Egypt’s net foreign reserves hit unprecedented levels this week to reach $38.2 billion, surpassing the 2011 level of $36 billion which had been considered a benchmark. Although the Central Bank of Egypt (CBE) has not clarified where the increase in the reserves has come from, the majority of the reserves accumulated since late 2016 has come from foreign borrowing.

The leap in the foreign reserves comes days before Egypt is set to go to the international markets for a new issue of Eurobonds of around $4-5 billion. The country sold $7 billion worth of bonds last year. However, despite the new round of borrowing the latest increase in the reserves is being viewed as a sign that Egypt’s economic reform efforts are on the right track and are bringing in investment.

The increased investment that Egypt has seen this year is a positive sign, with several new investors promising entry to the Egyptian market. Joint US-Saudi Arabian investment worth $3.3 billion is scheduled to establish a Disneyland-style amusement park in Marsa Matrouh on Egypt’s North Coast.

Minister of Investment Sahar Nasr said the new park would be the largest foreign investment project agreed after the adoption of Egypt’s new investment law and executive regulations. The project is expected to trigger investment across the North Coast.

The UAE-based Al-Ghoreir Group also recently signed a $1 billion investment project that is expected to meet 80 per cent of sugar consumption in Egypt.

With the announcement of the new investments, Egypt hopes to be on track to maintain its targets for this year, put recently at $12 billion instead of the earlier figure of $10 billion.

The government’s reforms have increased confidence in the Egyptian economy, resulting in higher foreign investment and economic growth, International Monetary Fund (IMF) Managing Director Christine Lagarde has been quoted as saying.

Speaking on the sidelines of the Opportunity for All Conference in Marrakesh in Morocco, Lagarde said last week that Egypt would not be enjoying its current investor confidence had it not been for the implementation of the reform measures.

Egypt embarked on an economic reform programme in 2016 with the support of three-year funding of $12 billion from the IMF’s Extended Fund Facility (EFF). Egypt’s GDP growth rate is also expected to reach around five per cent in the current fiscal year, compared to 3.5 per cent in 2015-2016.

“Investments were the main driver of the growth rate in the last quarter,” Omar Al-Shenety, managing director of the Multiples Group, a private equity firm, told Al-Ahram Weekly, though he lamented that the investments had been mostly made by the government.

The overall public-investment figure exceeds what appears in the country’s budget, as investments by authorities such as the General Petroleum Corporation and the Urban Development Authority are not necessarily included in the general state budget, Al-Shenety added.

Despite improvements, investment by the private sector remains limited, he said. Private-sector investment declined sharply after the 25 January Revolution due to the ensuing political upheaval and lack of security.

Foreign direct investment (FDI) inflows reached $8.7 billion during the 2016-2017 fiscal year, up 26 per cent when compared to the $6.9 billion in the previous fiscal year.

Besides the economic reform programme which aims at achieving macroeconomic stability, the reform of investment-related laws has also taken place, the most recent being the approval of a new bankruptcy law. This was preceded by other laws facilitating the setting up of industries and other investment.

Meeting in Cairo this week, the Egyptian-Saudi Business Council praised the improvement in the investment climate in Egypt, saying it had become more attractive for foreign investment. Saudi Minister of State Essam bin Said said Saudi businessmen wanted to invest in real-estate development, date-processing and alligator-skin tanning near Lake Nasser.

Egypt now enjoys an attractive climate for investment, Abdullah Dahlan, chairman of the board of the University of Business and Technology in Jeddah in Saudi Arabia told the Weekly, adding that investing in Egypt was a long-term commitment.

Kamal Sarhan, general manager of Al-Shairco for Trading Industry and Contracting, a Saudi company operating in Egypt, believes that the investment climate is now better and procedures are easier, though licensing may still take some time.

However, despite the wide interest in the Egyptian economy, Al-Shenety said that some companies were still holding back as they were dealing with the effects of the devaluation of the Egyptian pound in late 2016. The exceptions are those dealing with the government like real-estate development companies or those whose products are exported as they benefit from the lower currency value, he said.

The Emirates NBD Egypt Purchasing Managers’ Index (PMI), a measure of non-oil private-sector perceptions of the economy, showed a pick-up in new export orders earlier this week. According to Daniel Richards, a Middle East region economist at Emirates NBD, “this stands as an indication that the difficult economic reforms enacted in late 2016 are starting to pay off.”

The PMI said new export orders had expanded in January thanks to greater demand for Egyptian goods and services on international markets.

Alia Al-Mahdi, a professor of economics at Cairo University, applauded the measures taken to encourage investment such as the new investment law and its executive regulations, the liberalisation of the exchange rate, and the approval of the new industrial licensing law.

Al-Shenety expects portfolio investments to remain high in the coming period as the Egyptian stock market will witness a series of initial public offerings (IPOs).

The stock market, which has a capitalisation of $45 billion, has also benefited from net inflows of foreign funds, coming to LE7.5 billion in 2017, the highest since a record LE8.4 billion in 2010, according to stock-market data. Since the pound was floated in November 2016, going from LE8.8 to the US dollar to LE17.7 today, the Egyptian blue-chip index the EGX30 has climbed more than 70 per cent.

Investment in treasuries is also expected to remain buoyant. Even with an expected three-to-four per cent decline in interest rates, Egyptian treasuries will still be among the highest-yielding among emerging markets, Al-Shenety said.

In US dollar terms, foreign holdings of Egyptian treasury bills are now nearly three times the previous high in 2010, with about half the investment coming in during the last few months of 2017.

To guarantee sustained investment, Al-Shenety said that the stability of legislation governing sectors with high investment potential was important. He cited the increased appetite for investment in the education sector, which being non-cyclical is not affected by the wider economy’s performance.

* This story was first published in Al-Ahram Weekly