Exclusive Interview with EGX, Leading Stock Exchange in Africa

Interview with Dr Mohammed Omran, Chairman of Egyptian Stock Exchange (EGX)

The market capitalization in Egypt is currently at 66.5 billion US dollars. What is your assessment of Egypt’s capital market?

Previously, we were trying to restore confidence in the capital market in Egypt. It is extremely challenging to try to get newly listed markets to join the stock market. In 2014, we were able to attract 13 new companies with a capital of 1.9 billion Egyptian Pounds. This is 10 times the number in 2013 and double of what we had in 2011/12 and 2013 put together. In the first quarter of 2015, we carried out a very aggressive campaign to attract more and more blue chip companies. So, in the first quarter of 2015, we were able to attract 6 new companies with a capital of 4 billion Egyptian Pounds, which is two times of the figure in 2014 and it’s 20 times of what we had in 2013. I guess we are trying to provide our investor with a more diversified kind of listed companies.

What is the perception of the Egyptian Stock Exchange among the business community in Egypt and among the international business community as a means to raise finance?

As far as the domestic perception is concerned, our investors trust us very much, especially in terms of issuers. This is what I mentioned previously about 13 companies being listed last year and 6 companies in 2015. What is equally important is that in 2014, there were exactly one third, i.e. 72 listed companies with capital increase. So, the most important thing is about whether or not the market is functioning the way it should.  Financing through the equity is one kind of method. We are able to provide our listed company with things related to capital increase to meet their investment needs in the country. This is why one third of the listed companies acquired capital increase in 2014.

As for the international community, the EGX has been appointed as the chairman of the Federation of Euro-Asian Exchange. I was appointed as the chairman of this Federation last November, which shows you how our stock market is respected and how the leadership of the Egyptian Stock Exchange is trusted in the Federation. In September last year, during the celebrations in the New York Stock Exchange, Egypt was winner of the best innovative stock exchange in the entire African continent. This again gives you an impression of how we are perceived by international investors.

Both domestically and internationally, we are getting more and more respect from both international and domestic investors.  

Please mention some of the most promising investments opportunities in Egypt.

This economy is very well diversified. The Egyptian economy is the biggest in the MENA region in terms of population. We are talking about 85 to 90 million people. It is a very well diversified economy. It is a very big consumption market and this is why even though the GDP rate went down after the revolution, but the decrease was not a negative one compared to the other countries. This is because it was completely driven by the strong domestic demand. I think one of the biggest advantages of the Egyptian economy is population here, which makes it one of the biggest markets in the MENA region and in addition to this, it is a very well diversified economy. So, we have all the investment opportunities, be it infrastructure projects, the financial services, the food industry, the agri-business and so on. So, it is a very well diversified economy. So, I am sure that, when we sit down to improve our economic policies and to improve our investment climate, we will be able attract a huge direct foreign investment and we will be able to match the investment level we had prior to 2011.  Before 2011, Egypt was ranked number one in Africa and number two country attracting the most foreign investment. I think we reached our peak in 2007, when we attracted 13.1 billion dollars, which is around 8.5% of our GDP.

Speaking about the stock exchange and the capital market, what additional services or products need to be introduced to improve the sophistication of the market?

We are trying to provide our investors with a diversified economy. In the beginning of this year, we had the ETF (Exchange Trading Fund), which is needed by the investment community. We are trying to work closely with the Egyptian Financial Supervisory Authority, the Minister of Finance, primary dealers, the Central Bank to bring the sovereign bonds to be traded in our market. I think if you look at the structure of the stock market, you will understand that it is more or less (about 95%) an equity-driven market. So, we need to provide a fixed income besides the equity market. I think there will be a strong discussion among all the stakeholders and players to make sure how we can bring about a fixed income, starting with the treasure bonds followed by the corporate bonds after that.

One of the news reports on your website is about deal with the Minister of Petroleum, where you agreed to finance oil companies. What companies are involved here and what is the final goal of this deal?

