From our Egyptian Bureau

Bankers upbeat about 2017 business outlook

By Ahmed Kamel

Bankers are keeping their crossed that 2017 will be a better year after undergoing tough circumstances in 2016, which is deemed as the hardest in terms of monetary, financial and foreign exchange policies.

The pound flotation on November 3 marked a milestone for local banks, which were entrusted with dealing in foreign currencies at free floated rates for the first time since 2003.

“The pound flotation has restored confidence into the Egyptian economy. Certainly, it boosted foreign investor confidence. It will increase exports too,” said Adnan Ahmed Yousif, Chairman of Al Baraka Bank Egypt.

The Central Bank of Egypt (CBE) free floated the pound versus the US currency, which jumped from LE8.78 to LE19 on the official market. The move was aimed at the uprooting of the black market and speculation on the greenback, economists say.

“The CBE does not interfere in pricing the US dollar anymore. The banks set prices according to the supply and demand mechanism,” said Abdel Hamid Abu Moussa, Governor of Faisal Islamic Bank of Egypt.

“The move has resulted in positive impacts. For instance, foreign investors are buying into treasury bills and bonds again, increasing Egypt’s net dollar inflows. The stock market has gained from the currency float. Foreign direct investment is expected to rise in the coming period,” Abu Moussa said.

In 2016, the central bank sought to curb retail credit in a bid to rein in inflationary pressures. The new measures will slash mortgage financing, car loans and other personal credit products offered by the local lenders in 2017.

It cut large exposure limits, set up a scheme to provide small and medium-sized enterprises  (SMEs) with funding worth LE200 billion at a decreasing fiver per cent rate over the coming four years, set a five per cent cap on bank investments in money market and fixed-income mutual funds.

But the initiative hasn’t borne fruit yet, one economist said.

“Away from the CBE initiative, SMEs in Egypt face a number of obstacles. There’s no tax system or an overall legislative framework for SMEs in Egypt,” said Mohsen Adel, deputy chairman of the Egyptian Association for Investment and Finance.

The CBE also sought to ease risks by the reducing of credit exposure. In early 2016, it reduced maximum limit for loans to customers and all their related members — subsidiaries — to 20 per cent of the capital base down from 25 per cent for each client. The CBE has given banks three-year grace to adjust to this new rule.

According to the new regulations, banks cannot provide loans that exceed 15 per cent of capital base. As for personal loans, the CBE set a lending cap of 35 per cent of a customer’s income after deducting tax and social insurance.

“The Egyptian banks will face tough challenges too in 2017. However, the hardest turmoil is now over with the currency float,” said banking expert Moustafa el-Sherif. 

“The lenders should adjust to the regulations set by the CBE in 2016. Pooling, and better application of risk management policies will boost the banking sector in 2017,” el-Sherif added.

Petroleum sector seen booming in 2017

By Ahmed Kamel

After a year of major oil and natural gas finds, the petroleum sector is expected to boom in 2017, analysts say.

Production of offshore Zohr gas field, which was discovered by Italy’s Eni in 2015, is scheduled to kick off in 2017.

The Zohr gas field is located in the Mediterranean Sea 190 km north of Port Said. Six wells have so far been successfully drilled on the field. Eni has estimated Zohr’s gas resources at around 30 trillion cubic feet.

In 2016, the state-owned General Petroleum Company made six oil and gas finds in Western Desert, Eastern Desert and the Gulf of Suez. Abu Sennan, in the Western Desert, has already started production of 3,800 barrels of crude and 1.5 million cubic feet of gas daily, Petroleum Ministry data showed.

Former petroleum minister Abdalla Ghorab expects new oil and gas finds in 2017, citing extensive exploration operations at eight blocks off the Mediterranean Sea.

“The outlook is very promising. Our problem is cost and pricing. Extraction and sales of crude and gas should be valued at market prices. Gas price is no longer traded at $2 per one million British thermal units (BTU),” Ghorab said.

He forecast new finds in the Mediterranean and Red Sea blocks. “I expect new discoveries in Upper Egypt, Sinai, the Gulf of Suez and the Western Desert as well in 2017”.

However, there should be efficient management of the nation’s oil and gas sector, another former petroleum minister said.     

“What good are new finds and output increase against a backdrop of misuse and ill management?” wondered former petroleum minister Osama Kamal, calling for restructuring the energy sector in Egypt.

Kamal criticized the consumption of 60 per cent of the nation’s natural gas output by power stations. “We import around one billion cubic feet (bcf) of gas per day. While power stations get natural gas worth LE3 billion (around $157.8 million) per month, the Electricity Ministry pays roughly LE500,000 monthly”.

Natural gas output currently stands at 4.45 billion bcf per day and imports 1.3 bcf of gas per day, Petroleum Ministry data showed.

There are two liquefied natural gas (LNG) import terminals in Egypt. The FSRUs, which are located at Ain Sokhna Port in Suez, enable the North African country to import LNG and convert it to natural gas through its national power grid.

“Egypt should increasingly rely on renewable energy resources. It can produce 200,000 megawatts of solar energy,” Kamal said, calling for drawing on all energy resources.

Egypt currently generates around 38,000 megawatts from all renewable energy resources, according to Electricity Ministry data.

Most importantly, the government should maximize the economic value added of the natural gas industry as w hole, Kamal said.