During the meetings, Ahram Online discussed with CEO of the Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC) Oussama Kaissi, the support ICIEC provides Egypt amid the concurrent challenges.
ICIEC is an IsDB Group member that provides investment and export credit insurance for the member countries and Islamic states based on the Agreement for the Promotion, Protection and Guarantee of Investment among Member States of the Organization of the Islamic Cooperation (OIC Investment Agreement).
Ahram Online: How does your institution support Egypt amid the ongoing multifaceted global economic and financial crisis?
Oussama Kaissi: Egypt is a priority partner and market for ICIEC. We enjoy a strong relationship that goes back 30 years. Egypt is the third largest equity shareholder in ICIEC (4.53 percent) after the IsDB (51 percent) and Saudi Arabia (20.29 percent).
As the insurance arm of the IsDB Group, ICIEC provides credit and political risk insurance to boost exports, sustain imports of strategic commodities, ensure investment protection, and minimize volatility. ICIEC is also committed to the UN’s Sustainable Development Goals (SDGs) and the transition to clean energy and Net Zero under the provisions of the Paris Agreement. Our objective is helping our Member States achieve these goals.
Since its inception, ICIEC has insured operations with a total of $7.6 billion in Egypt. These include $3.1 billion for the cover of imports of strategic goods, $2.4 billion in exports credit insurance, $1.7 billion insurance of foreign investments into Egypt, and $0.4 billion for the cover of foreign investments from Egypt.
This excludes the financing allocated to Egypt in 2021. We managed to balance our continued support for the Member States with a sound risk mitigation strategy despite the numerous impacts of the ongoing COVID-19 pandemic and the repercussions of the Ukrainian-Russian conflict. Challenges also include disruptions in the supply chain especially in energy and food, in addition to the resultant inflation and the global shocks such as subdued GDP growth and a cost-of-living crisis.
Our insurance support for trade and investments in 2021 was maintained at a credible $9.7 billion of which $7.5 billion were in support of exports and imports and $2.2 billion in support of foreign direct investments (FDI).
Our financing in Egypt in 2021 comprised of $199 million in support of exports and $408 million in support of imports of Egyptian companies and an inflow of $204 million of FDI. Some 51 Egyptian entities received ICIEC services in 2021, the fourth highest after Saudi Arabia, Jordan, and UAE.
Moreover, Egypt features in the top six of the various trade and investment business metrics facilitated by ICIEC in 2021.
In this exceptionally challenging year and despite the continuing global economic impact of the pandemic, ICIEC 2021 business results show a year of unprecedented risks, shifting priorities, and IsDB Group COVID-19 response initiatives. All this occurred despite the repercussions of the pandemic on insurance operations and the steep decline in market rates on investment insurance operations.
We have excellent communication and cooperation with our line ministries and IsDB Governor for Egypt, Hala El-Said, the Minister of Planning and Economic Development, who are helping us with guidelines and feedback to improve our operations and services in the country. The potential in Egypt is huge hence our approach of having someone on the ground on a full-time basis to offer more client-centric services and to manage our exposure in the country.
AO: What is the volume of facilities, finances, or investments ICIEC intends to inject in the Egyptian market in 2022?
OK: Our main objective is to consolidate gains made in the last few years and to expand our reach and activities in Egypt. In this respect, ICIEC is committed to cooperating with the Egyptian government, agencies, and the private sector on various fronts going forward.
Our engagement with Egypt is set to increase substantially over the next few years because of several important developments.
ICIEC is working closely with the Ministry of Trade and Industry to help us familiarize with a wider scope of Egyptian exporters, manufacturers, and contractors with ICIEC products and services towards and about the importance of trade credit and investment insurance as a risk mitigation tool to encourage exporters and investors to penetrate new markets, especially those in Sub-Saharan Africa (SSA).
The Central Bank of Egypt (CBE) has recently established a new export credit agency (ECA) to support the entry and expansion of Egyptian exporters and investors especially in the African markets. ICIEC is already engaging with the new ECA and will sign memorandums of understanding (MoUs) with the new entity and with the CBE in this respect. ICIEC has recently renewed its Reinsurance Treaty Agreement with the Export Credit Guarantee Co. of Egypt (EGE) to insure Documentary Credit Insurance Policy business.
The establishment of the IsDB regional hub in Cairo will facilitate a smoother and more urgent interaction with partners and counterparties in Egypt. In this respect, ICIEC is in the process of appointing a permanent representative based in our office in Egypt. This is the first time the Corporation will appoint someone responsible for its activities in a specific country.
