Egypt in focus: Tracking the money

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Following news articles around FDI inflows into Egypt, we look at the breakdown of FDI and possible sectors that could be beneficiaries. We find that the UK, the US and Belgium are the largest contributors to FDI in Egypt, with the UAE the largest source from the Gulf Cooperation Council (GCC), although losing weight. From a sector perspective, we see oil & gas as the main beneficiary, while commercial real estate, modern retail and consumer goods could see renewed interest.

Where is the money coming from? And where is it going?

The UK has always been the biggest contributor of FDI to Egypt. In 3Q FY16/17 (ending June 2017), it contributed 55% of the total, amounting to $1.8bn and stable YoY. The 9M FY16/17 period shows total investment of $4.8bn, up by 11% YoY and signalling increased interest, in our view. The UK was followed by the US, with a share of 14% of all FDI in 3Q FY16/17 (at $482mn), significantly increasing its share from 4% last year. Arab countries appear to be slowing their investment pace, with the UAE’s contribution falling to 5% in 3Q FY16/17, from 17% in 3Q FY15/16. More than 50% of all FDI went into the oil & gas sector in 2Q 16/17, amounting to $4.1bn. We think oil & gas is likely to dominate future inflows, especially as these companies’ large arrears are now being cleared following the easing of dollar liquidity. The second-largest sector was services, with 6.1%, and dominated by financials (2.2% share). Real estate, manufacturing and construction still account for an insignificant share of total FDI, with respectively 0.7%, 1.7% and 0.5% shares in 2Q FY16/17.

IF FDI continues at high levels, where do we see disruption?

Aside from oil & gas – historically Egypt’s largest recipient of FDI – we believe commercial real estate could be likely to see a greater impact from continued foreign interest, given Egypt’s limited mall space and low penetration of modern retail. We have already seen investments from UAE (Lulu, Majid Al Futtaim) and Saudi Arabian (Hokair, Al Othaim) groups in this sector. With several multinationals already operating in the food sector, we think modern retail could see significant investment in coming years. However, we do not see this as posing a potential major threat to existing players, as Egypt remains in the early growth phases in terms of modern retail (compared with GCC peers), with a highly fragmented market, as well as rising per-capita consumption and income. Banking could also present interesting opportunities, given what we see as scope for consolidation – most recently Attijariwafa Bank acquired Barclays Egypt. We think other regulated sectors, such as utilities and tobacco, are unlikely to see much FDI, which should help incumbents to benefit from ongoing reforms in these sectors. Egypt’s Minister of International Cooperation Sahar Nasr, in a recent media interview, mentioned Al Ghurair Group and Emaar Properties as potential investors, with interest from investors in sectors including oil & gas, real estate, tourism and logistics; she also said multinationals such as Mars Inc. and General Electric were planning expansion in Egypt. Billionaire Saudi Prince Alwaleed bin Talal, who owns 40 hotels in Egypt (in addition to 18 others still under construction) is to invest c. $800mn to expand the Four Seasons resort in Sharm el-Sheikh and we see the Tourism sector likely to continue to generate strong interest.