Financial Services sector in Egypt
Egypt is the third largest economy in the Arab world after Saudi Arabia and the UAE, and has good business fundamentals with regards to infrastructure, climate, costs, language and geographical location.
Now, the Egyptian financial market is considered one of the most mature and attractive markets in MENA due to the availability of many national banks, brokerages, investment banks and private equity houses that encourage foreign investments from local and international firms.
Egypt has a large and growing domestic consumer base with a population of approximately 85 Million people who are interested in consumer banking and insurance products.
Egypt has a solid infrastructure base. The Smart Village is the most advanced technological park in the middle east which is now hosting the Egyptian Financing Supervisory Authority (EFSA) and the Egyptian Exchange (EGX). EFSA is the responsible body for supervising and regulating non-banking financial markets and instruments, including the Capital Market, the Exchange, Insurance, Mortgage Finance, Financial Leasing, Factoring and Securitization.
The Central Bank of Egypt is the regulatory body responsible for setting and co-ordinating monetary, credit and banking policies. It supervises firmly all foreign and local banks working in Egypt, which explains how this sector managed to escape the worst impact of the financial crisis. All bank transactions (letter of credit or transfers) during commercial deals are secured and guaranteed internationally. The Central Bank also guarantees banking deposits.
The financial and banking sector are sectors that are exceptionally growing on a solid ground due to the regulatory reforms conducted by the Egyptian government in the past six years including capital adequacy requirements, the privatization of public-sector banks and the consolidation of small private institutions into more robust entities.
Despite the wave of privatization sales, mergers, acquisitions and expansions, the sector still holds massive untapped potential in sectors ranging from retail and commercial banking to insurance, mortgage finance, equities and advisory services. Public-Private-Partnerships (PPP) also provide an opportunity for British companies to bid for the projects as well as for legal and consultancy work.
There are opportunities for UK companies in the Egyptian financial services and banking sector. Core areas include consumer and corporate banking, investment banking, private equity, insurance, advisory services, research services, legal and business services.
The interim government has defined three key objectives; stimulating the economy, achieving social justice, and implementing a fiscal consolidation plan to ensure economic stability. The government is keen to involve private sector in the different projects.
Ministry of Finance stressed that the current Government is keen to approach expansion policies, concentrating on investment promotion in order to activate economy, which previously experienced slowdown. The Government will increase public investment spending, giving the priority to stalled projects which in turn shall stimulate private sector to pump more investments.
The Minister of Finance declared recently that a new economic and social rescue plan will be announced shortly to be executed during the next six months. This plan has targeted government investments worth 85 Billion EGP in infrastructure projects, and continuing uncompleted and halted projects. These projects include water and waste water and electricity projects in random areas as well as Upper Egypt governorates. This will help stimulate the Egyptian economy by rapidly establishing projects in various sectors.
The Egyptian government has an ambitious programme to expand public services and attract investment to major infrastructure projects. Investment will be accelerated under private public partnerships (PPPs), particularly in projects with highest developmental returns and social content. In this respect, the government is keen to undertake projects in the near future in areas of health, roads, and sewage and water treatment.
The government is expected to start announcing details of its investment programme for this fiscal year
The Egyptian banking sector is stable despite the global financial crisis, thanks to the considerable progress of reform over the past ten years, tight regulation, the unsophisticated nature of products, and the dominance of domestic financing and investment.
Egyptian banks are highly liquid with a loan to deposit ratio of about 55%.The sector is regulated by the Central Bank of Egypt.
Banks may be wholly foreign-owned, though Central Bank approval is still needed for shareholdings exceeding 10%.
The Central Bank is not issuing new banking licences for foreign or domestic banks. New applications are subject to an economic needs test. As such, even though the banking sector is completely open to foreign investment, entry is currently only possible through the acquisition of an existing entity.
Several international and regional banks have gained access to the market through the acquisition of existing banks. There is a lot of potential in the market where less than 15% of the population have bank accounts. Mortgage finance, SME lending, infrastructure finance and retail banking are growth opportunities in the Egyptian market.
HSBC and Barclays operate in Egypt and have expressed interests in expanding their presence in Egypt, while Standard Chartered is exploring the acquisition of an existing bank.
Several international and Gulf banks have tapped Egypt’s banking sector for long-term investments. Because of the high consumer interest rates, these banks have overlooked the weakened economy.
This general trend of expansion and interest of international and Gulf banks is a positive step for the banking sector in Egypt.
The Egyptian insurance sector is small and underdeveloped by international standards. Insurance premiums represent about 1.2% of GDP.
The Egyptian insurance market is subject to supervision and regulation by Law 10 of 1981 and its amendments, the last of which was Law 118 of 2008.
The Egyptian market was highly protected until June 1998 when Parliament ratified a law that permitted the privatisation of the four state-owned companies and abolished the 49% ceiling on foreign ownership, though holdings over 10% still require the authorities’ approval.
Islamic banking in Egypt dates back to 1961. However, the market has not developed as fast as the Gulf and South East Asia because monetary authorities have put undeclared reservations on the establishment of fully-fledged Islamic banks. Sharia-compliant banking accounts for about 7% of total banking assets.
