Interview: Hisham El Khazindar
What is your outlook for the economy now that Egypt has a new president?
HISHAM EL KHAZINDAR: The Egyptian Revolution has presented us with what is literally a once-in-a-lifetime opportunity to chart a new path for our nation — one that could ultimately result in a more stable, faster-growing nation in which economic opportunities will be both broad and underpinned by greater accountability, transparency and accelerated reforms.
It would, however, be unrealistic to expect capital inflows to rapidly increase. Money will follow signs of lasting stability including a resolution on parliament, the appointment of a cabinet that includes ministers with proven economic management credentials, the drafting of a just and workable constitution that protects the rights of all Egyptians, and the articulation by the president of a clear economic vision for the nation. The conclusion of an IMF-led facility would also send the signal that Egypt’s economic vision is bankable.
Ultimately, our nation is rich in economic opportunities underpinned by a large, young and increasingly talented workforce; cost-factor advantages in energy and labour; an abundance of raw materials; proximity to major global export markets; and, not least, nearby consumer markets that include some 400m Arabs, more than 1bn Africans and more than 700m Europeans. With this in mind, we see significant opportunities for long-term investors in sectors ranging from refining and energy distribution to transportation and solid waste management as well as agriculture, consumer foods, and mining. All of these sectors, of course, are in one way or another plays on Egypt’s large domestic market and/or the size of our proximal export territories.
Beyond bank loans, what types of financing tools are available to local businesses?
EL KHAZINDAR: Access to finance is at the top of a list of challenges small and medium-sized enterprises (SMEs) face in Egypt, and it has a great deal to do with the traditional risk aversion in the nation’s banking sector, where there is a marked preference for “safer” lending to larger enterprises. There are alternatives to bank financing, of course. The market is also seeing new venture capital (VC) interest in tech-based start-ups. The catch is that private equity, VC, and the time-proven access to capital through friends and family is no substitute for a banking sector that is willing to invest in SMEs. What Egypt needs is a government programme akin to the US Small Business Administration’s Small Business Investment Company, which provides credit guarantees to SMEs and incentives to banks to lend to SMEs.
Finally, SME financing is alone not a magic key that will unlock growth. Balanced economic growth will come from new credit to SMEs, continued financing for large enterprises, and careful attention to that critical slice of mid-sized enterprises that are sufficiently institutionalised and well-governed to become large-scale corporations provided the funding is in place.
How should the current system of energy subsidies be reformed and can it involve the private sector?
EL KHAZINDAR: Sustainable economic growth in Egypt requires restructuring and improving our subsidy system, which, as it stands, is both inefficient and unsustainable. The current system should be replaced by direct cash and coupon subsidies that reach households that need assistance. We cannot unnecessarily subsidise heavy industry or promote inefficient use of petroleum products. Egypt should look at the successful direct cash programmes in Iran and Brazil as examples.
In fact, the private sector has the chance to provide solutions to Egypt’s energy challenges by helping the nation shift to a more efficient use of energy. While many businesses have roles to play, I believe that our industry is uniquely positioned to bring together great ideas with sources of capital. The phasing out of subsidies is a medium-term goal that will demand careful planning, tight enforcement and substantial reserves of political will. It is in the nation’s best interest to change its system and private businesses are key to achieving this.
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