IFC Cautiously Confident On Egypt Economy

CAIRO — In 2011, the International Finance Corp. invested $475 million in Egypt’s Orascom Construction Industries as part of its proclaimed strategy to create jobs and boost foreign investment in critical sectors.

The company is now embroiled in a tax dispute with the Egyptian government over a 2007 transaction. OCI, which is considering selling shares to its Dutch-listed parent company OCI NV and potentially delisting from the Egyptian stock exchange, says it was compliant with the law at the time and that it owed 4.7 billion Egyptian pounds ($700 million) in taxes for selling a subsidiary to Lafarge, not the 14 billion ($2.1 billion) currently in dispute.

In his first visit to the region, new International Finance Corp. (IFC) CEO Jin-Yong Cai said he didn’t raise the issue directly with the prime minister and the cabinet ministers he met on March 13. He said he wants both sides to reach a mutual agreement “based on the regulations.”

This resolution, he said, “should be a very important signal, a positive signal for investors to come in to Egypt.” The “reviews on the historical issues” should be done transparently to boost the confidence of international and local investors, he added.

Following the uprising in 2011, several lawsuits successfully challenged old deals and projects between the government and local and foreign companies. The recent problem with OCI, which saw two members of the owning family banned from travel, raised doubts about political motivations and fueled already existing concerns about the investing climate in Egypt.

“The investors need certainty; they need to have transparency. They want to know the rules of the game before they make their final decision. We would like to work with the investors in doing that, but we are also waiting for certain decisions by the government,” Jin-Yong told a group of reporters last week.

One of these decisions is the International Monetary Fund loan, in negotiations since early 2011. Talks saw a setback over the past few months during ongoing political turbulence. The loan is promoted as necessary to attract foreign investment back to the country.

Jin-Yong’s visit could be taken as a signal of confidence at a time when international institutions are loudly rethinking cooperation with the Egyptian government. The delayed IMF loan is tied to a package of subsidy cuts and budget restructuring that would be too politically expensive for the current government to enact before the parliamentary elections, which have been postponed.

A recent resolution adopted by the European Parliament threatened to withhold aid to Egypt until real commitments to democracy and human rights are made. Europe is Egypt’s largest trading partner and in addition to bilateral relations with individual countries, the EU promised last November to deliver a five-billion-euro package of aid and loans, largely hinged on the IMF loan.

Jin-Yong expressed optimism, albeit cautious and with brevity and audible reservations.

“I think the transitional period has been challenging, but we continue to invest. We believe in the long-term potential of this economy. We think as the economy continues to move forward, we believe there will be recovery,” he said.

The IFC, a member of the World Bank Group focusing on the private sector, has $1 billion of investments in Egypt, half of which is in equity form. Over the past two fiscal years, it invested $723 million in 11 projects, making Egypt the largest-exposure country in the Middle East and North Africa for the IFC and making the IFC one of the top foreign investors in Egypt.

“Our role is really [to be] the catalyst to work with our partners to bring in investment, and is not just money. It’s really [...] creating jobs in moving the economy forward,” Jin-Yong said.

He repeatedly acknowledged “bottlenecks” that Egypt will run into in the future. Accordingly, the IFC investments target what he labeled the “core bread-and-butter issues facing many countries, particularly this time in Egypt,” which include access to finance like SMEs, infrastructure and training and job creation.

“We are not only putting capital investment into the sector; [we] also provide a lot of advisory services to help the regulators [and] to help our clients increase and enhance their capabilities in small and medium enterprise financing,” he added.

The IFC is advising the justice ministry revise its “insolvency framework, which currently makes it difficult for struggling companies to reorganize or be liquidated,” it said in an emailed statement. This is in addition to advisory work with other official and non-government business associations, including advising the Finance Ministry, on public-private partnership transactions since 2006.

“We have made ourselves very much a player seeking … to help the government in this difficult transitional period. And we have an ambitious plan,” he said. There’s no cap yet on the IFC’s investments in Egypt this year, he added, saying, “If we see good projects, we will do whatever it’ll take.”

Sarah el-Sirgany is a Cairo-based independent journalist. She contributes to Al-Akhbar in Lebanon and CNN, among other regional and international publications and networks. Follow her on Twitter: @Ssirgany.