1/Q: What is the role of the Capital Market Authority?
The capital Market Authority is the regulator for the Egyptian capital market. It is equivalent to the American SAC. It started its activities in 1979. Let me jump to the year 1992 and I will tell you why. You are aware of the fact that the government started its economic reform program in 1991. In parallel with the government reform program, we started a program in 1992 to reactivate and organize the Egyptian capital market. One of the main objectives of the economic reform program was to move to privatization. This meant that we had to have a strong and active capital market. So, effective in 1992 we started a program to reorganize and reactivate the market. The Cairo and Alexandria Stock Exchange is one of the oldest in Egypt. In 1998, the Alexandria Stock Exchange will have been operating for 100 years.
The role of the Capital Market Authority is of a regulatory nature and to supervise the license for participants in the stock market. It also approves public subscriptions, supervise the stock exchange and perform all the functions of a regulatory body for the Egyptian capital market.
2/Q: Since the Stock Market has been revived, what are the current main indicators?
I will give you the figures of the last three years compared to the previous eleven years. In practice, we started to have an active stock market in 1996. I have the figures in Egyptian pounds :
- The trading value in the stock exchange from January 1996 until 13 December 1998 is L.E. 56 billion compared to L.E. 9.1 billion from 1985 to 1995.
- Market capitalization changed from L.E. 8 billion from 1995 to about L.E. 80 billion as of yesterday.
- The listed companies are about 800 companies.
- Foreign participation, on average, is about 27%, i.e. one-third.
There is no comparison to the level of foreign participation in the last three years to what it was before. For example, in 1995, foreign participation in the market was about $ 50 million. In 1997, it was about $ 1.8 million. On average, foreign participation accounts to one-third of market activities. The market is very open. We did not have any restrictions for foreign investment. We had no restrictions on currency. We had no ceiling for foreign ownership. The primary market started to be active as well. The new issues of securities in the last three years (I am comparing the same period) were about L.E. 76 billion. So, the market became active during the last three years.
3/Q: This tends to mean that Egypt enjoys a well-developed and well-operating financial system?
My answer is "yes". There are several reasons but I will talk mainly about the capital market. The capital market is supported by the fundamentals of the economy. You may be aware that the rate of inflation was reduced to 4%, there are big reserves in the Central Bank and so forth. Therefore, the capital market is supported by the fundamentals of the economy. Second, we are very keen to implement international standards that are associated with the capital markets. To give some examples, all companies that are listed on the stock exchange have to implement international accounting standards and to prepare their financial sheets by accepted international standards. In addition, all companies have to provide the Capital Market Authority with their financial sheets every quarter. When we started in 1992 we had a new capital market law that took into consideration the international standards of capital markets. I can say, without any reservations, that we completely implement the international standards that are set by the organization, whether they are related to rules and regulations, exposure….etc. We are very keen to have an organized and open market. We treat Egyptians and non-Egyptians equally including the enforcing of rules and regulations.
4/Q: How has Egypt been affected by the wave of unrest which have swept over most emerging markets (external and internal reasons)?
We did not have the same reasons as Russia, South Asia and Brazil, simply because we have very good economic fundamentals. I would rather say that we were indirectly affected due to a number of reasons. First, there were psychological reasons. Second, one-third of the trade in the stock exchange is foreign, mainly the big financial institutions in the United States and the United Kingdom. The majority of mutual funds invest in each country according to the weight of the country. For example if the weight of Egypt is 2% and there is a mutual fund of $100 million, then they would invest $2 million in Egypt. When such institutions suffer losses from Russia and South Asia and the fund is reduced to $80 million, the $2 million is reduced as well. Therefore, some foreigners are obliged to sell their funds in Egypt just to balance their operations. We were indirectly affected not because we have any weakness in the economy but due to external reasons.
5/Q: Due to this snowball effect, there has been a large amount of supply with no demand. What is the policy of the government to increase demand?
