Concord Group sees much potential in Egyptian market
CAIRO: Continuous government efforts to boost the economy are paying off, it seems. According to Laura Osman, portfolio manager of the Concord Group’s international Egyptian public equity funds and a member of its investment committee, numbers from the latest fiscal year show an outstanding improvement and a bettered investment climate that has remained unaffected by tragic accidents that have recently overshadowed other news.
Last year was a spectacular year for the Egyptian market, says Osman. With an increase of 160 percent in the IFC Global (Egypt) Index, it’s not surprising that the Economist named Egypt the best performing market in the world in 2005. This year has seen both large surges and declines in the market and as of right now, we are pretty much where we started at the beginning of the year.
Osman manages Egypt’s first close-ended offshore fund, the Egypt Investment Company Limited, Egypt’s first open-ended country fund, the Egyptian Growth Investment Company Limited and Egypt’s only European Undertaking for Collective Investments (UCITS) fund, the Concord Egypt Fund. These funds are listed in London, the Channel Islands and/or Dublin. The Egypt Investment Company has been ranked as the top-performing fund in the world over a 12-month period out of a universe of over 7,000 funds by Standard & Poors several times since October 2004. E-fundsresearch.com ranked the Concord Egypt Fund as the second highest performing fund for the first six months of 2005 out of a universe of over 8,000 funds.
[The] combination of international investment discipline and local knowledge allows us to identify key opportunities with the savvy of a sophisticated emerging markets’ investor coupled with a full understanding of how to operate within the framework of the Egyptian market, explains Osman.
She notes the performance of the underlying companies as an indicator of market improvement. In order to objectively assess the growth in Egyptian companies and the economy overall, she explains, we look at the financial results of all the listed companies [that] report their earnings – whether or not we invest in those companies.
Of the 91 listed companies that to date have reported their audited financial results for 2005, 73 percent have shown growth in revenues and 79 percent have reported growth in earnings. In the vast majority of cases, this growth has been in the double, if not triple, digits. Consequently, the valuations of Egyptian companies remain very compelling despite the run up in prices.
The factors that have laid the foundations for a very attractive investment climate include liquidity, according to Osman. The massive liquidity the country has experienced, she adds, is a result of increased company profitability, significant increases in commercial, residential and agricultural properties, increases in tourism and Suez Canal receipts and increased flows of funds from foreign investors.
Of course, natural gas has had a role in this overall boost in market performance. Egypt is emerging as a very rich source of natural gas, she explains. At this stage, proven reserves are already sufficient to meet local consumption and Egypt is expected to become a very significant exporter of natural gas by 2010.
The government s commitment to reform, she continues, can be credited with these factors and more. She refers to the custom and tax cuts introduced in 2004; recognition of mortgage finance as a credit activity and “the issuance of executive regulations for the securitization law and the establishment of a monetary policy committee.
She also points to reform in the banking sector, which includes an increase in “capital adequacy ratios and the consequent significant privatization and consolidation in the banking sector.
Adding, “A law preventing monopolistic practices was enacted, many new free trade agreements have been signed and guidelines for preparing a more transparent national budget consistent with international standards have been drafted.
As for the company’s direct experience with the government, she says it is “very positive. She explains that “Senior officials are very business minded and we have never had any problem receiving any of the approvals which we require to operate successfully in Egypt.
Even the recent train and road accidents, which were expected to undermine the government’s commitment to reform and development, won’t have much effect on the ongoing economic development, according to Osman.
“These are indeed very unfortunate incidents but the Egyptian economy is robust and I do not see any direct linkage between these events and economic development, she explains. “Of course any loss of life is highly regrettable and I believe that the authorities will hold the necessary parties accountable in an effort to prevent such calamities from occurring again in the future.
Osman also stresses the role of the private sector in the ongoing process of developing the economy.
“Egypt’s biggest challenge is continued economic growth, she says. “In order to accommodate the over half a million new job entrants a year, the economy has to grow by at least 7 percent per annum. The latest figures reported a growth of 6.1 percent for the most recent fiscal year and the continued growth of the private sector will be critical in achieving this goal.
“This is an area where private equity and direct investment will play a very important role.
She explains that while there are 649 listed companies, only about 100 trade actively. “Many of these companies and their unlisted counterparts need infusions of capital and technical expertise in order to further grow their businesses. This presents a very important opportunity for experienced private equity investors to contribute to the development of the Egyptian economy.
For its part, Concord Group is active in many aspects of the local economy. Early next week, the company will be taking part in the Euromoney Conference held in Cairo.
“Concord has been a proud sponsor of the Euromoney Conference since it started in 1996 because of the great exposure it offers the Egyptian market in the international arena, says Osman.
She explains that the conference poses an opportunity for people to learn more about investing in Egypt and the region. “It offers the biggest gathering of its kind of local and foreign investors and is well attended by both the local business community and key government officials. The conference offers high caliber speakers and panels and, more often than not, significant announcements are made by government officials at the conference.