Egypt and other emerging markets must create the right conditions, with stability and the rule of law, to attract foreign investment, the secretary-general of the world’s largest organisation of financial regulators told Ahram Online on Tuesday.
Egypt is taking a series of economic and legal reforms with the aim of attracting investors to boost an economy battered by four years of political upheaval.
Electrolux, Yahoo and Thomas Cook were the most notable of several international corporations that exited or suspended their operations in Egypt when unrest and sporadic violence followed the ousting of Islamist president Mohamed Morsi in July 2013. However, some, including Electrolux, have announced a resumption of operations, citing a return to stability.
But the mounting conflicts in the MENA region add to an ongoing domestic war on terror that is challenging political stability and security.
“You have to build good rules and you won’t get investment without these rules,” David Wright, secretary-general of the International Organisation for Securities Commissions (IOSCO), told Ahram Online on the sidelines of the Growth and Emerging Markets (GEM) closed meeting.
“It’s a very competitive world,” he added.
More than a hundred leaders in financial regulation from around the world are currently in Egypt to attend the annual meeting of the GEM division of the IOSCO, to discuss means to develop derivatives, ETFs and bond markets, as well as manage risks.
But as the government announces megaprojects and sets high growth targets, a dire need for more sources of finance arises.
As an emerging market, Egypt is competing with advanced economies to attract investors who will choose the GEMs as growth prospects increase, head of Egypt’s financial regulator (EFSA) Sherif Samy told Ahram Online.
“We have a representative here from BlackRock, one of the biggest asset managers in the world with a trillion dollars to invest, where do you think they are going to go, Egypt, Europe, Asia or Latin America?” Wright said.
New financial instruments to drive growth
Egypt is depending on private sector investors to drive growth, as part of its liberalisation plan, which began when President Abdel-Fattah El-Sisi took office in July of last year.
To increase the sources of finance available to medium and large investors, new financial instruments are being added to the market.
In January, Exchange Traded Funds, which act as a tradable index, including diverse stocks, were launched. Additionally, the EFSA introduced regulations for corporate Sukuk that are yet to be implemented.
"Egypt would be depriving itself from $4 to $5 billion annually in funds if it misses out on the Sukuk market, which traded around $116 billion globally last year," Samy said.
But despite launching ETFs and having regulations for bonds, both markets remain limited; an issue that will be solved as the issuance of these instruments increases, Samy noted.
The financial watchdog will also adopt new articles to the bond regulations to allow the introduction of unrated bonds by the next management board meeting, he added.
Unrated bonds would allow medium-sized enterprises to access the bond market for expansion projects without going through the long and expensive credit rating process.
On the EFSA agenda is the issue of introducing basic forms of derivatives, a tool that would benefit Egypt in attaining its plan to establish a commodities market to become a regional hub for grains trading.
However, Wright warned that such a complex instrument should not be introduced before raising awareness about it, citing the role it played in the financial crisis in 2007 due to the use of derivatives by investors who did not understand them.
Aware of the issue, Samy said that before introducing derivatives “markets need to reach a certain maturity, not only the investors but even the securities firms need to be familiar with it.”
The GEM meeting began on Monday and will close on Wednesday. Investment Minister Ashraf Salman will attend a conference open to the public and to which around 200 Egyptian financial players are invited.