Sawiris is sounding the alarm: are investors fleeing Egypt?

Statements by the Egyptian billionaire, Samih Sawiris, about the feasibility of investing in Egypt, raise real concerns about the blurred economic future in the country, the faltering activities of the private sector, and the possibility of local capital fleeing the country, in light of the great scarcity of dollar bills and a sharp discrepancy in the value of the local currency.

Statements of the Orascom Development Holding’s Chairman of the Board of Directors may exacerbate the deterioration of the economic situation in Egypt, especially with the growing concerns of investors, who explicitly expressed their intentions to transfer their investments outside the country. There is also a growing lack of confidence in the announced government plans to revitalise the Egyptian economy and its failure to restore the confidence of the Gulf supporters.

Despite the controversy aroused by his statements, his older brother, Naguib Sawiris, publicly supported Samih in a telephone interview on Al-Hadath Today channel. He said that there was nothing wrong in what Samih has said and that there were many investors who are afraid to come to Egypt because they do not know what the price of the dollar is going to be like in the upcoming days.

It seems that the harsh media attack on the Sawiris family from media outlets close to the authorities was like agitating ongoing fire. There is a growing uproar surrounding the most dangerous and powerful statements of influential businessmen about the country’s situation, only months before presidential  elections, through which President Abdel Fattah El-Sisi aspires to win a third presidential term. 

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Deep crisis 

The well-known Coptic billionaire expresses an influential class of businessmen and investors, whether in Egypt or abroad, that has clear reservations about pumping investments in a country where a fixed dollar price cannot be predicted.

During an interview with Al-Arabiya channel a few days ago, Sawiris said that he was forced to stop his investments because of the economic conditions in the country, as he does not know if his projects would gain profit or lose, in light of the fluctuating exchange rates of the US dollar. He added: Internationally, the US dollar is exchanged for 42 Egyptian pounds; black market rate is 36 pounds, while the official exchange rate is 31 pounds.

Sawiris’s statements have more value, coming from one of the most important and largest businessmen in Egypt and the region, and a person who belongs to a wealthy Egyptian family that has investments estimated at billions of dollars in various countries of the world. This family was also supportive of the Sisi regime and opposed to the rule of the Brotherhood, whose President, Mohamed Morsi, was overthrown in a military coup in mid-2013.

Things are getting worse as one of the members of the richest family in Egypt and Africa announced his intentions to steer his investments toward Saudi Arabia, the Emirates and Morocco. This sends a message that the investment atmosphere in the country is not safe, and that things are moving in a negative direction. There has also been a decline in the size of the private sector of the economy from 62 per cent to 21 per cent within 10 years, according to official data.

The Egyptian Sawiris family ranks first as the richest people in Africa, with a total net worth of $12.9 billion, according to Forbes magazine’s ranking of the wealth of rich families in Africa for the year 2022.

Frozen dues 

What is getting the situation even worse is the government imposing restrictions on the movement of imports and exports, imposing more taxes and monopolising vital sectors in favour of parties close to the authority. In addition, companies affiliated with the military institution enjoy tax and customs privileges that increase the volume of their gains compared to private sector companies that suffer from market fluctuations and price discrepancies, and not receiving their dues owed by the government.

An informed source in a major contracting company who spoke to Middle East Monitor on condition of anonymity, said that the company did not receive its dues for implementing government projects from last September, which is 8 months ago, causing salary delays and layoffs of part of the staff, and a number of projects have stopped.

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A second source at Hassan Allam Contracting Company confirmed that the company did not receive its financial dues for projects implemented in the New Administrative Capital (east of Cairo). He added that the owner of the company had received a government offer to obtain a piece of state land in exchange for his frozen dues.

The Egyptian contractor and businessman residing abroad, Muhammad Ali, sparked a major crisis in September 2019, when he accused Sisi and senior army leaders of corruption and wasting billions of pounds. He said that he worked for 15 years as a construction contractor on projects funded by the army, and that he was forced to leave the country because the army did not pay him any of his financial dues, according to him.

Major projects in the country are faltering, as huge constructions in the Administrative Capital and New Alamein have stopped, and plans to introduce sewage into the villages of the Egyptian countryside as part of the Decent Life initiative were frozen. This interruption in projects came after the International Monetary Fund stipulated, last January, that any projects in which the dollar component is included, must stop. In addition, any new projects that have not yet begun and that have a clear dollar component must be postponed.

Militarisation of some sectors 

The current crisis which, according to Sawiris’s statements, caused the collapse of the private sector, is mainly due to the growing control of the Egyptian army over vital economic sectors and the expansion of its projects. Military projects have been expanded to include agriculture, tourism, entertainment, health, hotels, roads, bridges and infrastructure, residential buildings, gas stations, iron and cement factories, food industries, dairy, meat, poultry, fish and others.

No one really knows the precise size of the economic empire of the military establishment in the country. Army related companies are not being subject to any oversight by Parliament or the Central Auditing Organisation (a supervisory body), neither do their revenues get added to the Egyptian treasury.

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According to estimates issued by the World Bank, there are 60 companies affiliated with the military operating in 19 industries, out of a total of 24 industries listed in the classification of industries.  Former head of the Engineering Authority of the Armed Forces, Major-General Staff, Ihab Harb, had revealed that the Authority had implemented 20,000 projects, in June 2020.

Naguib Sawiris had previously expressed his complaints publicly in statements to the French News Agency in November 2021, when he said that state-owned companies, or those affiliated with the military, do not pay taxes or customs, so competition with the private sector from the start is unfair.

A few days later, Al-Sisi responded, hinting at Sawiris, indicating that there is a famous businessman complaining of state control, even though his companies have obtained projects worth billions.

Prospective floating of the Egyptian pound 

Investors’ fears, whether at home or abroad, are exacerbated by the blurred economic situation, with an anticipation of a new flotation of the pound against the dollar, which jeopardises any feasibility study and prevents estimating the real investment cost of any project. This has prompted the United Electronics Company (Extra) of Saudi Arabia.  as well as the Abu Dhabi Development Holding Company to halt their expansion plans in Egypt.

Analysts say that the value of the dollar may approach the barrier of 50 pounds, after it reached about 46 pounds on the shares of the Commercial International Bank, CIB, on the London Futures Exchange, with the faltering of the government’s offering program, and Egypt’s failure to obtain a financial rescue package from Gulf countries.

In parallel and, for the first time since 2013, Fitch lowered Egypt’s long-term rating to “B” instead of “B+” with a negative outlook, warning that Egypt might face difficulty in securing its needs of loans and external financing of the next fiscal year 2023/2024.

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The Egyptian government appears to be facing urgent demands to remedy the crisis of liberating the exchange rate and to solve the dollar shortage. It is also required not to rely on a single method for managing foreign currencies, which is selling shares of government companies. So far, the government has failed to achieve results that are consistent with dollar needs, according to economist and former head of Egyptian Journalists Syndicate, Mamdouh El-Wali.

Al-Wali added, in his interview with Middle East Monitor, that it is urgent for the government to deal with the concerns of Sawiris and other investors whose projects have stopped, by providing other means to manage the dollar, such as granting more facilitation to the private sector, and reducing competition from government affiliated entities so that the private sector can play a greater role in manufacturing, investment, tourism and export and help bring the pound exchange rate down to its current level in the parallel market, so that there is a single price that the market deals with, and so that Egyptian expatriates abroad can transfer their money through official channels.

The views expressed in this article belong to the author and do not necessarily reflect the editorial policy of Middle East Monitor.