(Following are excerpts from the writer’s presentation at the EU-Egypt Trade Conference in Brussels on July 7):
The economic and banking environment in Egypt today is encouraging enough to entice and attract foreign direct investment (FDI) to stimulate growth and prosperity in the country. Both, private and public sectors, show greater interest in making such investments a worthwhile venture. We will hear from other distinguished guests on how the government extends all kind of incentives to facilitate a smooth and expeditious operation. FDI would, during the course of establishing a presence in Egypt, require financial and banking assistance.
This assistance will come from local and foreign banks in the country and both had adapted positive attitudes to offer their services as an integral part of the government encouragement scheme. Banks, as a general rule, become active as soon as a foreign companies approach them to discuss their needs for working capital and project financing.
But before I embark on the detailed processes, I wish to take a minute to expound on Egyptian banks’ capabilities to service FDI needs. Egyptian banks underwent significant reforms and evolved to become more modern and highly sophisticated in dealing with individual clients and corporations.
Foreign companies will benefit from their flexibility, innovativeness and quick response. They also have at hand corporate specialists and/or relationship managers, many of whom are multilingual, but all are adequately experienced and knowledgeable to cater for the requirements for the FDI programs, and that what makes the negotiations meaningful and indeed productive.
Funding for new projects has two main components: Foreign and local. The Foreign Component relates to payments in foreign currencies (Euro, Sterling, Swiss francs) to mainly cover the purchase of equipment, material, and supplies to cover initial capital expenditures. The Local component, on the other hand, relates to local currency requirements to finance the project and sustain its viability and, since local financing depends essentially on the availability of local funds for the terms required, supply of Egyptian Pounds is no problem. Historically, the ratio of currency needs on average is 20% foreign and 80% local of total financing. Therefore, the Local component of the FDI is what Egyptian banks are keen to develop and to offer as part of its assistance to support and facilitate the financing needs of foreign companies.
Banks usually get involved after the foreign company receives its licence from GAFI, the General Authority for Investment, as part of the latter’s strategic direction under specifically designated investment laws. In many instances, and depending on the size and duration of the transaction, several banks (both local and branches of foreign banks) syndicate the debt financing under a Lead Manager, who usually conducts and concludes negotiations with foreign companies. To name a few of the banks involved: National Bank of Egypt, Misr Bank, HSBC, Citibank, Credit Agricole, Barclays, and others. Now, as a general rule, these banks are quite involved in project financing and extend banking facilities in support of the local side of the business. Each bank follows a set of its own internal guidelines, policies, terms and conditions for the financing package. That would allow foreign companies to “shop around” for the bank with the best terms (such as the duration of the loan which is normally long-term). They also shop around for best service and for best pricing.
Having said that, it would be a great advantage for foreign companies to negotiate with banks in Egypt that assure close cooperation or offer tailor-made system for the overall banking and financial management.
A bank may offer a complete package covering collection and disbursement of funds from one centralized point, a “one-stop banking” so to speak. For example: transfer of funds, foreign exchange transactions, letters of credit and the issuance of guarantees, and other services which would, as a package, cut the cost to the company. Again, the relationship manager, would be the one to discuss these various functions with.
I wish to point out that most banks are familiar with GAFI and understand the basic criteria for financing eligibility as well as the government’s consistent efforts to promote DFI in Egypt. It is a healthy competition among banks in the country to demonstrate their sophistication, expertise and willingness to conclude the financing in a professional and expeditious manner.
What remains is for the licensed foreign companies to be prepared and have the information required by the bank readily available. Initially, banks would require: Qualitative as well as quantitative analysis of the project; Cash flow statements showing source and disposition of funds during the establishment phase, or phases; and Projected P & L statement, etc. There will obviously be other information and requirements by banks as the relationship with the foreign companies progresses.
(Habib F. Faris is vice president at Clariden Bank, London.)
(The information contained herein is for information only and should not be construed as an offer or a solicitation to purchase, subscribe, sell or redeem any investments. While Clariden Bank uses reasonable efforts to obtain information from sources, which it believes to be reliable, Clariden Bank makes no representation or warranty as to the accuracy, reliability, or completeness of the information.)