How Egypts economy can continue to power ahead during a global pandemic

Emerging from a difficult period in its history, the country’s performance has been aided by economic reforms, favourable demographics, and a stable inflation rate. Last year, Egypt’s GDP expanded by 5.6%.

But similar to the trajectory of other developed and developing economies, COVID-19 has reshaped the social and economic progress that Egypt has experienced. The pandemic, which is at its core, a humanitarian and public health crisis, needs collective action to protect lives and livelihoods.

The Egyptian government has been negotiating with international multilateral institutions and recently secured an emergency loan from the International Monetary Fund (IMF) to shore up the economy. It has also been engaging with the private sector on employment, taxes, and extending low interest loans.

But with many economic sectors – not least its stalwart - tourism - facing challenging growth prospects in the near-term, what can the country do to remain on the front foot and recapture its growth trajectory?

There are three key areas in which I believe Egypt can build out major advantages and set the stage for enhanced growth.

Infrastructure  – a real asset

In a 2018 report, the World Bank highlighted that Egypt’s reforms plans and relative stability had created an opportunity to draw in more private infrastructure investment, thereby freeing up public funds for other priorities.

In my view, the strategic monetisation of Egypt’s public infrastructure should be a core agenda item for the government during the recovery from COVID-19. The country is already working with international development partners to support these and other investment aims. Such partners include the European Bank for Reconstruction and  Development (EBRD), that recently awarded a €183  million loan to the Egyptian Electricity Transmission Company to reinforce the electricity grid, integrate renewables and reduce emissions.

In keeping with such investment allocations, I would point out that it is not only privately held assets that can benefit from investment. The landscape of emerging economies has long been marked by large public utilities – ‘white elephants’ often in nature – that need the efficiencies and discipline of private investment. However, state-owned infrastructure assets have proven time and again that they can be attractive to private investors, as they offer predictable demand and steady returns.

Bringing on board infrastructure investors who have the expertise and track record, in both turnaround situations and steady value creation, will be vital when expanding transportation, upgrading power grids, and improving water sanitation and supply.

The Sovereign Fund of Egypt (TSFE) has played, and will continue to play, a key role  in securing private infrastructure investment. In December, shortly after its inception, it announced plans to sell a majority share in a concession to operate three power plants to a private investor, fund or operator. Such investments should be encouraged as the alliance of  private capital and public partnerships work in tandem  for economic and social benefit.

More recently, TSFE announced a US$20 billion joint investment platform with ADQ of Abu Dhabi, one of the region’s largest holding companies with a diverse portfolio of major enterprises spanning key sectors of Abu Dhabi’s non-oil economy.

Such bilateral partnerships should be encouraged. They serve to strengthen vital sectors of the economy and act as a blueprint for success that can be replicated further.

Re-balancing supply chains

The second critical area that Egypt can focus on is in rebalancing its supply chain and strengthening its long-held competitive advantages. The COVID-19 pandemic has exposed the weaknesses of global supply chains and may lead to a ‘de-globalisation’ and the establishment of more localised systems, according to Allianz economic advisor, Mohamed A El-Erian.

There are a number of ways in which supply chain systems can be rebalanced and renewed. One such route is going local or even hyper local, which becomes a practical necessity when mobility is threatened and borders close. This is an important route as it means that local farming systems can be strengthened and a market for domestic and regional consumption becomes available. New agricultural technologies such as hydroponics farms for point-of-sale food production and expanding sustainable food distribution could be explored here.

In the UAE for example, Majid Al Futtaim has worked with the government to establish a network of 6,000 local farmers to secure a sustainable supply of fresh produce. At the same time, this initiative will create jobs and open new distribution channels and growth opportunities for the farmers – in the UAE and beyond.

Egypt could well consider a similar model that ensures food security and generates a steady stream of employment to the agrarian industry and the myriad supply chain networks that support it.

The second route that I would encourage is strengthening supply chain and manufacturing capacity, in collaboration with experienced Chinese firms. Such partnerships build on the positive ties that already exist between the two economies, notably in relation to the Belt and Road Initiative (BRI), but also more broadly. Given Egypt’s strategic location and its intersection with the Middle East and Africa, there are strong opportunities to leverage these partnerships and support a wider economic market and community.

Egypt has successfully diversified its economy and it already produces a wide range of agricultural, pharmaceutical and manufacturing products. With the right government and fiscal incentives for private investment, and in alliance with like-minded partners, these activities could be expanded to build resilient regional supply chains across the Middle East and Africa.

Outsourcing for talent

Business Process Outsourcing (BPO) has long been the domain of countries like India and the Philippines with their young, educated and English speaking demographic. Today, the BPO industry has acquired even greater impetus, given the need for businesses to identify smart solutions to optimise cash and preserve working capital, but without compromising on quality.

With its young, technologically savvy and well-educated workforce, Egypt could capitalise on this trend to counterbalance the economic repercussions of COVID-19. Egypt’s universities produce half a million graduates annually. The country is also home to one of the world’s largest IT workforces – which is unmatched in the region. Furthermore, Egypt’s engineering talent and growing entrepreneurial scene can complement a thriving market for digital and analytics offshoring, which has been steadily gaining momentum and will acquire increased relevance at this time.

Native Arabic gives Egyptian workers natural access to 300 million Arabic speakers around the globe, including its home market.  Growing language skills could also broaden the appeal to other markets. Add to this its geographic location at the heart of the MENA region and Egypt makes an attractive BPO location for foreign investors.

Underlining the potential of Egyptian BPO for inward investment is Vodafone International’s recent acquisition of Vodafone Egypt International Services - described as the largest offshoring and outsourcing service provider in the region. Vodafone expects to expand the 7,000-strong workforce further following the acquisition.

By taking a more strategic approach to the BPO sector and reinforcing the investor friendly credentials of the country, the Egyptian government can expect to receive both interest and investment.

By creating the frameworks that support and strengthen this industry, manifold benefits will be created for corporates, customers and a young, employment-hungry workforce.

Focusing on the future

The Egyptian government has taken a responsible and proactive stance in striving to keep its people and communities safe during the pandemic.

By focusing on inherent advantages, Egypt must expand this role further to accelerate domestic and regional consumption and extend the safety net to businesses, large and small.

In times such as these, this safety net represents not just a fulfilment of the social contract between state and citizen. It becomes the foundation for accelerated growth that enables the country and its people to power ahead in arguably the most challenging period in recent memory.

This article was first published in weforum.org