MOVING FORWARD

Rami El-Dokany, Executive Chairman of the Egyptian Exchange and Secretary General of the Arab Federation of Capital Markets, has been overseeing the North African country’s stock exchange as the economy struggles. Still, he’s been striving to reposition EGX as a leading stock market regionally.

BY HAGAR OMRAN

The Egyptian economy has had a tough year, with the ramifications of the Russian invasion of Ukraine severely pressuring its foreign reserves as global prices have soared. The country’s net international reserves dropped by 15.4% from February 2022 to hit $34.66 billion by the end of May 2023. Its annual core inflation rate also hit 38.6% in April, up from 11.9% a year earlier, driving monetary policy decision-makers to raise interest rates for main operations to 18.75%, up from 8.75% before the war began. In response, the Egyptian Exchange (EGX) has launched several initiatives over the past nine months to attract more private sector companies—both large corporations and SMEs—to the stock market, given their importance as a driver of the country’s sustainable growth, particularly during the current challenging economic situation. Between August 2022 and May 2023, EGX listed six companies with a total of $16.9 million in issued capital, bringing the total number of companies on EGX to 244—216 on the main market and 28 on the SME market. In November 2022, Lotus for Agricultural Investments and Development was listed on the SME market with $1.8 million in issued capital. In December 2022, the Damietta Container & Cargo Handling Company and Port Said Container & Cargo Handling registered on the main market as temporary listings, with $6.5 million and $5.3 million in issued capital, respectively. General Warehouses of Egypt registered on the SME market with $809,061. Fitness Prime and DIGITIZE for Investment and Technology were registered in March 2023, with $2.14 million and $387,651 in issued capital, respectively. As of June 2023, EGX had a total market cap of $36.5 billion.

“Joining EGX is a dream for many people. It has been and will always be a glamorous organization where the best of the best works,” says Rami El-Dokany, Executive Chairman of EGX and Secretary General of the Arab Federation of Capital Markets (AFCM). He’s currently focusing on attracting new sectors to EGX, such as renewables and technology.

TThe listing of Fitness Prime, the Egyptian franchise of Gold’s Gym, introduced the wellness and fitness sector to EGX.

EGX is also in continuous discussions with the Ministry of Finance, the General Authority for Investment (GAFI) and Free Zones, and the Egyptian Cabinet to enhance the investment environment. Current discussions with the Ministry of Finance are focused on easing dividend taxes for a parent company and its subsidiaries and removing the tax on every subsidiary’s dividend.

“There are two points of view on the dividends’ taxes issue. The first is to boost the attractiveness of companies’ listings and trading as investors always prefer to ease the taxes burden, while the other point of view is to apply the dividend’s taxes as a symbolic contribution to the country’s revenues,” says Sherif Samy, Former Chairman of the Financial Regulatory Authority (FRA). “The dividend’s taxes range from 5% to 10% according to the period and other technical conditions. I don’t think the trading will shoot up the second day these taxes are eased.”

On May 17, 2023, the Egyptian government announced a set of decisions to attract more private sector companies and refresh FDIs, including working on a national tax policy document for the next five to ten years to ensure the stability of tax legislation. The government is also setting a clear strategy for investment in Egypt in cooperation with the World Bank and the International Finance Corporation (IFC). GAFI will create a single online platform for firms’ establishment, operation, and settlement. The platform will make it easier for investors to obtain the necessary approvals and permits.

Giving more space to the private sector, the Egyptian government also plans to sell stakes in 32 state-owned enterprises by the end of Q1 2024, whether by selling shares to strategic investors or EGX IPOs. In May 2023, the Ministry of Finance sold a 9.5% stake in Telecom Egypt for over $121 million, bringing its share to 70%. Likewise, the U.A.E.’s National Paints acquired 80.7% of Egypt’s state-owned Paint and Chemicals Industries for about $25 million during the same month.

To keep attracting new joiners to the stock market, EGX and FRA are looking at simplifying the listing procedures on the EGX by a mutual committee by examining the best practices applied in the Middle East. But is this the time for new IPOs on EGX? The right time depends on the government committee’s vision, according to El-Dokany. “For example, e-Finance, the biggest IPO in EGX’s history, occurred in 2021 while the market was in a downtrend, and the same case applies to the offering of Telecom Egypt in 2005,” he adds. Attracting foreign investors to the IPOs of state-owned enterprises requires offering a price discount because the exchange rate isn’t stable.

The Egyptian pound’s fluctuating exchange rate was and is still one of the key economic difficulties due to the shortage of foreign currencies. EGP declined against USD by 40.8% in a year, bringing the exchange rate for the greenback to EGP 30.94 on May 21, 2023. However, turning a curse into a blessing, EGX appears to have benefited from the fluctuating local currency and people’s increasing awareness to invest their money and hedge against high inflation. The number of investors in EGX hit 176,000 at the end of 2022 and is expected to jump to 250,000 by the end of 2023, supported by the activity of trading platforms. “The bright side is that EGX is the third largest stock market in the Arab region in terms of the total value of shares traded, with $59 billion in 2022, after Tadawul with $455.5 billion, and ADX with $123 billion,” says El-Dokany, while declining to disclose expected figures for 2023.

