Egypt Resort Groomed for Investors as Bombs Explode Elsewhere

Egypt Resort Groomed for Investors as Bombs Explode Elsewhere

Written by Ahmed Feteha and Salma El Wardany | From Bloomberg News

As small bomb attacks struck Cairo and cities across Egypt in the past two weeks, Sharm El Sheikh was being beautified in readiness for the money men.

The Red Sea resort will host an investor conference starting March 13 that carries a weight of expectation. After four years of economic stagnation and political turbulence, Egypt is promoting the three-day event as a turning point.

President Abdel-Fattah El-Sisi has largely relied on oil- rich Gulf Arab allies to keep Egypt’s economy afloat amid worsening violence since he headed an army takeover in 2013. El- Sisi promised to stabilize then revive the country, and the business summit is supposed to showcase its ability to stand alone.

“Aid from Gulf countries cannot last forever,” Omar El- Shenety, managing director at Cairo-based investment bank Multiples Group, said in a phone interview. “A reasonable expectation would be that the conference would result in about $15 billion of investments over three years.”

For Egypt’s pitch to succeed, businesses will have to see a future that looks a bit like Sharm El Sheikh, whose streets have been swept clean and adorned with fresh plants and new statues. The capital Cairo, 500 kilometers (310 miles) northwest, presents a different image, with piles of uncollected garbage and almost daily bombings.

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‘Long Journey’

Economic data also tell two different stories. Output grew 5.6 percent in the second half of 2014, signaling that a long- awaited revival may be under way. The benchmark stock index climbed to a seven-year high in early February.

It has since retreated about 5 percent, while Egypt’s $300 billion economy has again been sending out distress signals. The Purchasing Managers’ Index, a measure of health for manufacturing, hit a 17-month low in February. HSBC, which sponsors the report, said it presented a “bleak picture.”

After a recovery in the first half of 2013, Egypt’s foreign reserves have steadily declined, and now barely cover three months of imports.

Such numbers explain the sense of urgency that surrounds the investor conference. El-Sisi described it this week as “the key to Egypt’s future and the beginning of a long journey of development.”

In the run-up, his government has been seeking to address key investor concerns. Last year, Egypt cut energy subsidies and announced a plan to dig a second Suez Canal, and this year it has devalued the Egyptian pound to eliminate a black market in the currency. On Tuesday, the cabinet approved cutting the top income-tax rate to 22.5 percent from 25 percent.

Reform Vision

At the event, the government will invite investors to take part in projects valued at $35 billion, International Cooperation Minister Naglaa Al-Ahwany said this month. Chief executives from companies including Unilever Plc, General Electric Co. and BP Plc are scheduled to attend, along with delegations from 80 countries.

“The energy sector is going to be the major focus,” said Mohamed Abu Basha, a Cairo-based economist at investment bank EFG Hermes. He said the conference is mainly important as a “venue for the government to present its reform plans and vision, to reassure investors.”

There will be a strong Gulf contingent, including top officials and heads of state from the United Arab Emirates, Kuwait and Saudi Arabia.

For all the global tags applied to the event, Arab investors will be the main dealmakers, El-Shenety said. It may mark a shift because Egypt’s financiers now want their support to come “in the form of investments, not grants,” he said.

Conscious Sabotage

The Gulf countries, El-Sisi’s allies against political Islam, handed Egypt $23 billion in cash and oil products after the former army chief toppled the Muslim Brotherhood’s Mohamed Mursi in July 2013.

Since then, an Islamist insurgency has spread from the Sinai peninsula to cities and towns throughout Egypt. Militants have stepped up attacks in the weeks before the conference. There were 18 bombs reported nationwide on Sunday alone. Most of the bombs, though, were small and caused few casualties.

Recent blasts have hit businesses, including a mobile phone store and a Carrefour supermarket, as well as government targets. That suggests a conscious attempt to sabotage the investment summit, as the attackers try to “foment a sense of chaos,” said Mokhtar Awad, an analyst at the Center for American Progress, a research institute in Washington.

There’s no sense of chaos in Sharm El-Sheikh, where local authorities have spent about 100 million Egyptian pounds ($13 million) grooming the city, according to state-run Ahram Gate. A quarter of the budget was spent on a statue in the city’s main square: it has the wings of a dove, superimposed on a lotus flower, with the globe balanced on top.