Our investment trek has primarily focused on international developed and emerging markets. The distinction between these two categorizations depends on who you’re talking to and the definitions they’ve established to separate countries into different groups. Lunt Capital’s Select Country Rotation doesn’t focus first on whether a country is part of group A or group B. Instead, the strategy is primarily concerned with evaluating, ranking, and rotating among the most promising “investable” countries. Investable, in this case, means there’s an effective, efficient way to gain liquid exposure to a given country.
In its current form, our Select Country Rotation strategy has an investment opportunity set of approx. 34 countries. Virtually all of the International Developed countries that appear on anyone’s list are also part of our country opportunity set. Many of the Emerging Market countries are also within our toolbox.
On the lower portion of the Emerging Markets list, the distinctions between Emerging and Frontier markets starts to get a little fuzzy. Some of these countries may show some real promise, but their economy, political structure, institutions, and/or financial markets are still maturing. This hazy area is where I would describe Egypt – an ancient country with some real opportunities… and some very real challenges.
While visiting Egypt, I had the pleasure of sitting down with a representative from CI Capital at their offices in Giza. CI Capital is the investment banking arm of CIB, Commercial International Bank, the largest private-sector bank in Egypt. The representative requested I omit his name from my meeting notes, just to keep things a little easier. That means the photo of our meeting is also going to stay buried away… so it looks like they did you a real favor on this post by keeping my ugly mug off the page.
We began by talking about the investment climate in Egypt. They noted that foreign investment in Egypt hasn’t picked up yet, primarily because of the political unrest and uncertainty that continues to keep the country in limbo. The unrest ties back to the revolution which began in January 2011. We spent a good portion of our meeting talking about the revolution and how Egypt is still trying to find its identity for the 21st century.
For an interesting story about where Egypt stands 4 years after the revolution, click here.
My host stated on a number of occasions that “stability” is the most important thing in Egypt right now. Egyptians are watching the dramatic challenges their neighbors are currently experiencing. Nations such as Libya, Syria, and Yemen, who also experienced the Arab Spring around the same time Egypt did, have all had dramatic and sobering challenges ever since. Egypt is eager for progress, but very cautious about the speed at which meaningful progress can actually be realized. Stability, stability, stability – that’s the war cry I heard over and over again.
I learned about some of the many challenges that were top of mind in our discussion. They noted that in a country of approx. 90 million people, 60 million Egyptians live on less than $2 per day. Unemployment is high and the prospects remain less than promising. Tourism plays a major role in the Egyptian economy, but the streets are devoid of tourists. Before the revolution, Egypt was visited by more than 16 million tourist annually; that number has dropped to less than 1 million annually in the years following the revolution. Shops and restaurants are empty, and Egyptians continue to wonder when the tourist will return.
A few other interesting facts I learned include:
- Tobacco tax is the single largest source of revenue for the Egyptian government. As my host noted, “Egyptians are very inelastic to tobacco prices.”
- Approx. 85% of all housing and private property remains unregistered with the government. The government can’t effectively implement a property tax because the property records just don’t exist. My host noted that people are eager to register their property, but the bureaucracy and red-tape makes the process prohibitive. This issue impacts the mortgage market as well which make up less than 1% of GDP.
- There were 2 million Egyptians living in Libya (whose total population was 6 million), but most Egyptians have returned to Egypt following the brutal attacks on Christians by terrorist groups. The added challenge with this group is that they’ve returned to Egypt without jobs.
I’ve included a few of the recent economic/macro reports from CI Capital for your reference.
Special thanks to Brennan Staheli, Jared Skidmore, and the Lunt Capital team for their contributions to this report.