1/Q: Could you give us a brief historical background of the Egyptian Stock Exchange?
We had the Stock exchange in Egypt more than 100 years ago. It was established first in Alexandria and then in Cairo. Until the 1960s, the Stock Exchange was very active and played a significant role in the Egyptian economy. Starting from the 1960s and the nationalization policy of the government, the activities of the stock exchange started to freeze. This continued until the early 1990s. The Stock Exchange started to slowly re-play a role in the economy in 1993 and 1994 when the government started its privatization process. From 1996 until February 1997 the Stock Exchange had a peak. After February 1997 there was a decline in the stock exchange for several reasons, some of them are obviously international and others domestic (changes in the tax law, low privatization offerings). Today we can see that the Stock Exchange now plays an active role in the economy and can assist companies to raise capital for their projects.
2/Q: Since 1992, what was the trend of the Egyptian stock market, i.e. the main indicators?
The stock market, from February 1997, has been declining. Now it is picking up. There is an increase in the activities and the volume of trading. This is a good sign. Many of the private companies are coming to the stock market to raise capital. We anticipate that with the privatization program, and big projects will come to the market next year. This will increase the capitalization of the market. We also have diverse products in the market. This will increase the diversity of the products in the stock market as well.
3/Q: Would you say that Egypt enjoys a well-developed and well-operating financial system? Whether your answer is "yes" or "no" could you tell us why it is so?
We can say that Egypt goes through different phases as any emerging market. The foundations for the economy are considered to be very strong. As for the stock exchange, we started in the last two years to build an institution in the stock exchange with the vision of what we want to do. We have a new trading system that is in the process of implementation with a Canadian company. It should be operating by next summer. We have established new departments in the stock exchange. One of them is the surveillance department to monitor the market and prevent any fraud. We are in the process of automation in the stock exchange. Not only will we have a new trading system, but also everything will be automated. We still need some regulatory forms in the capital market for corporate governance. We want to be sure that minority shareholders’ rights are being protected, which is a very important factor. We will introduce membership rules to be sure that whoever will be a member in the Stock Exchange will be able to provide the investors with the right service and the right research. We also want to make sure that the quality of that service is the right quality for the investor. We will establish a dispute resolution system within the stock exchange to solve the disputes that may arise between investors and brokers or between brokerage firms among each other. We also feel that there should be a depository act to help in lending securities in the market. If we succeed and we believe that we will, we will have a financial center that is on the right track and efficient.
4/Q: In 1992, according to the structural reform the capital market has been revitalized. Still, some say that the Egyptian Stock Market is still in its infancy and the market is too small?
There are two main factors. First, you need to have attractive products in the market. This will happen through the privatization program. There are sectors coming to the market and especially utilities, telecom, power station and electricity. This will encourage more institutional investors and more foreign investors to come. There will be more transparency and more disclosure and this will encourage investors to come. The way to do is by having this diversity in products and also by having more professionalism in carrying out the privatization like having investment banks, syndicates, etc. If you have this method in privatization it will encourage more foreign investors to come to the Egyptian market. On the other hand there is all the regulatory aspects that protect the rights of the investors. This will also encourage them to come to the market. In addition, if there is an increase in the liquidity in the market by encouraging more domestic institutional investors to participate in the market because they need to come to a liquid market.
- In which sectors of the economy do you foresee a pick in the coming years?
This is a difficult question to answer because it is difficult to forecast which sector will pick up. Each sector has its own attractive aspects.
- Do you agree if I tell you that the best state companies have already been privatized?
No because what we are really looking for is for the telecom to come to the market. With the electricity companies coming to the market and the power stations as well, the market will still be very much attractive to the investors.
5/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 your opinion?
One of our plans is to establish an efficient fixed income market and bond market. We need to have the infrastructure. So, we need to have the trading system with the rules and the regulations, who will participate in this market. We want to focus on that in the next year. But most certainly one of our main tasks will be to start to establish an effective bond market.
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6/Q: More and more brokerage firms are paying attention to the Egyptian market. How do you foresee the increase in competition in the market? What will be its effect?
First of all, it is not only an increase in competition. It is also an increase in the quality of the service that is provided to the clients. We want two things. As I said, we want to introduce the membership rules and structure. By that, we are trying to increase the quality of service that is being provided to the investors. Of course not all of the companies will be able to meet our requirements but we want to be sure that the back office of the firms is well run by the firms. This means that there will be companies that will not be able to maintain their back office so we will have companies to run the back office for the small companies or any institution that will not meet our requirements. As a result, they need to focus on the front office by reaching the client and trying to provide services to the client in the front office. One thing that we are concerned about is the commission of the groups because we want competition. But, what happens sometimes is that they compete on the fees that they are getting from the clients. The question is that if they reduce their fees how they will be able to invest in the development of their business. The competition should not harm this aspect. So, we want to look at the quality, the fees of the brokers, and their back offices. If we are sure about all those matters, competition between firms will be healthy.
7/Q: What are your objectives to upgrade the procedures of the stock market?
We already have a vision of what we are doing and it covers several fronts. First, the automation of the stock exchange. We have a new and changed system. We are also in the process of developing a master plan for the automation of the stock exchange. We are working with the Ministry of Economy and the Capital Market Authority to see the new legal reforms taking place. We also believe that we have to work with the community to develop more of what we are doing. It will benefit us to get their feedback to make sure that we are moving in the right direction. We want to increase the human resources that we have and to attract more qualified people to come to the stock exchange to enhance our performance. We are in the process of establishing an international advisory committee that will invite investment banks and the international business community to be on a board of advisors to the Stock Exchange. This will link the institution of the stock exchange to international institutions. At the same time we will get their feedback on the policies adopted and implemented by the stock exchange.
8/Q: Foreign brokers are publishing glowing reports about the government’s strong commitment to economic reform and privatization. What is your opinion?
We encourage foreign brokerage firms to come to Egypt for several reasons. We think that there are opportunities for them to have good business in Egypt. Second, we believe that foreign brokerage firms will help to get the know-how and training the local participant sin the Egyptian market. Egypt had a strong market for a long time but the market was then frozen for 30 years. So, building an efficient capital market needs the accumulation of experience. By having foreign brokerage firms in Egypt we believe that they will transfer their expertise to the Egyptian market.
9/Q: Are you confident in the future of the market and the country?
Definitely yes.
10/Q: Assume that I have $1,000,000 to invest . Would you give me an investment advice for free?
Yes, but I will be accountable for it.
11/Q: Could you give us your personal background?
I started as under-secretary for the financial and commercial firms in Egypt. Then, I went to Harvard Law School for my masters. Then, I went to Stanford Law School for my pH. D. in capital market rules and regulations. I worked in the United States for some time. I came back to Egypt to work as a senior advisor to the Ministry of Cabinet Affairs. The former Chairman asked me to work as the Vice-Chairman of the Stock Exchange. I started in April 1998. Before that, I was a member of the board since August
1997. When Mr. Raafat decided to end his term and return to his family in London, I was asked to become the Chairman of the Stock Exchange to continue the plan that we started. I am 38 years old and I am the youngest to be in this position. But we believe that building confidence in the market takes time and it will also require continuity. Failure is not an option. We want to do our best and we are very aggressive.
12/Q: Keeping in mind that Forbes magazine reaches more than 4 million readers, what will your final message to them be?
Come and invest in Egypt.
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EGYPT