This is just one of our efforts to attract companies to be listed in the Stock market. It is just our effort to try to bring this about by directly talking to different ministers related to stake-owned companies. We have a very good relationship with the Ministry of Petroleum. One of the petroleum companies has been listed in the Egyptian Exchange 10 days ago, it’s called Mobco. With a capital of 2.3 billion Egyptian Pound and we are expecting more of these companies to be listed in the stock market. Investors and the Ministry of Petroleum are hungry for this kind of companies, because they will have many plans for capital increases to get more investment in this sector. I think the Egyptian Exchange will be able to finance this kind of investments. 

In terms of the corporations and partnerships with other regional stock exchanges, are you looking to cooperating with specific institutions?

We are already doing that. We have had some discussions with the EBRD (the European Bank for Reconstruction and Development) for financing SMEs. We were in discussion with Bourse Bahrain (Stock Exchange) a couple of weeks ago to see into things related to fixed hub and how we can facilitate cross border trading between these two stock exchanges. We are also members of the WFE (World Federation of Exchanges). We are the chairpersons of the Federation of Euro-Asian Exchange. We are members of the Arab Federation of Exchange and the African Stock Exchange Association. We are using all these platforms to have more cooperation among these stock exchanges in the region and internationally as well.

What major challenges are you facing? This could be a platform, because maybe someone can help you out.

We need to restore the confidence in our investment plans. I guess EGX as well as the Egyptian economy is trying to bring investors back into the country. We were able to do that to a certain level, but it is not to the extent that we hoped for. As I mentioned, in 2007 we were able to attract 13. 1 billion direct foreign investment. We have a very good relationship with the Arab and foreign investors. I guess people are waiting to see a clean, hassle-free economic plan from the government. We have taken very important steps in the field of the subsidy file, the energy file, infrastructure spending. When we have a comprehensive and complete economic plan and when we improve our investment climate, we will be able to attract more investors. It all boils down to restoring confidence in the international community. This is key for the Egyptian exchange and the Egyptian economy.

Regarding educational awareness, sometimes they may go to the bank to do their investments. They may not come to you. What do you do about this? Do you also have such an issue here as well?

We have a couple of educational programs, one is Bourse Step-by-Step, one is Stock Riders. These are trying to educate the young generation in schools, universities, the business community, the civil society. These try to just show them how important the stock market it. It is trying to tell them that the stock market does not only involve speculation and trading, but it also plays an important role in enhancing and supporting the Egyptian economy. What I mean is that we have the banking sector and we have the nonbanking financial institution in which the stock market is the key player. The message we are trying to send to them is that the stock market is not only about trading, but more importantly it is about providing finance to companies so that they have more investment opportunities and opportunities to expand their business and to be a very strong hub for employment creation.  It is our duty to deliver this important message to our community here in Egypt.

Do you think people would approach you? I am not talking about the students. I am talking about people who own companies. They have companies, they are medium-sized. They know that you exist, but it is difficult for them to take the step and say “let’s so to them”.

Absolutely. Our success rate does not exceed 3% to 4%. For every 100 businessmen or businesswomen, we are only able to attract between 2% to 3%. But the message we are trying to convey is something very important to the next generation. According to one of the IFC studies, most companies usually disappear in the 4th generation. We are trying to convey to them that being listed in the stock market will help you to strengthen your corporate governance body, things related to investors’ protection. They will also have access to finance and better strategies. We are trying to show them the benefits of going public by telling them that this will make their company healthier. I guess, over time, we have been considerably successful in delivering this message. Just in the last 20 months, we have been able attract nearly 20 newly listed companies and we continue to do that. By the end of 2015, we expect to have 5 to 6 more companies listed.

Let’s talk about your vision. In 2 to 3 years’ time, what would you like to have achieved for the whole stock exchange? If you had a magic wand with you, what would you have liked to achieve by then?

I would like to see more diversified products in the market. Not only in terms of equity, but also corporate and treasure bonds, as well as Sukuk, which is a method of financing as well. We would like to see more diversified companies to join the stock market. We would like to see more blue chip companies to be listed and trading in the stock market. In the long term, we would like to see a more derivate market here in Egypt, because derivate exchanges provide a very good means for hedging issues. In the near future, I would like to see more listings, more diversification in terms of financial instruments as well as a very strong institutional investors’ base in the Egyptian Exchange here.