Egypt looks abroad for funding

Egypt has increased efforts to protect the country's embattled economy and has started to sell plots of land and certificates of deposit to Egyptians living abroad in an effort to raise as much as $4.5 billion.

The government is seeking to raise funds from Egyptian expatriates in a bid to stave off a financial crisis. Mahmud Hams / AF

CAIRO // Egypt has increased efforts to protect the country's embattled economy by selling plots of land and certificates of deposit to Egyptians living abroad in an effort to raise as much as US$4.5 billion (Dh16.52bn).

The moves represent the government's latest tactic to address a rapidly depleting pot of international reserves and a widening balance of payments deficit as Egypt teeters on the edge of a fiscal crisis.

The government is offering almost 8,000 plots of city land worth $2.5 bn and $2bn of certificates of deposit to its citizens living in Gulf states including the UAE, Saudi Arabia, Qatar, Bahrain and Kuwait.

The certificates, guaranteed by the Egyptian government, target Egyptian individuals working in Gulf states, but may also be bought by Egyptian joint stock companies, provided the companies can prove they are owned by Egyptians

Economists say an early windfall from these programmes is likely as soon as this month as wealthy expat Egyptians seek to support their home economy and spot opportunities for investment.

"Both sources could generate at least $1bn to $1.5bn over the coming month," said Hany Genena, the chief economist at Pharos Holding in Cairo, although political reconciliation is crucial for increasing the chances of the initiatives' success as confidence is restored in the nation.

With more than 6 million Egyptians living abroad, some observers say the initiatives are an attempt to harness the power of remittances, which were among the only foreign currency earners to rise last year, from $12.5bn in 2010, to $14.3bn last year.

"Now, Egypt is trying to use all its available tools to substitute the drop in inflows and one of these is from Egyptians living abroad," said Sherif Elwy, the vice chairman of National Bank of Egypt (NBE), the lead issuer of the certificates of deposit to expats.

"Of course they have been sending money back for years," he said, but he added that only now have remittances become critical as Egyptians send money home to support family members. Over the past 18 months, average monthly inflows of remittances to NBE, which receives 60 per cent of total remittance inflows, have jumped to about the $450 million level from between $250 million and $300m before the revolution last year, Mr Elwy said.

But some complications with these offerings may not make it a completely smooth process.

Any bank account used to finance any purchase of land up for sale must be based outside Egypt, said Ahmed Kheir Eldin, a banker at Bank of Alexandria in Cairo, making the system more "rigid and [that] may negatively affect sales".

In addition, the 4 per cent one-year return on the certificates of deposit "may be attractive to some, however, given the current uncertainties, many investors may not find the proposed yield attractive enough," said Sadek Wahba, an Egyptian national based in New York as a private investor.

Egypt has been tapping into all available resources to help keep its planned 8.6 per cent budget deficit on target.

Meanwhile, the government has exhausted borrowing from the local market, where yields on treasury bills have surged to more than 16 per cent. External financing has been harder to get.

Last week, the minister of finance Momtaz Al Saeed said he expected to sign a $3.2bn loan with the IMF by May 15, potentially prolonging an already drawn-out process.

It has thrown up the possibility of a sharp devaluation in the local currency, making schemes such as the land and certificate of deposits sales even more critical to diversify Egypt's financing options.