With plans to suspend the EGX50 EWI Index, EGX has many indices for companies—including the EGX30 Index, TAMAYUZ Index, EGX100 EWI Index, EGX70 EWI Index, EGX30 TR, EGX 30 Capped Index, and SP/EGX ESG—and seeks to launch a new shariahcompliant index before the end of 2023. EGX is now discussing with S&P the main components of the index. EGX30, the main index, has shot up by 62.8% since El-Dokany assumed his current role, hitting 16,745.5 points on May 17, 2023, up from 10,287.3 points on August 25, 2022.

In May 2023, Azimut Group launched Egypt’s first gold investment fund, the Azimut Precious Metals Fund. The new fund, regulated by the FRA, is co-founded by two private companies, Azimut Egypt and Evolve Investment Holding, and is managed by Azimut. In June, the fund concluded the initial subscription of $4.9 million, which was oversubscribed by more than 15 times, with the number of subscribers surpassing 7,000 investors. EGX isn’t responsible for gold pricing, although it does show the gold price as a guide to investors.

Ahmed Abou El-Saad, Head of Regional Asset Management at Azimut for the Middle East, North Africa, and Türkiye, believes that gold investment funds have great potential, especially as EGP value is declining. “Egyptians seek to protect their savings against the high level of inflation and depreciation,” he says. “Our az-Gold, the first tranche of the fund, offers clients banking transactions to invest in gold, so people don’t have to carry cash to buy gold like in traditional purchasing. Azimut manages assets worth $90 billion globally and $323 million in Egypt and aims to launch new precious metals in the next phase. EGX established a clearing house specialized in derivatives trading in cooperation with the FRA in May 2023. EGX and FRA are also developing regulatory frameworks, business models, and organizational structures to develop the carbon market and ease access to climate finance for firms. Egypt announced a carbon credit trading initiative in Sharm El-Sheikh during COP27 in November 2022. “The learning curve that we experienced prior to introducing this scheme delayed the implementation process. There aren’t best practices in this area, especially in the stock markets,” says El-Dokany.

El-Dokany is also boosting the technological aspect of the stock market. In March 2023, EGX launched the CORBEH innovation hub in cooperation with the FRA to act as a platform to discover and support promising technology-based ideas. CORBEH will work with regulators and policymakers to identify opportunities to modernize the regulatory framework for the capital market and for NBFIs. It will provide necessary capacity building and management expertise and help in securing funds. “We are now working on a digital sandbox version with the U.A.E.based company, Fintech Galaxy, while the physical space will be in July 2023,” reveals El-Dokany.

But EGX can’t ignore the negative effects of foreign currency shortage following investor feedback about low FX liquidity in Egypt. Global equity index provider MSCI announced in May 2023 that it would apply special treatment to Egyptian securities listed in its indexes. There are three companies currently on the index: the Commercial International Bank, EFG Holding, and the Eastern Company. “There is a challenge, and we are working on it. We have to resolve the foreign currency issue,” El-Dokany admits, asserting that the exchange rate stability is important to attract foreign investors for direct and indirect investment.

Using his regional connections, El-Dokany also wants to add EGX to the Tabadul platform, a regional exchange hub that was created in 2021 by the Abu Dhabi Securities Exchange and the Bahrain Bourse before it was restructured as the region’s first digital exchange hub in 2022. In January 2023, the

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Muscat Stock Exchange joined the platform. “We are discussing with the Arab Monetary Fund joining Tabadul as a mediator to encourage the Arab investors to trade in EGX in the investors’ currency, and AMF will settle the deals. Yet this proposal is still under study,” says El-Dokany, asserting that joining Tabadul will unlock investment opportunities in Egypt.

He draws on extensive experience in his analysis. The executive chairman has spent about 20 years in banking, corporate strategy, and private equity, as well as co-founding multiple Fintechs, such as payment platform Inclusion and startup acceleration fund Pride Capital. In 2019, El-Dokany was nominated to become Secretary General of the AFCM in Lebanon. The federation comprises 43 entities related to Arab capital markets, with a total of 1,541 listed companies and a market cap of $3.68 trillion as of 2022. AFCM’s annual revenues rose from $177,000 in 2019 to over $660,000 in 2022, an increase of 273%. El-Dokany was appointed executive chairman of EGX in August 2022.

And while leading two busy foundations may be daunting for some, El-Dokany is taking it all in his stride. “I don’t act like a boss,” he says. “We all cooperate to get the work perfectly done.”

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