DealMakers AFRICA Q1 2019

Investing in Africa: Why Egypt?

by Marylou Greig

This is the first in a series of articles exploring investment opportunities in the different African regions.

Egypt is emerging as one of the best reform stories in the EEMEA. The catalyst to this was the approval by the International Monetary Fund (IMF) of financial assistance in November 2016, in the form of an Extended Fund Facility (EFF) arrangement for c.$12bn. The focus of the EFF programme has been to improve the functioning of the foreign exchange markets, bring down the budget deficit and government debt, and raise growth to create jobs. 

The Egyptian authorities’ economic reform programme has made substantial progress, as evident in the success achieved in the macroeconomic stabilisation and recovery of growth. In 2018, Egypt received $7,9bn in Foreign Direct Investment and the improvement in the economic and fiscal situation has triggered a 450-fold increase in foreign ownership of local debt from $0,1bn in H2 2016 to $17bn by mid-2018. The current account deficit has narrowed to 2,4% of GDP, from 5,6% in the previous year. GDP growth rose from 4,2% in 2016/17 to 5,3% in 2017/18 and growth is projected to rise further to 6% over the medium term as ongoing structural reforms are fully implemented and translate into stronger private investment. The unemployment rate has declined to single digits and is at its lowest since 2011. A number of regulatory reforms, including the Investment Law and the Companies Law, have been implemented with the aim of improving Egypt’s ranking in international reports, and to help bring the economy to its full potential.

The effect of these economic reforms has been positive for merger and acquisition (M&A) activity in the country. CEO of Renaissance Capital (North Africa), Amr Helal, confirms this: “Increased activity has been driven by government reform and the IMF programme resulting in structural adjustments necessary for macro-stability and confidence in the economy; these have filtered positively through to the economy resulting in a renewed interest in Egypt as an investment destination”.

Dr Khaled Moussa, one of the founding partners of TMS Law Firm, says Government was courageous in taking steps to amend legislation. These reforms have led to noticeable improvements in investors’ confidence and put Egypt on the right path towards stability and development. The Investment Law provides a new framework for the government to offer investors more investment-related incentives and guarantees. The new law aims to attract new investments, consolidate many investment-related rules, and streamline procedures.


Around the same time, says Moussa, amendments to the Company Law effectively introduce a new type of company in order to promote and ease investment in Egypt. These new amendment laws introduced a new type of company whereby an individual, whether a natural or juristic person, could solely establish a company. In addition it allowed for more corporate governance rules and minority protections were strengthened by increasing corporate transparency. These amendments, he adds, were made with the aim of making the business environment more attractive, and competitive; a response to market needs and important to multinationals looking to invest in Egypt.


The local M&A market is deep and fairly mature with good regulatory oversight. Deals, he says, occur largely in the mid-cap market (less than $50 million) and can take between nine to 12 months depending on the complexity of the transaction. “Sectors most active are consumer facing including, for example, education, healthcare and fast moving consumer goods. More recently, there has been an increased interest in fintech and non-banking financial services which have seen exponential growth”, says Helal. The larger cap deals tend to be in oil and gas and the banking sector, driven by strategic acquisitions, but these are few and far between.

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Private equity remains one of the players in the M&A market. Regional players have dominated this space over the past three to five years with targets essentially in the mid cap range. While Helal says there is no shortage of opportunities at this level, international private equity funds have been less prevalent, finding it difficult to identify target sizes of plus $100 million.


The pipeline for initial public offerings (IPOs) is full for 2019/2020, driven, says Helal, partly by the Government privatisation programme which is part of the agreement in terms of the IMF’s reform programme. Other IPOs planned are in the oil and gas, banks and financial services sectors, reflecting heathy opportunities for investors.


The Egyptian Stock Exchange (EGX) has played its role in developing and updating the Egyptian capital markets as part of the reform process. The level and quality of disclosures has been increased as have communication channels between listed companies and investors. Earlier this month, the proposed increase in the tax on stock exchange transactions was suspended in a bid to improve competitiveness of the Egyptian capital market, compared with neighbouring markets.  Moussa says the increased focus by Government on capital markets, the amendment in 2018 to the Capital Market Law was approved by parliament earlier this year, will deepen Egypt’s financial markets making them more attractive to foreign investment. The amendment introduced the biggest changes since its enactment in 1992, addressing several vital topics and for the first time introducing new regulation for the futures market. The subsequent decree issued by the Financial Regulatory Authority (FRA) has further provided for regulatory framework to ensure the market stability through more advanced corporate governance and additional protections to the investors and minorities in both listed companies and companies operating in the financial sector.


The positive feedback from mainly South African attendees at the recent Renaissance Capital North Africa Investor Conference, held in Cape Town, suggests that investors are looking for new ideas on how to fit into the appealing reform story. Removing the constraints that have weighted on higher investment and job creation in the past has helped Egypt grow faster. Investment reforms have, says Moussa, enabled Egypt to gain market share in the region. Investors will be keenly watching to see whether Egypt sticks to its reform agenda once the IMF programme ends in November 2019.