We are actively engaging with Egyptian banks with our lines of facilities and other de-risking solutions. We have long-standing relationships with financing the cable manufacturing, construction, electronics and, pharmaceutical industries.
Egypt’s intra-OIC exports stood at $12.3 billion at the end of 2020. As such Egypt’s total trade with the OIC member states reached $26.1 billion. This is an incentive to boost Egypt’s intra-OIC trade especially through the Egypt Hub which would also serve as a gateway to the Sub-Saharan African (SSA) markets.
It could also be a major boost for intra-IsDB trade, investment flows, and the development of the Islamic finance industry in Egypt. We look forward to a partnership that would put forward practical projects for the private sector and investors to be implemented in the interest of economic and social development in Egypt. The IsDB has a particular interest in developing the private sector and small and medium-sized enterprises (SMEs) that create numerous job opportunities for citizens.
The investment and development impacts in addition to the delivery of ICIEC products and services clearly contribute to the socio-economic resilience required for post-pandemic economic recovery and rebuilding. This is done through ICIEC’s unique Shariah-compliant de-risking solutions including Non-Honouring of Sovereign Financial Obligations (NHSFO) Policy, Foreign Investment Insurance Policy (FIIP) to cover Equity Investment, and Reinsurance. This is achieved through forging Partnerships for Change in line with SDG 17 and ICIEC’s Theory of Change strategy thus, mobilizing the international best practices and technologies.
ICIEC recently participated in several Green Finance transactions in Egypt including the provision of Breach of Contract and Political Risk Insurance (PRI) cover under its Foreign Investment Insurance (Equity) Policy to the UAE-based Alcazar Energy for its $68 million equity investment in the Benban solar complex in Aswan. The cover is for 7 years. The complex involves the construction and operation of four 50 MW solar power plants that generate electricity to the Egyptian national grid under a 25-year power purchase agreement.
ICIEC also provided a NHSFO policy for $56 million covering the participation of Japan’s Sumitomo Mitsui Banking Corporation (SMBC) in the Syndicated Green Term $3 billion Loan arranged by Emirates NBD Capital and First Abu Dhabi Bank in favour of the Ministry of Finance of Egypt to finance Green Projects.
The Eligible Green Projects are expected to have a significant positive impact on the environmental and social programmes of Egypt. The projects include seawater desalination plants with the most energy-efficient technologies that reduce water consumption and improve the efficiency of resources (such as collection, treatment, recycling, or reuse of water). Almost 1.2 million people in four Egyptian governorates expect to have access to better sanitation and sewerage upon the completion of the Sanitation and Sewerage Infrastructure Project. This is impact investment and development in reality.
We are well positioned to play a key role in supporting the private sector in Egypt through the credit facilities the corporation provides to financial institutions, as well as national and sub-national bodies, which are custodians of relevant climate action projects and transactions.
ICIEC, subject to the final approval of the Arab-Africa Trade Bridges Programme Board is also launching a landmark Climate Action Finance Trust Fund with institutional partners, peer multilaterals, and ECAs in Member States and beyond.
AO: How do you perceive Egypt’s performance under its economic reform programme?
OK: I am heartened by the rapid actions that Egypt has taken to secure food imports, reduce the inflation pressures, and enhance the economy’s capacity to withstand global challenges.
During the COVID-19 period, Egypt was one of the few Member States to experience a positive GDP growth, which is impressive for a country with a population of 120 million. Egypt remains one of our top priority countries in the MENA region for our operations.
The International Monetary Fund (IMF)’s data on Egypt shows that it attained a recorded GDP growth rate of 3.6 percent in 2020 and 3.3 percent in 2021, which is projected to rise to 5.9 percent in 2022 before settling down to a projected 5 percent in 2023 and a projected rebound to 5.9 percent over the medium term in 2027. The consensus is that Egypt’s economy stands out for its resilient economic performance throughout the COVID-19 pandemic, despite relatively limited pandemic-related stimulus by the government.
Even though it was impacted by recent global developments, Egypt managed to achieve an economic growth rate of 3.3 percent in 2021, and 9 percent in the first half of FY 2021/2022. Furthermore, unemployment remains low at 7.3 percent This signals a strong comeback after the initial blow of the pandemic.
Like all economies in general Egypt also faces economic headwinds. The IMF data for Egypt shows inflation rates from a 4.5 percent in 2021 projected to rise to 7.5 percent in 2022 and 11.0 percent in 2023 settling down to 7.4 percent in 2027 over the medium term.