Egypt has 39 banks operating in the market, of which 14 have Islamic banking licences but only three are fully-fledged Islamic banks. Several Gulf banks have gained access to the market through the acquisition of banks with Islamic licences. The Central Bank has not been granting new Islamic banking licences to existing banks or new entrants.
Last May, deposed President Mohamed Mursi ratified Egypt’s new sukuk law. His Islamist party, the Freedom and Justice Party, wanted to boost the Sharia-compliant share of total banking assets to 35% within five years. His government planned to issue more than $2 billion worth of sovereign sukuks. These plans are now on hold.
The Islamic insurance (Takaful) market in Egypt is growing. The first takaful insurance house was established in 2002. Currently, there are eight Takaful operators out of 29 insurance players. Takaful makes up only 5% of Egypt’s $1.5 billion insurance market.
Islamic finance has potential in Egypt in all areas: retail banking, SME finance, insurance, and infrastructure finance.
The Egyptian Exchange (EGX) is one of the highly regulated and most open securities exchanges in emerging markets with a strong core of diversified sectors. It is also one of the deepest in the region, with the most complete set of legislative, institutional and technological structures and the highest rate of compliance with international principles. EGX is regulated by Egyptian Financial Supervisory Authority.
Member firms are classified according to the activities they are licensed to perform. All securities intermediaries can undertake cash transactions and over the counter trading. Other activities such as margin trading, short selling, electronic trading, intra-day trading and primary dealers require a special permit.
Nile Stock Exchange (NILEX)
An important milestone for the Egyptian market was the launch of a small cap bourse. Nilex, the first small cap market in the MENA region, was launched in October 2007 to give small and medium enterprises access to capital. Nilex Turnover reached EGP 815,615 million, with volume of trading reached 3.7 billion securities, with 162 transactions.
The mortgage industry in Egypt is now rapidly growing. Mortgage finance is interpreted as a method for financing the purchase, construction, restoration and/or development of houses, administrative units, service foundations and any buildings designated for practicing trade.
The number of mortgage finance lenders has reached 13 companies plus the Egyptian Mortgage Refinance company (EMRC) and 19 banks during 2012, While the total value of mortgage loans extended by banks and mortgage finance companies is worth of around EGP4.7 during 2012, compared to EGP 4.2 billion by 2011.
The increase in total value of mortgage Finance provide by companies has reached EGP 3.2 billion during 2012, compared to EGP 2.4 billion during 2011, with growth rate increased by 30.2%.
The interest rates on the mortgage finance offered has reached 12.21% during 2012.
The number of investors has reached 30,970 investors during 2012. Verse 22,037 in 2011.
The legal market in Egypt is dominated by a few full-service firms. There are approximately 122 prominent legal firms operating in Egypt.
Opportunities in the Egyptian market for law firms include Corporate Finance, M&A compliance, Banking regulatory reform, Infrastructure Projects, Construction, Commercial Contract Law, Dispute Resolution, intellectual property and overseas listings.
There are a few professional services firms leading the advisory services in Egypt. The large professional services firms dominate the advisory services operation in Egypt.
Audit work for listed firms remains a steady income stream. The 4 big multinational names are KPMG, Ernst & Young, PriceWaterhouseCoopers & Deloitte.
Getting into the market
Egypt is an attractive market that can offer major business opportunities to informed traders and investors. Trade and investment between the UK and Egypt is promising. However it is not always an easy market. A successful entry into Egypt will be determined by the quality of the information and advice upon which the decision to enter is based. Continued success is also dependent upon the ability to navigate the laws and practices of Egypt.
The Egyptian market requires careful study and a sustained sales effort. There is strong competition from other exporting countries. Price and credit terms are a deciding factor when obtaining contracts, though quality is increasingly important. Back-up servicing facilities and the supply of spare parts is also important.
Having a local partner can be vital to successful penetration of this market. There are several reasons for this. Firstly, given the continuing bureaucracy, a local partner can shepherd the foreign business through the delays and obstacles. Secondly, foreign companies require a local agent to bid for government tenders. Thirdly, as the Egyptian market becomes more sophisticated there is a growing demand for after sales service, which a local agent can convincingly provide.
In general, British products and services are very highly regarded in Egypt for their quality. The main obstacle facing the growth of British involvement in the Egyptian market is that British products have a reputation as being expensive compared to some foreign products, though this has lessened slightly over the past year as exchange rate fluctuations have been in favour of UK exporters.
British companies wishing to develop their business in the Egyptian market are advised to undertake as much market research and planning as possible in the UK.
Market intelligence is critical when doing business overseas, and UKTI can provide bespoke market research and support during overseas visits though our chargeable Overseas Market Introduction Service (OMIS).
To commission research or for general advice about the market, get in touch with our specialists in country – or contact your local international trade team.
John Franck, Director UKTI, British Embassy Cairo, Egypt; Tel: +202 27916000; Email: [email protected]
Wafaa Saad, Senior Adviser UKTI, British Embassy Cairo, Egypt; Tel: +202 27916000; Email: [email protected]
UKTI runs a range of events for exporters, including seminars in the UK, trade missions to overseas markets and support for attendance at overseas trade shows.
Euromoney – The Egypt Conference 2013 – “Economic Priorities and the Role of Financial Markets”
11-12 November 2013
InterContinental City Stars Hotel, Cairo