Egypt: A wealth fund is born

Aziza Sami , Saturday 4 Jan 2020

Egypt’s first sovereign wealth fund, Tharaa, kicked off this year

14.4 GW power plant
One of the three 14.4 GW power plants built by the multinational company Siemens, Orascom Construction and Al-Sewidi Electric

Although Egypt’s first sovereign wealth fund (SWF) was established by virtue of a law approved by parliament in July 2018, it only came to life in 2019. The new SWF’s board was formed in May 2019, and in November it launched its first investment initiatives.

The authorised capital of the fund, dubbed Tharaa, meaning wealth in Arabic, is LE200 billion with paid-in capital of LE5 billion, of which 20 per cent will be provided by the government.

Depending on investor interest, the fund’s authorised capital could be raised to LE1 trillion within the next three years.

The fund’s broad objectives include generating employment, increasing production and exports, and funding infrastructure projects. Its operations will cover industry, traditional and renewable energy, pharmaceuticals, mining and tourism, with others such as farming to be eventually brought in.

Whereas SWFs in countries such as Saudi Arabia, Norway, China and others derive their resources from central bank revenues or the state’s accrued wealth, Egypt’s SWF has a different resource base.

While the purported aim of the fund is to promote investment, and especially foreign direct investment (FDI), in strategic areas of the economy such as energy, petrochemicals, mining, small and medium enterprises (SMEs), tourism and infrastructure, it will raise revenue from the sale of under-utilised state assets as well as unlisted companies. 

The state has sizeable properties in the real-estate and electricity sectors, among others. Other assets will be freed up when the government moves in 2020 to the New Administrative Capital. 

Such assets in the heart of Cairo will include the buildings that used to house the government and its various agencies. This will provide a diversified base of assets cutting across economic sectors, while at the same time producing the challenge of how to best maximise the value of unutilised or non-productive assets.

Minister of Planning Hala Al-Said has announced that the SWF’s objective is to add value to various economic sectors through partnerships with international companies and institutions, in addition to maximising the value of existing state assets and resources. 

The fund can establish sub-funds, the minister has announced, with the aim of channelling investment into the logistics, renewables and manufacturing sectors. The SWF board is headed by Al-Said as non-executive chairman. Its CEO, Ayman Suleiman, brings extensive expertise from his work with the private sector.

The fund’s board is formed of representatives of different ministries, including planning, finance, and investment, as well as five members from the private sector who will give independent expertise. The board will be responsible for devising the fund’s general policies as well as supervising the use of government assets. It will also determine how the revenues and interests accruing from its investments are to be utilised.

With the private-sector component playing an active role on the board, the fund is expected to operate according to principles of economic viability while exercising a degree of autonomy and flexibility in the decision-making process. 

In November 2019, the fund announced its first major initiative to draw in foreign investors, with Sueiman saying it was looking to acquire a 30 per cent stake in three 14.4 GW power plants built by the multinational company Siemens and Orascom Construction and Al-Sewidi Electric in Borollos in the Delta governorate of Kafr Al-Sheikh, in the governorate of Beni Sweif in Upper Egypt and in the New Administrative Capital.  

Soliman has announced that six international investors have expressed interest, with an agreement expected to be finalised in 2020.

A joint venture can be formed between the shareholders, according to Suleiman, and a power-purchase agreement formed by which electricity output would be sold to the government. By virtue of its contract with the government, Siemens would continue to operate the power plants until at least 2026 alongside any new operator. A stake could also be offered in the plants on the Egyptian and international stock markets, Suleiman said.

Countering speculation that Egypt’s new SWF could crowd out the private sector by holding a majority stake in its projects, Soliman stressed that the Fund would not be seeking a majority stake in all its projects.

In an interview with the US financial service Bloomberg, he said the fund’s aim was to bring its own asset base into the market and make it available to investors. He has also stressed that as a member of the International Forum of Sovereign Wealth Funds, Tharaa is committed to adhering to criteria of corporate governance and transparency.

*A version of this article appears in print in the  26 December, 2019 edition of Al-Ahram Weekly. 

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