Cairo has to make decision on international banks

03 August 2015

Egypt’s economic investment strategy relies heavily on foreign funding

As Egypt’s attempts to attract between $200bn and $300bn of investment, its many foreign partners in the West, the Arab world and even east Asia have overflowed with promises to invest there. The government announced billions in infrastructure projects, across every sector from power plants to rail to real estate.

Implementing the deals and projects announced is another matter entirely.

Egypt has growing public debt and fiscal deficits, meaning the majority of infrastructure projects will have to be funded through financing deals. This will be a major hurdle.

The local banking sector has some capacity, but limited appetite for project finance.

As a result Egypt will be relying on foreign capital, through foreign direct investment (FDI), project finance from international banks and development banks.

All three sources will be hit by concerns over currency risk, following a precipitous decline in Egypt’s foreign reserves following the Arab spring. A recovery in 2015 has been driven more by GCC generosity and support than improved economic conditions. The expansion of the Suez Canal and a rebound in tourism should help bring reserves to pre-2011 levels.

Until then, foreign investors and lenders are looking for reassurance that they will be able to expatriate their earnings. Export credit agencies can cover one-off deals, but for long-term public private partnerships developers are looking for enforceable government guarantees.

Egypt, always a nationalist country, is still deciding how far to accommodate the demands of foreign companies to attract investment.  It will have to walk a narrow line to achieve its own strategic aims, such as sustainable economic growth, job creation and reducing public debt.

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