Egypt’s Arab Wellspring

Ramses explained that the acquisitions will positively impact the Egyptian stock exchange, which has struggled since the beginning of 2022.

“For the economy as a whole and the stock exchange, in particular, these mergers and acquisitions deals are liquidity injections highly needed to increase volumes and lift indices,” Ramses said. “The acquisition deals targeted strong assets of high valuations, but their market prices are very low. Pricing is based on the market prices over the last three months before the deals. Most stocks are underpriced due to a decline in the stock exchange [especially following the Russian invasion of Ukraine on February 24].”

Egypt’s benchmark index EGX30 shed around 15% since the beginning of 2022 after selloffs by overseas investors. Arab investors have stepped in and bought 1.8 billion Egyptian pounds (or $93.7 million) of shares, according to data from the Egyptian Exchange.

“In the medium term, the acquisitions will create a great competitive advantage for Egyptian listed stocks, attracting foreign investors. This may lead to more acquisitions, pumping high levels of liquidity required for expansion plans, away from loans,” Ramses said.

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Dina Ennab, sovereign analyst at Capital Intelligence Ratings, says such foreign investments in real economic sectors (production of goods and services, wages, labor) help to broaden the scope and role of the private sector to enhance its participation in economic activity.

“Qatar, Saudi Arabia and UAE have pledged a package of $50-$80 billion; however, the timing and implementation of these investment flows remain uncertain as it hinges on the interest of investors in specific projects and agreeing on terms of deals,” Ennab told OZY.

She explained that foreign investments would help improve the medium- to long-term growth outlook of the economy, and even assist in partially alleviating some of the most pressing socioeconomic vulnerabilities in the country, such as unemployment.

“Doing business in Egypt boosts investors’ confidence in the economy, especially if coupled with a modern legal framework and incentives that assist in attracting investments,” Ennab said. “From a monetary perspective, foreign investments in real economic sectors are deemed a more stable source of foreign exchange funding and add to the government’s revenues directly and indirectly through taxes,” she said.

Ennab acknowledges that the outlook of the Egyptian economy equally hinges on several other factors, such as maintaining prudent fiscal policies, reining in inflationary pressures, and reducing external refinancing risks. She also says privatization is a key step to improving efficiency and expansion capacity without consuming public finances.

“The loss of the direct profit that these companies generate to the government budget is broadly compensated by the paid corporate tax and the savings on the public wage bill and social insurance, which in turn enhances the structure of the general government budget,” she said. “Privatizations encourage deeper, bigger and more meaningful participation of the private sector in the economy, which in turn increases free competition and enhances growth fundamentals.”

What do you think about the recent influx of Arab investment in Egypt’s struggling economy?