However, the chaotic impact of supply chain disruptions caused by the war in Ukraine is matched by volatility in key financial indicators. On 10 May 2022, Egypt's annual consumer price inflation rose to 13.1 percent year over year in April from 10.5 percent in March, according to CAPMAS, the Egyptian state statistics agency. The rise is attributed to higher food prices. Annual food inflation was up 26 percent, which indicates a 7.6 percent increase on a monthly basis compared with 3.3 percent monthly in January till September 2021. According to Moody's the Food Weight in the CPI Basket is 32.7 percent and Egypt has a 48.2 percent cereal import dependency.
The recent global developments have prompted us to revise our initial growth projections for FY 2021/2022 at approximately 6 percent (conservative estimate). The IMF raised its forecast for the growth of the Egyptian economy during FY2022/2021 to 5.9 percent, compared to 5.6 percent in its previous forecast.
Food imports and security is probably the most relevant for a country such as Egypt, which has an overall food import bill that is comparatively modest. The destabilising effect of the war in Ukraine comes from the fact that Egypt is the largest importer of wheat in the world, importing around 23 million tonnes worth $5.6 billion in 2020.
In 2020, Russia and Ukraine account for around 86 percent of the imported wheat (26 percent from Ukraine and 60 percent from Russia according to International Trade Centre data). This exposes Egypt to any trade and supply disruptions caused by the conflict. According to COMTRADE and Moody’s, Egypt is the 13th most exposed country to a food price shock. It’s GDP share of food imports is a middling 4.8 percent.
Similarly, the economy faces a projected current account deficit of 4.3 percent in 2022, expected to rise to 4.6 percent in 2023 before tempering to 2.6 percent in 2027. Despite crises impacting its external position, Egypt enters with strong growth and fiscal performance.
Egypt’s economic reform programme and the hard-won macroeconomic gains have provided the CBE with a strong toolkit to implement its monetary policy and maintain prices over the medium term and with solid buffers to insulate the economy from excessive volatility.
The Gulf Cooperation Council (GCC) countries have collectively made $22 billion of financial commitments to Egypt to support its balance of payments risks. Saudi Arabia made a $5 billion foreign currency deposit to directly reinforce Egypt's foreign exchange reserves, in addition to another $10 billion earmarked for investments.
The total interventions of the IsDB Group in Egypt to date amounts to $17.8 billion. Food security, poverty alleviation, and zero hunger among others are core components of the IsDB’s sustainable development strategy for member states through bilateral arrangements, co-financing, private sector engagement, trade finance, development finance, and the provision of de-risking solutions through credit and investment insurance.
AO: How do you see the outcome of the current annual meetings being held in Sharm El-Sheikh for your institution and for the country?
OK: I believe that the 47th IsDB Annual Meetings could be a game changer for Egyptian-IsDB Group cooperation, including ICIEC, especially in the emerging sectors of green and clean energy transition and renewable energy, as well as digitalization and trade finance.
Furthermore, there is ongoing cooperation in capacity-building and training provided by ICIEC, International Islamic Trade Finance Corporation, and other institutions of the IsDB Group. Capacity-building is of paramount importance to Egypt and one of the cross-cutting pillars of various areas of development plans and programmes of the Egyptian state in trade, industry, and other economic and development fields.
The existing cooperation between the IsDB Group and Egypt is not only a testament to the strong economic ties, but also points to extremely promising and fruitful future endeavours. The annual meetings provide an ideal platform for our 57 member states, the various participating agencies, and economic and civil society entities to discuss present pressing issues and our collective efforts for stability, economic recovery, development, jobs, prosperity, and well-being to our peoples in the spirit of cooperation, solidarity, innovation, and hope.
Member States and IsDB Groups entities have signed several MoUs and agreements during the Annual Meetings, including those by various Egyptian ministries, agencies, and corporates. Ideas have been exchanged, proposals submitted, and financings approved. The challenge remains to ensure that these various initiatives are actually realised and implemented.
The Egyptian government is preparing to issue the first sovereign "sukuk". This is to assist in providing necessary funds for investment projects included in the economic and social development plan in the general budget to achieve development goals consistently with state’s efforts to enhance aspects of improving citizens' living standards.
We believe that Islamic finance has great potential in supporting Egypt’s efforts to finance infrastructure, trade, and SDGs agenda especially climate action, food security, and social safety net projects. The SDGs require unprecedented mobilization of funds to support their implementation. Islamic finance offers effective alternative means of financing for sustainable development activities and projects in developing countries.
I concur with minister El Said’s contention that over the next few years, Islamic finance will be considered one of the primary financing strategies for Egypt, because of its focus on financing the real economy, which is also in line with the National Structural Reform Programme that the Egyptian government launched in 2021.