With a portfolio of €4.8 billion, the European Investment Bank (EIB) has been one of the biggest investors in the Egyptian market over the past 40 years.
In an exclusive interview, head of the EIB’s Cairo Office Alfredo Abad shares with Ahram Online the bank’s plans in the domestic market amid the ongoing COVID-19 crisis and how the bank is expected to support Egypt in case of a looming second wave.
Ahram Online: Do you think the anticipated second wave of COVID-19 will severely hit the global economy?
Alfredo Abad: There are uncertainties over the future development of COVID-19. For this, authorities need to plan for different possible scenarios. However, the expected economic impact may be less than in past months because healthcare systems are better prepared to tackle the pandemic. In addition, countries have adopted policies and financial response packages to reduce the economic impact of the pandemic.
For a clearer understanding of COVID-19 impacts outside the European Union (EU), the EIB’s Economics Department developed an index based on a small set of economic indicators to rate countries’ economic vulnerability to the crisis. The indicators include measures for the quality of the healthcare system, the age of the population, the structure of the economy, and countries’ ability to respond to shocks. The index divides countries into three categories of vulnerability: low, intermediate, and high. The index shows that the economies of low-income countries are highly vulnerable: half of low-income countries and 25 percent of middle-income countries are assigned to the high vulnerability category.
Unsurprisingly, higher-income countries generally have better coping capacities, even when hit by this global shock. In the EU, for example, the European Commission proposed the Next Generation EU budget at €750 billion as well as targeted reinforcements to the long-term EU budget for 2021-2027 that will bring the total of the EU budget to €1.85 trillion. This financial firepower of the EU will support economies against COVID-19 impacts as well as other shocks.
AO: How has COVID-19 impacted Egypt’s economy?
AA: The services sector, including tourism and travel, was hit by the pandemic from the very beginning. However, sectors like the agriculture, followed by the industry, showed more resilience. Egypt enjoys a diversified economy with a young population. These two factors helped to reduce the economic and health impacts of COVID 19. In addition, the rapid economic response of the government has supported economic activity.
AO: How do you assess the containment and precaution measures Egypt has adopted to allay the coronavirus repercussions?
AA: The Egyptian government responded to the pandemic with important measures in line with the recommendations of the World Health Organisation (WHO), which played a significant role in reducing the spread of the virus so far.
AO: What about the economic procedures?
AA: Egypt’s economic response to COVID-19, which came in the early stages, has mitigated the economic fall-out of the pandemic.
The rapid reaction of the government and the central bank enabled the Egyptian economy to grow at a time many economies were contracting. The latest figures suggest an annual growth rate of 3.8 percent for FY 2019/2020. Without the emergency response package, this would not have been possible.
Furthermore, the International Monetary Fund (IMF) provided a 12-month Stand-by Arrangement for Egypt to help Egypt cope with challenges posed by the COVID-19 pandemic. The arrangement provides funds to meet the balance of payments needs and to finance the fiscal deficit. It also helps to safeguard the macroeconomic stability achieved over the past years, support health and social spending to protect vulnerable groups, and advance a set of key structural reforms to put Egypt on a strong footing for sustained recovery with higher and more inclusive growth and job creation over the medium term.
AO: How have the EIB’s investments in Egypt helped?
AA: The EIB has a longstanding partnership with Egypt for more than 40 years. The bank financed and supported the implementation of various projects in many sectors to support social and economic development and create job opportunities in the country, as the funds provided by the European Investment Bank to Egypt amounted to nearly €9.8 billion over these years.
Recently, we discussed with Egypt’s Minister of International Cooperation Rania El-Mashat means to reinforce the longstanding relationship with Egypt. In February, we issued a joint statement to reflect on future cooperation between Egypt and the bank. We will remain mobilised to provide the necessary financing to achieving Egypt’s National Development Agenda 2030, and the United Nations Sustainable Development Goals, in line with the EU policy objectives in Egypt, as well as the EU partnership objectives.
AO: What is the volume of the EIB business in the Egyptian market?
AA: Our current portfolio is worth over €4.8 billion, covering numerous development projects in various sectors including water and wastewater, transportation, SMEs, air-navigation, environment, and energy.
AO: How can the new banking law enhance Egypt’s banking system?
AA: The new banking law is part of the structural reform efforts pursued by the Egyptian authorities. The law provides a modern framework in which to conduct monetary policy and strengthens the independence of the Central Bank of Egypt. The new regulatory framework can strengthen banking sector governance and thereby support financial stability and financial inclusion.
AO: Which Egyptian sectors is the EIB interested to support and invest in amid the coronavirus crisis?
AA: We are looking forward to stepping up our cooperation with the Egyptian government to support sustainable development, climate change mitigation and adaptation and the environment. EIB actions will be based on the 2030 Agenda for Sustainable Development, the United Nations Framework Convention on Climate Change and the EIB’s new strategy for climate action and environmental sustainability launched by the end of 2019.
AO: How did the pandemic change your action plans in the Egyptian market?
AA: As part of the Team Europe response to COVID 19, we mobilised more financing for Egypt to address urgent financing needs in the country.
AO: How does the EIB support Egypt amid the crisis?
AA: We discussed the needs of Egypt with Minister El-Mashat and our local partners. Moreover, we took rapid steps to support the Egyptian economy. Recently we signed an agreement with the National Bank of Egypt (NBE) for €800 million to support SMEs affected by the COVID-19 pandemic. In addition, we approved a financing package of €1.1 billion to support the transport sector in Egypt.
The €800m will focus on companies in the sectors most affected by the pandemic and whose production capacity has been affected. The bank’s financing helps provide the liquidity needed to support short-term working capital needs in such a challenging period. The loan will help to sustain the business continuity of many Egyptian companies and support them in maintaining existing jobs and creating additional jobs.
AO: What procedures should the government adopt to develop more economic resilience?
AA: The Egyptian government has a very ambitious investment plan in different sectors. The implementation of the plan will further improve available infrastructure and create more opportunities in the country.
As part of the Stand-by Agreement with the IMF, there are plans to reinforce the role of the private sector in the economy.
AO: How can the EIB support Egypt’s economy in case of a second coronavirus wave?
AA: We work closely with the Egyptian government to respond to urgent needs. We are increasing our support of the private sector to improve access to finance. Our support continues to improve the resilience of the Egyptian economy in the framework of the bank’s Economic Resilience Initiative. The agreement signed with the NBE is the first agreement signed in Egypt under this framework.
AO: What are the EIB’s future plans in Egypt?
AA: We will seek to strengthen cooperation in new sectors and deepen our cooperation in the transport and energy sectors, support of SMEs and the environment (water and wastewater, and climate adaptation).
For 2020, the EIB expects to significantly increase its lending volume. We are following a long pipeline of public sector investment projects in the areas of urban public transport, railway rehabilitation, water and wastewater, and irrigation.
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