By: Ahmed Awad
Kuwait - Mubasher: Kuwaiti investors in Egypt are anticipating the outcomes of floating the pound against the US dollar, with growing fears of the erosion of their investments.
These investments have seen some hard times in recent years due to the fluctuations in the exchange rates in the Egyptian market, which at the end had negative effects on the mother companies’ budgets.
Beside the exchange rates lies another problem in the enormous increases in inflation rates which weakened the purchasing power of the Egyptian currency, increased costs, and alongside bureaucratic hitches froze Kuwaiti companies’ expansions in Egypt.
According to the Egyptian general authority for investment (GAFI), there are around 470 Kuwaiti companies operating in Egypt, in which the Kuwaiti stake total nearly $2 billion.
These investments are led by the National Bank of Kuwait (NBK), Al Ahli Bank of Kuwait, United Real Estate Company (URC), National Real Estate, Abyaar, Americana, Petro Gulf, and others.
The sharp pound decline forced many of the Kuwaiti companies to invest its earnings in real estate, as well as treasury bills and bonds issued by the government, to narrow FX losses.
The pound crises led to treasury bills exposure in many Kuwaiti banks, which leads to a rise in provisions to the mother banks that are already suffering from the oil crisis.
Kuwaiti investments in the Egyptian treasury bills represent 25.5% of its total assets, amounting to nearly $1.35 billion by previous rates, and around $750 as per the new prices.
These investments reached EGP 12 billion by the end of June 2016, with an increase of 71% compared to its levels in the same period last year.
The return on the treasury bonds reached a record high after the Central Bank of Egypt (CBE) raised interest rates by 300 basis points last week to 20.5% for 1-year bonds and 19.5% for the 6-month bills.
Kuwaiti banks will have another challenge in the near future, as it will have to add more exposure to the debt instruments that represent a safer and a more stable investment.
Beside the Kuwaiti firms operating in Egypt, others intended to enter the market but have refrained from doing so due to the drop of the pound, these companies were led by Mobile Telecommunications (ZAIN).
Earlier, the deputy chairman of Zain assured that his company’s decision to postpone the investment in the 4G license in Egypt was a right one.
Agility also announced freezing its $1 billion investment in the Suez Canal axis development project.
The pound floating will decrease the Kuwaiti companies’ assets by nearly 50%, which is why many real estate firms established funds to reinvest its profits in real estate assets and bank deposits with high interest rates exceeding 15%, as inflation rates are expected to reach 20%.
Since 2011, the Egyptian pound dropped 146%, as the dollar registered EGP 16 after floating the exchange rates, compared to EGP 6.5 five years ago, due to the decline in revenues from tourism, exports, and foreign investments.
Translated by: Moslem Ali
