contact Amany Kassem at (20-2) 3338-9890, fax (20-2) 3338-0850, e-mail: [email protected]

Business Monthly - OCTOBER 2018 •61 Advertorial

PEPSI CO EGYPT ORANGE EGYPT

PepsiCo Egypt has sponsored the second round of El Gouna Film With the aim of supporting the cultural and artistic movement, Orange Festival to promote leisure tourism in one of Egypt's most beautiful Egypt has sponsored the second edition of the El Gouna Film Festival. beaches. By sponsoring this festival, PepsiCo seeks to support the This year’s festival witnessed the participation of entertainment figures “seventh art” in Egypt, provide an opportunity for cultural and artistic from around the world and included the screening of more than 80 dif - exchange and gain an understanding of the different international and ferent artistic pieces produced in several Arab and foreign countries, Arab cultures. Most importantly, PepsiCo aims to awaken the Egyptian featuring: long films, short films, and documentaries. El Gouna Film cinematic art and restore Egypt to its distinguished position in the Festival new platform will resume providing the opportunity for export and propagation of art to the entire region. During the event Egyptian and Arab filmmakers worldwide, to identify, exchange expe - PepsiCo launched a limited version of its products, garnished with the riences and merge together so as to create an integrated cultural scene distinctive star of El Gouna. throughout Egypt.

XIAOMI MERCEDES -B ENZ EGYPT

Xiaomi announced the release of its latest Mi Max in Egypt. The new For the first time in Egypt, Mercedes-Benz unveiled at this year’s generation enjoys a larger screen, a bigger battery, a stronger SoC and Automech auto show its all-time best selling model, the new C-Class a more powerful set of cameras compared to the last generation. family range. Also, on display was the new E-Class Sedan and E-Class Touted to be “as powerful as a power bank”, Mi Max 3 features a Cabriolet. In addition to the new SUVs, the segment leading GLC 250 5500mAh battery with a standby time of 474 hours that can double up SUV and GLC 300 Coupé. Mercedes-Benz Egypt also introduced the as a power bank. It sports a 6.9-inch full screen display, a 12MP+5MP motor show their top luxury Saloon flagship, the S-Class introduced to AI dual camera and the Qualcomm® SnapdragonTM 636 SoC. marked earlier this year as Individualized special orders. Last but def - initely not least, the compact segment display included the new model year of the popular CLA and GLA.

62 • Business Monthly - OCTOBER 2018 Advertorial

TATWEER MISR SAMCRETE DEVELOPMENT

Tatweer Misr, signed a contract with the Faculty of Engineering to spon - AUC’s long-standing hostel in Zamalek is currently undergoing an sor a team of students working to design and build ultra-efficient and extraordinary renovation by Samcrete Development. Now known as eco-friendly vehicles. Ahmed Shalaby, Tatweer Misr CEO and Managing ICONIA, the mixed use building will feature serviced apartments, retail, Director, attended the ceremony alongside Mohamed Tag El Deen, and offices. This iconic landmark was originally designed in the late Dean of the Faculty of Engineering at Cairo University, and praised the 80’s by the renowned architect Amr el Alfy. It is recognized by its eclec - students participating in this year’s Shell Eco-Marathon Asia tic façade combining arabesque with modern architecture. The facility’s Competition. “Providing support to young entrepreneurs with potential name choice; ICONA; is a throwback to the iconic of this building as it is a key part of our company agenda; it helps us contribute to the is passed on from generation to generation and continuing its legacy development of a new entrepreneurial mindset in the Egyptian society till today. while driving job creation and economic growth,” said Shelbaya.

FIAT CHRYSLER AUTOMOBILES SEMIRAMIS INTERCONTINENTAL

Fiat Chrysler Automobiles Egypt participated in the 2018 Automech To commemorate three decades of success, as well as the inauguration Formula Motor Show showcasing some of its latest offerings. The Fiat of the Semiramis Spa & Fitness Centre, Semiramis InterContinental Tipo sedan and hatchback include manual and automatic transmission held a cake-cutting ceremony. Attendees included the chain’s top man - options. There will be baseline and highline trim levels. Also from Fiat agement, various board members, ambassadors, members from vari - were the 500C and 500X. From the Alfa Romeo line, the company ous diplomatic entities, businessmen, prominent society figures, and showcased the Stelvio SUV, Giulia hatchback, and Giulietta sedan. media personalities. Guests enjoyed an epic Nile view as they indulged While, for the Jeep the display included the Jeep Renegade, the Grand in various bites from around the globe, courtesy of the property’s Cherokee, and the Compass. Lastly, Mopar showcased accessorized eleven award-winning signature restaurants, which were elegantly re- Wrangler Unlimited among accessories for other car brands. created and displayed at the venue. Private walk-through tours of the state-of-the-art Semiramis Spa & Fitness Centre added an unbeatable touch of flair to this historic event.

Business Monthly - OCTOBER 2018 •63 Media Lite

A Glance At The Press

High Prices of Fruits and Vegetables

“Every time I see him, he is carrying a bag of mangoes... another time bananas... of course he must be an embezzler.” Al Masry Al Youm, September 17th

Media Lite is a satirical review of items published in the local and international press. All opinions and allegations made in them belong solely to the original publications and no attempt has been made to ascertain their veracity.

Sama el Masry Om Mohamed the Robot Taking Matters into their Hands Strikes Again Months after Sophia, the first social humanoid robot in the world and Upon declaring a state of emergency in After failing to be appointed head Saudi citizen, visited Egypt, govern B Luxor and Aswan due to termite infesta B coach of the Egyptian national foot B ment officials announced they want tion, the Ministry of Agriculture has ball team, belly dancer Sama el tasked its research and development one of their own. Saleh al Sheikh, head Masry didn’t give up. She applied to department to start developing cures. of the Central Organization for a recently vacated position as an However, cashing in on the opportunity, Management and Administration, told several informal businesses began sending assistant professor at the Faculty of the press in September that three out flyers promoting their “smuggled and Arts, English Division, at 6th of companies are vying to build it and the effective solutions.” Topping their list October University. In her resume, name would be announced by were breeding anteaters from Sudan she wrote that studying at the uni B November. Social media lit up with including mongooses and bats. Also seiz B versity until 2002 was a huge advan B sarcastic posts, beginning with truly ing the opportunity, local black magic practitioners started advertising the new tage as it made her aware of univer B Egyptian name suggestions, from spells they developed to dispel these ter B sity policies and systems. El Masry Fatakat to Om Mohamed. There was mites. Interestingly, local officials are yet added that her English is up to the also a debate over whether she will be to comment on the rise of these illegal faculty’s standards given that she asked to pay taxes and apply for an ID operations, leaving social media to specu B passed the course as a student. card or passport at the Mogamma, the late all sorts of reasons, including the min B Interestingly, her CV was handwritten nation’s central administrative hub, if istry itself resorting to the imported crea B in Arabic. ultimately given Egyptian nationality. tures and black magic. Al Masry Al Youm , September 4th Egyptian Streets, August 30th Al Watan , September 10th

64 • Business Monthly - OCTOBER 2018