 An Investment Haven |
Egypt's investment climate is getting better all the time. Trading value was about $12 billion in 1999, compared with about $7 billion the previous year, along with an inflow of about $1 billion in foreign capital, a far cry from a net outflow of $120 million in 1998. Total market capitalization has risen nearly 45 percent over the last year to around $40 billion, nearly 46 percent of GDP.
Abdel Hamid Ibrahim , chairman of the Egyptian Capital Market Authority (CMA) , says the introduction of the New Bill for Central Depository and Listings will boost confidence in the Egyptian market. Under the law, it is now compulsory for all companies listed on the stock exchange to be admitted to the central depository. Registration has also been centralized, and foreign managers will be permitted to use nominees--something that will hopefully spur increased foreign investment. The new law adds registration to the list of duties performed by the Misr Company for Clearance, Settlement, and Central Depository (MCSD), whose main function is clearance and settlement for all securities listed on the stock exchange, as well as serving as the central depository for the Egyptian market.
Meanwhile, the market has struggled with the dual weight of sluggish privatization and a lack of liquidity. With stock prices down, international investors may seek Egypt as a haven from the turbulence in global markets, as they have in neighboring Turkey.
The stock gaining the most attention is MobiNil, but is followed by shares in the Media Production City Company, a three-million-square-meter desert media zone that has already signed deals with the popular Arabic channel El-Jazerra, as well as other regional favorites Orbit and Showtime.
Beyond these two stocks, there remain only a few with a market capitalization of more than LE1 million, including Orascom Construction Industries (OCI), Aluminum Company of Egypt, Al-Ahram Beverages (ABC) and Eastern Tobacco. International investors are drawn to MobiNil, OCI, Commercial International Bank (CIB), Misr International Bank (MIB), ABC and Suez Cement Company.
Foreign investment in the market stands at $3.9 billion, representing 13.8 percent of all shares, up from 6 percent in 1998. Despite the feeling of some international investors that Egypt's market is biased towards national capital, Ibrahim insists that transparency remains the name of the game and that the CMA as an independent institution is on watch.
"The Egyptian market is open--there are no restrictions now, neither will there be in the future," Ibrahim says in reference to the cement industry. "We have made it clear to the government and to the various holding companies that the market is open, and there is no room for interference."
Transparency, especially concerning family-owned companies, continues to be an issue. Sameh El Torgoman, chairman of the Cairo and Alexandria Stock Exchange (CASE) , says that the demands of shareholders will force companies to be more open.
"Shareholders will be asking for certain rights. Now companies understand that they need to compete in order to succeed," says Torgoman. "This will oblige corporate managers to think in a different way." To help this process along, the CASE--also known as the Egyptian Stock Exchange or "Borse" in Arabic--has established a disclosure department on the exchange, whose members have been trained abroad to ensure that more information is available for investors. Torgoman says this information will be available for all on the Internet. | The CASE has also installed an Automated Trading System (ATS) that will facilitate trading as well as better security through the introduction of a surveillance system equivalent to systems used on the NASDAQ. This has accompanied renovations of the trading floor to accommodate the new system.
MCSD Deputy Chairman and Managing Director Abdel Salam sees investor confidence increasing with the changes. "The existence of a clearing mechanism guarantees those buyers and sellers their rights. Shareholders and investors have become more confident as a result of the market becoming safer and secure," says Salam.
The privatization of a 20-percent stake in Egypt Telecom and the four big state-owned insurance companies has increased investor interest in the stock market. To turn such interest into activity, investment houses have played a key role in helping investors navigate the complexities of the Egyptian market.
"The Capital Market Authority is keeping investors honest by establishing strict and vigilant clearing mechanism", Golo, published in Cairo Times 28-10 June 1998
Many investors are gravitating towards firms like HC Securities for the benefits of having many services under one roof. The firm has partnered with heavyweight international broker Morgan Stanley since 1997 to offer its customers in Egypt and the Middle East mutual fund and portfolio management, investment banking services and, more recently, brokerage services.
Hussein Choucri, chairman and managing director of HC Securities and Investment, says that an upswing in privatization should bring investors back to Egypt. "Now and then there are some detours or distractions that affect the market valuation. This is a result of having an open and transparent economy in which every little change in policy has an immediate effect on the market," explains Choucri. "I'm hopeful that we will see better valuations."
Despite the downturn, more and more companies than ever before are going public. Currently, the CASE lists 960 companies, with more offerings from public-sector privatizations and family holding companies expected this year. With smaller investors getting into the game, some observers have raised concerns that speculators, combined with amateurs, could add instability to the Egyptian market.
"What I see missing on the CASE is a well-informed, intelligent local investor," says Adel Youssry Khedr , chairman of FinRate Consulting S.A.E. , "a corporate finance boutique" offering services in management consulting and recruitment. "There has not been any effort made to support a new generation of potential investors and to educate them on the mechanics of the stock exchange." FinRate recently diversified its operations and launched SkillRate Advisors--the first dedicated executive search consulting firm in Egypt.
While privatization is always good news for the market, the liquidity crisis--which spurred the divestitures and the government measures to solve it--is not without costs. "There is a price to be paid: the slowing down of the economy," says Mohamed Taymour, chairman and managing director of EFG Hermes , Egypt's largest securities brokerage. "Growth will probably be slower this year, but this is necessary for us to enter next year on a solid base."
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