In an interview with Daily News Egypt, Mouayed Makhlouf, the International Finance Corporation’s (IFC) director for the Middle East and North Africa region, said that IFC’s investments focus on improving Egypt’s infrastructure, supporting manufacturing companies, extending trade financing facilities, and expanding access to finance small- and medium-sized enterprises (SMEs).
Did the IFC receive new requests from the Egyptian government for loans to fund new projects? If so, please tell us about these projects.
At the IFC, we focus on private sector development, helping companies grow, creating jobs, and delivering essential services. We do this by offering a wide range of investment and advisory services. We believe a vibrant private sector has the ability to create jobs and contribute to economic growth, thus improving livelihoods and alleviating poverty.
While the IFC is a member of the World Bank Group, it is important to note that we do not provide loans to governments or government-related agencies. Our lending is focused exclusively on private sector companies.
Our work with the Egyptian government comes under our advisory programme. We help the government streamline burdensome regulations and policies, and advise on the best practices to create a business-friendly investment climate.
To address the challenges Egypt has been facing over the past few years, IFC invested a total of $1.5bn (including funds mobilised from other investors) between fiscal years (FY) 2011 and 2016. These investments focus on improving the country’s infrastructure, supporting manufacturing companies, extending trade financing facilities, and expanding access to finance small- and medium-sized enterprises (SMEs).
Our work in Egypt aims to build investor confidence, supporting the country during its transition by encouraging private sector growth. We hope that our investments will send a positive signal to regional and global investors, helping to attract foreign investments.
What is the IFC’s expectation for Egypt’s economic growth potential?
Egypt holds long-term potential for investors. The government of Egypt has been working to address some of the major issues facing investors. Improving the business environment should be a priority, including building a strong legal and regulatory framework. Priorities include strengthening contract enforcement and insolvency procedures, easing industrial licensing and investment approvals, and improving access to land and construction permits.
Currently, Egypt ranks 131st among 189 countries on the Ease of Doing Business indicator, according to the World Bank Group’s 2016 Doing Business Report. This means there is room for regulations to become more business-friendly. Another challenge is in enforcing contracts, where it takes more than 1,000 days to resolve commercial disputes through the courts. On this indicator, Egypt ranks 155th among 189 countries. That’s why the World Bank Group launched its Alternative Dispute Resolution programme in Egypt. It is an attempt to help companies resolve commercial disputes quickly and easily through mediation.
Will you increase the portfolio regarding Egypt in the coming period?
Our investments have been designed to support Egypt’s private sector, create jobs, and spur growth, all considered vital in a country that has struggled economically in recent years. During FY 2015-2016, which ended on 30 June, the IFC invested a total of $352m in seven projects across Egypt’s banking, manufacturing, infrastructure, and hospitality sectors.
Prioritised sectors for us are infrastructure, with a focus on energy projects and renewables, transportation and water, and education. We also believe it is important to support manufacturing projects that create jobs.
What are the current projects that the IFC is committed to in Egypt?
To support the country’s manufacturing sector, the IFC acquired a 20% equity stake in the Egypt-based Sphinx Glass, helping the company expand its operations. The IFC also invested $25m in Carbon Holdings, an Egyptian maker of petrochemical products required in a range of industries, including mining, food packaging, and automotive assembly.
To support the development of essential infrastructure projects across the country, the IFC provided a financing package of $144m to Sonker Bunkering Company, to help the firm develop Egypt’s first private liquid fuel terminal. This will help the country meet a growing demand for fuel products and energy.
Finally, to support the recovery of the country’s tourism sector, the IFC provided a $10m loan to Credence Hospitality Developments, supporting its expansion and helping preserve jobs amid the difficult time the sector is facing.
What is the size of loans allocated for funding SMEs in Egypt? Additionally, what are the recent requests you received and the IFC’s decision in this regard?
There is no ceiling to the level of support the IFC can allocate to help Egypt’s private sector, especially amid the current economic challenges. We are exploring investment opportunities in Egypt and are ready to provide financial and advisory support to the private sector as needed. We are looking at potential investments in all sectors and we focus our efforts on supporting smaller businesses as they are considered the main drivers of growth, not only in Egypt, but globally. SMEs in Egypt contribute to 75% of private sector employment and 25% of the GDP.
To support SMEs in Egypt, help them grow, and create jobs, the IFC provided a financing package of up to $75m to the National Bank of Kuwait – Egypt and a $100m loan to the Arab African International Bank to scale up their lending efforts to SMEs and help the banks build their sustainable energy financing credit line. This will help bank clients reduce energy costs and consumption and increase competitiveness.
The financing is part of the World Bank Group’s new Country Partnership Framework for Egypt for 2015–2020, and part of the IFC’s strategy that aims to strengthen the country’s private sector and spur job creation, reengage with its banking sector, and increase climate-related investments.
In 2013, we invested $6m in Fawry, a growing electronic payment company, to extend crucial financial services and encourage economic development across the country.
On the advisory side, the IFC helped the Dakahlya Businessmen’s Association for Community Development (DBACD), a leading microfinance institution, develop housing finance products to improve the living conditions of poor families. With grant funding of $245,000 from the IFC, DBACD has been able to provide housing loans to 500 families.
The bank is interested and committed to promoting overseas trade, as this is one of the IFC’s strategic priorities through an international finance programme. What finances are provided to Egypt in light of the programme? Will the IFC allocate a credit line to Egypt to support trade under the current slowdown in Egypt’s trade exchange?
Supporting cross-border trade is another priority for the IFC in Egypt. In FY 2016, we provided a total of $41m. It included two new trade financing lines to Al Baraka Bank—Egypt and National Bank of Kuwait—Egypt, and our continued support to Alexbank and Ahli United Bank—Egypt in providing trade financing to their clients. The financing helps bank clients import critical commodities. In the next fiscal year, we aim to involve other Egyptian banks in the programme.
The agreements were part of the IFC’s $5bn Global Trade Finance Programme, which works with more than 265 partner banks worldwide.
What is your opinion regarding the solar companies’ objection to local arbitration? Did the IFC suspend funding solar power developers due to local arbitration?
Access to power is among the top 10 constraints facing Egypt’s private sector, according to the World Bank Group’s 2013 Enterprise Survey. Focusing on renewables can help change that. Renewables are an important part of Egypt’s energy future. The country is blessed with strong winds and abundant sunshine—with proper support, these could be the basis of a vibrant, eco-friendly industry. With its expertise and financial resources, the private sector can play an important role in bringing much-needed new power plants online and alleviating the nationwide power shortage.
The IFC remains committed to Egypt’s energy sector and supporting the government’s agenda of promoting private, sector-led, renewable energy projects. We believe this is vital for the energy strategy that the Egyptian government adopted last year. Some elements in the first round of Egypt’s feed-in tariff (FiT) programme were unfortunately not in line with what we have seen from other programmes launched around the world. In order not to postpone the programme further, we had agreed with the government not to participate in that first round of projects under the FiT programme. That said, we are now evaluating how to support private sector participation in the second round of the FiT programme that has just been announced by the government.