On the occasion of the EIB Med conference in Amman on 2 July, Daily News Egypt sat down with Vice President of the European Investment Bank (EIB) Dario Scannapieco to talk about the recent projects and initiatives by the EIB in Egypt and fields the bank is interest in investing in the country. The transcript for which is below, lightly edited for clarity:
What do you think of economic performance of Egyptian economy? What does Egypt need to do to increase growth rates, create needed job opportunities?
The Egyptian authorities have been implementing an ambitious economic reform programme and have taken decisive measures to restore macroeconomic stability and sustainable public finances. The third IMF review showed that economic activity has been gathering strength, budget deficit is narrowing, and foreign currency shortages have disappeared. Furthermore, annual inflation declined from 33% in mid-2017 to around 13% in April 2018.
Building on the reform efforts (eg floatation of the currency, improved licencing process, new investment and bankruptcy laws) and the restoration of confidence, Egypt has the opportunity to transition to a higher growth levels, and increase prosperity for all, by locking in the gains from macroeconomic stabilisation and harnessing its full growth potential.
Local and international investor sentiments are positive to the noticeable improvements of the business climate in Egypt.
In past few years, EIB has a strong presence in Egyptian market. What is current size of EIB portfolio in Egypt?
The European Investment Bank is a leading financier in Egypt. We signed €2.3bn since 2014 for energy, transport, water, and wastewater, and private sector (small- and medium-sized enterprises SMEs and med cap) sectors. The bank has significantly contributed to support SMEs in recent year.
Few weeks ago, we signed a new €20m credit line agreement with the Bank of Alexandria to support SMEs and midcaps in Egypt. This new credit line comes under the EIB’s Economic Resilience Initiative (ERI). The credit lines will be channelled at rates affordable to small and medium businesses in Egyptto catalyse and accelerating private investment.
We seek to ease small enterprises and entrepreneurs access to finance by investing in equity and venture capital funds. We have a significant risk capital portfolio in the Mediterranean region of €420m, of which 16% is in the Egyptian market and 46% is regional equity funds with some Egypt exposure. For nascent and growing enterprises, equity investment is a way to accelerate the business development process, to bring those companies to scale and generate employment. Innovative products and business models will play, undoubtedly, a leading role in the region in the near future.
Can you shed more light on ERI?
The Economic Resilience Initiative forms a part of the European Union’s overall mission to create prosperity and stability in the region, as well as supporting countries dealing with the refugee crisis and the root causes of migration.
Under the ERI, the EU bank is increasing financing by €6bn, during the period from 2016-2020. This increase is expected to mobilise and support additional investment of €15bn. This comes on top of the €7.5bn of financing already foreseen in the two regions. Alongside increased financing, the EIB will offer additional concessional finance, enhanced support to the private sector and technical assistance.
The ERI helps the EIB in reaching out to a wider range of beneficiaries and increasing support to sectors which is normally challenging to support EIB’s current operating model, for example because of the higher-risk nature of the operations, despite high socio-economic returns.
Under the initiative we approved a third of the targeted amount, some €2.2bn for 26 projects. This means that we are on track to deliver additional €6bn of financing on top of the €7.5bn already foreseen until 2020.
These projects are starting to make a difference on the ground. Lending via partner banks alone is set to benefit over 1,300 smaller businesses and midcaps, helping to sustain more than 55,000 jobs. The ERI projects will bring safer water for 4 million people and improved sanitation for another 4 million. Some 420,000 passengers will benefit daily from better urban and rail transport. Funding will create some 6,600 new student in higher education. As a result of current projects under the ERI, we anticipate the creation of around 5,000 new permanent jobs, with 125,000 jobs being generated in the construction phase.
From your point of view, what are promising sectors in Egypt?
There are priority projects in a variety of sectors, including water and wastewater, environment, transportation, industry, and SMEs support. Given the size and the needs of Egypt, the EIB’s focus is on large projects and SMEs through partner banks.
On our side, our mandate includes all those areas of intervention to improve the livelihood of people. Infrastructure development is the traditional one, as the EIB has a strong technical and financial expertise cumulated though the years. The EIB has contributed to a number of key projects in the country, including most recently the new Cairo metro line.
In the context of the Economic Resilience Initiative, we will step up our finance and will have additional focus on the private sector including SME support through an expanding partnership with local banks and the financing of larger corporates, Foreign Direct Investments and PPPs. This is in line with the country’s new initiatives to attract new investments.
Water, wastewater treatment is a priority to Egyptian government; how did EIB help? Can you give examples?
Water and wastewater sector is a key sector for our operations. We have many good examples in the past; eg €70m to the Improved Water and Wastewater Services Programme I (IWSP I), which serves four governorates of the Delta region (Gharbia, Sharkia, Damietta, and Baheira), €57m for the IWSP II. The programme helped to improve the water and wastewater services in the governorates of Qena, Sohag, Assiut and Minya. Also, €77m to Kafr El-Sheikh Wastewater Treatment Plant to finance rural sanitation Kafr El-Sheikh governorate and provide sanitation service to 500,000 inhabitants.
Looking ahead, we look forward to signing the Fayoum Wastewater Expansion Project. It will increase existing wastewater treatment capacity and provide sanitation coverage to 83 unserved villages of approximately 806,000 inhabitants in the catchment area of the Fayoum governorate around Lake Qarun. Also, we hope to sign the rKitchener Drain to provide universal access to sanitation in rural Egypt.
Do you provide grants to this sector?
The provision of a combination of lending, blending, and advisory services is required to enhance the value added of the EIB’s financial support and reinforce the likelihood of satisfactory project implementation generating the expected impact.
For example, we provided a €400,000 grant to conduct a feasibility Study for Alexandria West Wastewater Treatment Plant Extension and Upgrade. Also, we secured €1.25m through MED 5P to fund advisory to the Ministry of Trade and Industry and the PPP Central Unit in the Ministry of Finance for structuring and procuring the Safaga Industrial Port in the Red Sea.
Furthermore, under the ERI initiative, the bank is providing targeted technical assistance aiming to support the expansion of sustainable lending to SMEs, with particular focus on previously unserved and underserved segments. Export Development Bank is the first Egyptian bank to benefit from this technical assistance.
Do you coordinate your finance with other financiers in Egypt?
The European Investment Bank is the bank of the European Union; we work closely with the European Commission. In addition, we collaborate in a very regular and efficient manner with other multilateral development banks and development finance institutions, in particular in co-financing projects to synergise our work and provide finance needed for the economic growth of the country where we operate.
Our main partners in Egypt are the World Bank, the European Bank for Reconstruction and Development (EBRD), German Development Bank (KfW), and the French Development Agency (AFD).
Did you receive finance requests recently?
We have a strong pipeline of projects. In the environment, ege the Mediterranean Hot Spots Investment Programme (MeHSIP) identified three projects, for which pre-feasibility studies are on-going or will start shortly. The bank has a strong pipeline in a variety of sectors, including transportation, water, and SMEs support.