We believe that to increase demand we need to have a more attractive market. We are trying to attract more institutions. If you wish to attract institutions, you have to have several big companies in the market. As a regulator, I am glad that the government has started to put public utilities up for privatization. Actually, when we talk about public utilities this means that within a year market capitalization will be doubled and then it will attract more institutions. The reason is if that large institutions want to invest $300 million, they do not want to wait three months to do so. But, rather, they want to invest that amount in two or three days. If there are companies here with high market-cap, it will facilitate investment in the market. So, the government in Egypt started to privatize the electricity sector and it will be followed by telecommunications. One of the biggest results of implementing the privatization program is that the private sector in Egypt started to use the capital market. We did not have a single holding company in the stock market two years ago. Within the last two years, we had 42 holding companies that were established by the private sector. Therefore, to attract demand you have to have an attractive market with big companies from both the private sector and public utilities.
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6/Q: Do you agree if I tell you that the best state companies have already been privatized?
No, I would not agree. When the government started the privatization program in Egypt they proceeded in a difficult way because they started with some industrial companies and not the public utilities. The government still controls public utilities. In any country, the public utilities are the most important ones that should be in the market. Therefore, I do not agree because they have just started to privatize public utilities.
7/Q: Many analysts say that Egypt needs to diversify the types of bonds it offers and develop its bond market as an investment tool. What is being done in this sense?
I am quite sure that Dr. Ghareeb (Minister of Finance) briefed you on the recommendations of the Capital Market Authority. The government started to issue governmental points every month now. We are very keen to activate the bond market. Our market is famous for being just an equity market. We have just started to have a bond market. To activate the bond market the government started to issue governmental bonds. Second, they started with 5-year and 7-year bonds but just one week ago we started to receive applications to issue 10-year and 12-year bonds. This will have positive effects on the bond market. To organize the bond market we made amendments in our executive regulations and put a condition so that any company that wishes to issue corporate bonds for the public, they have to be rated. I would say that the future of our market would be the bond market.
- There are only 18 listed companies which float corporate bonds. What is the government doing to encourage corporate bond transactions in the Egyptian market?
In our pipeline, we are going to buy a special trading system for bonds to activate the secondary market. We are going to buy a new trading system for bonds. We are also going to give licenses for market makers and dealers, especially for the bond market, to activate the secondary market. The private sector was just encouraged to use corporate bonds as a mean of medium and long term financing. For example, we have now 15 applications from private sector companies to issue corporate bonds. They are working very hard with the operating agency to rate their companies, which is a condition to issue corporate bonds.
8/Q: An increasing number of brokerage houses have started to pay attention to the Egyptian market. This is a direct result of the government reform program. How would this affect the Egyptian Stock Market?
As a regulator, I would say that it is good for us to have competition. We strongly support the big foreign brokerage firms to come and operate in Egypt to increase competition. We already have foreign companies like HSBS, Fleming, Morgan Stanley, and ING Barrings. We stopped giving new licenses for brokerage firms nine months ago. We put a condition that there will be no new companies unless they start big from the beginning. They should have a minimum of 10 branches all over the country and not only in Cairo because our plan in the Stock Exchange now is to open trading floors all over the country. We have a stock exchange in Cairo and another in Alexandria but in practice it is just one stock exchange with two trading floors. We plan to open other trading floors all over the country and for that you have to have branches of different brokerage in other cities. Therefor, I believe that competition is good. It may put pressure on the regulator to regulate the market but we have to accept this for the benefit of the market.
9/Q: How confident are you?
I can say that I am satisfied. We have just started to have our market on the capital markets map. Three years ago no one knew that there was an Egyptian capital market. I am happy that we stood in a good position at the time that most countries were experiencing difficulties because of the Asian crisis.
10/Q: Could you give us your own personal background?
I started as a Financial and Accounting Professor at the University. Then, I spent about 16 years with the United Nations in the same field. They have a policy at the UN to give developing countries what is called ‘development funds’ and they have a mediator for the fund. I worked for 16 years as a project manager. I came back to Egypt in 1987 to work in the Capital Market Authority. I worked as Deputy Chairman for
9 years and I was appointed Chairman in December 1995. I started my second term today.
11/Q: Keeping in mind that Forbes magazine reaches more than 4 million readers, what will your final message to them be?
Egypt started to have an organized market. I would say that the future of the market is becoming more and more attractive. We have just started to privatize public utilities, we are activating the bond market and so the market will be more and more attractive. Finally, the Egyptian market is very open. We have no restrictions. We carefully study what happened in Russia and South Asia and our big lesson was not to be relaxed but we still decided that the market would remain an open one. |
EGYPT
