Egypt Pulse

Egypt’s first sovereign wealth fund to tap unused assets

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Article Summary
Egypt recently announced the establishment of a sovereign wealth fund aimed at managing the state’s unused assets to promote development and investment projects.

Seeking an efficient mechanism to utilize the state’s unused assets, Egyptian Prime Minister Mostafa Madbouly issued regulations for the country’s first sovereign wealth fund March 2. The 200 billion Egyptian pound ($11.2 billion) sovereign fund, wholly owned by the government, is aimed at contributing to the country’s sustainable development in the long run.

Minister of Planning Hala al-Saeed said March 3 that “the fund is a sovereign investment entity, which is wholly owned by the Arab Republic of Egypt.” The fund’s authorized capital totals 200 billion pounds, while the issued capital stands at 5 billion pounds ($280 million).

“It is designed to contribute to Egypt's sustainable development through the efficient management of its assets according to the world's top standards and rules for the maximization of their value for the nation's future generations,” Saeed said.

In addition to its paid-up capital, the fund will also acquire unused assets from ministries, authorities and other state-run agencies, according to the regulations approved by parliament.

To this end, Saeed further explained that the fund is authorized to cooperate and partner with Arab and foreign funds. It can set up joint ventures and sub-funds in partnerships with the local private sector and foreign investors.

From a macroeconomic perspective, the fund is in line with the government's drive to increase the nation's assets and resources for the best interest of the coming generations, Rashad Abdo, head of the Egyptian Forum for Economic and Strategic Studies, told Al-Monitor.

“The fund is well-aimed at the nation’s sustainable development. It will highly serve all sectors to realize this objective. Most importantly, it is an ideal treatment for Egypt’s state budget deficit,” Abdo said.

Egypt’s budget deficit narrowed to 3.6% of GDP in the first half of fiscal year 2018/19, which began July 1, from 4.2% in the same period a year earlier, according to Finance Ministry data.

The fund’s idea dates to 2015, when the then-minister of planning, Ashraf al-Araby, said the fund — under the name Amlak — would be the state’s investment arm.

However, it took three years for the Ministry of Planning to finalize the fund’s bill in March 2018. Egypt’s parliament passed the bill for launching the sovereign wealth fund July 16.

Abdo said new projects resulting from the wealth fund would increase GDP, create jobs and improve the country’s financial resources. The fund may establish companies, partner in joint ventures, increase capital of existing firms, trade on listed securities on the stock market and invest in sovereign debt instruments, according to the law.

“An increase in the state’s revenues will definitely narrow the budget deficit. Through the injection of investments, GDP will increase in time. The fund is like a seed for sustained economic development,” Abdo said, citing success stories in Saudi Arabia, China and Russia.

“In Arab countries such as Kuwait and Saudi Arabia, oil has been the main resource for financing the sovereign funds. In China and Russia, GDP surpluses have been the seed. In Egypt, unused assets, which are plenty here, will be the core funding resource,” he said.

There are unused public assets totaling 4,135 buildings in Egypt, Tahrir News portal cited Finance Minister Mohamed Maait as saying July 17. The fund will be fully authorized to lease, sell off and acquire any state-owned properties, which include buildings and land.

“Egypt’s untapped assets are worth between 1 trillion Egyptian pounds and 2 trillion Egyptian pounds (between $65.1 billion and $112.3 billion). This will provide the fund with mammoth funding in addition to its annual earnings,” Abdo said.

It is more like a family plan, according to Abdo, as the core principle is based on saving for future needs.

“Sovereign wealth funds save the future generations’ share in the present’s boom. Oil-producing countries such as Saudi Arabia and Kuwait have set up these funds for that objective,” he said.

Moreover, the fund may invest in the nation’s infrastructure projects in collaboration with the private sector.

Tarek Metwali, a member of the parliament’s industrial committee, says the fund can finance infrastructure projects, stressing the need to maximize gains from the state’s assets. “The fund may invest in infrastructure projects. This will provide adequate funding for the nation’s investment needs,” Metwali told Al-Ahram newspaper March 5.

“The state owns buildings worth billions of Egyptian pounds. These neglected buildings are not economically used. The wealth fund will use these assets well,” Metwali added, calling for drawing on success stories in China, Singapore, Norway, the United Arab Emirates and Saudi Arabia.

Various ministries own old administrative and apartment buildings, which could be sold off or refurbished for leasing.

According to the World Bank, funding Egypt’s infrastructure projects will be a challenge in the coming years. In a December paper titled “Enabling Private Investment and Commercial Financing in Infrastructure,” the World Bank Group urged Egypt to rely on the private sector in its infrastructure projects.

“With limited fiscal space, relying on public resources to fund much-needed infrastructure investments will no longer be a viable strategy to meet the country’s needs. This constraint reaffirms the need for a shift in the development model, where the private sector plays a pivotal role in attracting substantial new investment across high potential economic sectors,” the World Bank paper said.

Ahmed Elleithy is an Egyptian reporter and financial columnist who has been writing for various local and international newspapers and news portals since 2004. 

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