Flotation toughest, most daring decision between Euromoney 2016, 2017: Fayed

Hossam Mounir
11 Min Read

CEO and managing director of Bank Audi Egypt Mohamed Abbas Fayed said that the flotation decision was the most difficult and boldest decision between Euromoney 2016 and 2017.

Fayed told Daily News Egypt that the economic reform programme, which the government started to implement is a new start for economic growth and financial stability, stressing that although the Egyptian economy is characterised by diversity, “we have not exploited our potential to the optimal form so far.”

He added that high inflation, lack of a specific investment map, streamlining investment procedures, and confronting bureaucracy are the most important challenges facing the Egyptian economy.

Fayed pointed out that the banking sector has never ceased to support the economy even in the most difficult circumstances and has a strong liquidity to enable it to continue its role to the fullest, highlighting that food and beverages, contractual agreements, building materials, oil, gas, and pharmaceuticals are the most attractive sectors of banking finance.

Between the Euromoney Conference in September 2016 and the new version in 2017, the government and the Central Bank of Egypt (CBE) have taken a number of measures within the framework of implementing the economic reform programme. How do you evaluate these measures and their implications for the Egyptian economy?

The decision of the CBE on 3 November 2016 to float the Egyptian pound and leave its price to supply and demand was the toughest and most daring decision. It contributed to boosting the support of financial institutions to Egypt. Thanks to that decision, Egypt was able to obtain the approval of the International Monetary Fund (IMF) on a $12bn extended loan facility spanning three years. Egypt has already obtained two tranches of the loan.

In addition, Egypt successfully promoted international bonds offerings worth $7bn on two tranches, one of $4bn and the other of $3bn. The offerings were met by international demand, which is a recognition of the reform plan adopted by the state.

These decisions also contributed to the elimination of the black market and bringing back the foreign exchange liquidity to the banking sector. Banks have now collected some $40bn from clients and the banking sector was once again able to meet all the outstanding needs of the importers, in addition to providing dollar financing to their customers from the private sector. The dollar has become available within the Egyptian market and is governed by the strength of supply and demand.

What is your vision of the Egyptian economy at the moment? What about its future in the coming period?

The decisions of the economic reform programme of the Egyptian government, foremost of which is the liberalisation of the exchange rate, represents a new start for economic growth and financial stability, the return of domestic and international confidence, and the elimination of the parallel market and the provision of the dollar for different sectors. The reform also paves the way for an increase in Egyptian exports, proceeds of remittances, and volume of foreign investment in government debt instruments.

The improvement of the investment climate, with the new Investment Law passage and adoption of its bylaws will contribute to controlling the business environment, attracting foreign investment to Egypt and encouraging the private sector. The Egyptian economy is characterised by diversity and a lack of dependence on a particular economic sector. The Egyptian market is considered a big one, thanks to its large population. The country is at the centre of the world, but so far, we have not exploited these possibilities optimally.

Do you think there are challenges still facing the Egyptian economy now?

There are many challenges facing the Egyptian economy during the current period, namely its ability to achieve growth and attract investment, in light of high inflation rates, which the CBE targets to tame using all its tools. The inflation is hence expected to decline by the beginning of 2018.

The absence of a specific investment map so far is also a major project. Such map will showcase all the opportunities available in all fields, especially after President Abdel Fattah Al-Sisi ordered the establishment of the Supreme Investment Council under his presidency. The council has since passed 17 decisions that eliminate bureaucracy and encourage local investors to pump more investment.

The simplification of procedures for investment in Egypt and facing the bureaucracy are among the most important challenges that are facing the Egyptian economy today, which is on the way to kick off, supported by the economic reforms adopted by the state.

What activities or projects can help the Egyptian economy move quickly?

Small and medium enterprises (SME) are the mainstay of the national economy for all developed countries, as they are capable of leading growth and development.

It should be noted that the CBE’s launching of an initiative for these projects reflects the great attention paid by the political administration of the country to this vital sector, which has the ability of revitalising the Egyptian economy in the coming years by boosting the size of funding to the sector to EGP 200bn in the course of four years.

Bank Audi is very interested in financing this sector, which represents the growth engine. We have a specialised management team for this sector. We will achieve good growth rates in its finance portfolios in the coming years. We will not only stop at financing the projects but will also serve as the financial adviser to the clients of this sector so that they can achieve profitability that can be reflected on the size of their businesses and support the growth rates of the Egyptian economy.

How did the decision to liberalise the exchange rate affect the performance of banks?

This decision has had a positive impact on the banking sector, which succeeded in taking responsibility for managing the exchange rate file after the CBE’s decision in November 2016. The banking sector was able to attract dollar liquidity again, which enabled it to meet all the needs of dollar needs and cover the imports from abroad. I expect that the sector will continue to play its role in support of the national economy in the coming years.

What role could banks play to assist the Egyptian economy and help it move?

The banking sector has never ceased to support the Egyptian economy even in the most difficult circumstances. It has effectively contributed to the provision of all the financing needs of the public and private sectors, as well as being the biggest financier to the state and bridging the budget deficit through investment in treasury bills and bonds, next to supporting SMEs and mortgage, in line with the CBE’s initiatives.

The sector has strong liquidity, and this enables it to continue its role to the fullest by providing all necessary funding for development projects that support the growth of the Egyptian economy.

It is also important to emphasise that financial inclusion is one of the important axes that can maximise the role of banks if they increase and raise citizens’ awareness of the importance of dealing with the banking sector, because increasing the awareness of consumers (as well as their numbers) inspires banks to come up with new ideas for products and develop branches to meet different needs.

And what is the benefit to the state from financial inclusion?

Financial inclusion is the lifeline for Egypt because it is able to raise the level of the economy in Egypt through the integration of the informal economy within the formal sector, and thus increase the size of the GDP. Through financial inclusion, the state can control the movement of funds, be ready for changes, fight corruption, and increase tax revenues, which constitute 12% of the country’s total revenues—the world average is 40-50%. If we manage to reach this ratio in Egypt, we will no longer have a deficit in the budget.

Moreover, the state has a role in motivating citizens and SMEs and spreading banking culture to promote financial inclusion. In terms of banks, they have also prepared the infrastructure and upgraded their information technology in branches around the republic to offer a diversity of products to all clients.

With respect to your bank, what projects and activities are you focused on financing in service of the economy?

We follow the diversity policy in the finance portfolio in order to avoid credit concentration in a particular sector, which reduces the risk and increases the base of customers with the bank. Hence, we are keen on this diversity and give a certain percentage to each sector.

There are sectors attractive to finance because of the growing demand for their products, such as food, beverages, construction, construction materials, oil, gas, and pharmaceuticals.

We also care about the industrial sector, especially the businesses in it that manufacture products that replace imported ones, and the export industries are considered attractive sectors of finance.


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