I participated in a second meeting in Cairo with another group who is very familiar with the economic and investment landscape in Egypt and the region. Like my first meeting, the participants requested to remain unnamed out of an abundance of caution.
We spoke about the revolution and catalysts for change in Egypt. My hosts noted that despite some reports, they believe that conditions have improved in Egypt since the revolution 4 ½ years ago. But “improved” is a relative term. Life in Egypt is still difficult. Frequent power outages, outdated and crumbling infrastructure, and modernizing an ancient city are difficult challenges without a simple and quick solution.
Tourism was also a topic of discussion. My hosts exclaimed, “Tourism is HUGE for Egypt… and there’s just NO ONE here!” As a westerner walking the streets of Cairo, I certainly stood out. There’s no hiding in a crowd of tourists… because there are no crowds of tourists these days in Cairo.
Regarding the investment landscape, my hosts noted that there is still currency risk in Egypt and that stocks aren’t necessarily cheap at current levels. The most promising opportunities seem to be in sectors and companies servicing domestic consumption.
Egyptians have historically used real estate as an important investment vehicle. There is a renewed focus on real estate as equity markets sputter. Huge luxury housing complexes are sprouting up everywhere in the greater Cairo area. In this already massive city of more than 22 million people, these high-end complexes make market watchers nervous because the skyrocketing valuations are not sustainable. “This is a bubble… no doubt about it.” Mid-range, office, and commercial real estate seems to be staying relatively steady, but high-end housing appears to be headed for some choppy waters.
We spoke about Egypt’s progress towards the broad objectives of the revolution. They noted that Egypt still has a lot of maturing to do in terms of political parties, systems, and processes. Democracy, particularly the way the U.S. envisions it, can’t happen overnight in Egypt.
This led us to the “stability” discussion once again. This group echoed the same stance I heard in my earlier meeting – stability in Egypt is absolutely paramount for the time being. The articulate, well-informed people I spoke with in Egypt acknowledged that their current path isn’t necessarily optimal, but that incremental, stable progress is a better approach than more dramatic changes that happen quickly.
The general sentiment about Egyptian markets is that they’re lackluster and liquidity has dropped. We discussed the catalysts that may drive markets, either up or down. They ranged from Iran, Libya, and Sinai as catalysts (on the downside) to strong economic plans and demonstrated political reforms (on the upside).
Despite the many challenges in Egypt and the region, this group continues to find very compelling investment opportunities through their extensive research and boots-on-the ground approach.
Special thanks to Brennan Staheli, Jared Skidmore, and the Lunt Capital team for their contributions to this report.