No wor­ring signs re­gard­ing can­cel­la­tion of for­eign in­vestors mech­a­nism’s repa­tri­a­tion: Citibank

40% of in­vestors re­lied on in­ter­bank last year

The Daily News Egypt - - Front Page - By Nevine Kamel

Citibank’s Coun­try Of­fi­cer, Mo­hamed Ab­del Kader, said that the Cen­tral Bank of Egypt’s (CBE) de­ci­sion to re­move the mech­a­nism of for­eign in­vestors’ funds repa­tri­a­tion, came at a time when Egypt’s eco­nomic sit­u­a­tion was im­prov­ing, and for­eign cur­rency’s re­sources were in­creas­ing in a way that al­lowed the mar­ket to re­turn to nor­mal sta­tus, with­out the need for the pres­ence of the CBE as a guar­an­tor to the for­eign in­vestor.

Through this de­ci­sion, as Ab­del Kader analy­ses, the CBE aims to send a clear mes­sage: the mar­ket is cur­rently ca­pa­ble of com­pletely re­cov­er­ing its ac­tiv­ity, and re­ly­ing on in­ter­bank again.

Ab­del Kader be­lieves that this de­ci­sion is pos­i­tive on the long run, and a source of con­fi­dence in the eco­nomic re­forms, car­ried out by the Egyp­tian govern­ment over re­cent years.

“It is a clear mes­sage to for­eign in­vestors that in­di­cate that the Egyp­tian mar­ket is a free mar­ket, ca­pa­ble of pro­vid­ing the needs of in­vestors, at the time of en­try and exit from the mar­ket,” he added.

Ab­del Kader, whose bank man­ages about 60% of the in­vest­ments of for­eign­ers in govern­ment se­cu­ri­ties in Egypt, ex­plains that the CBE paved the way for this de­ci­sion dur­ing the past year, when it raised the fees for us­ing this mech­a­nism for for­eign in­vestors.

He noted that the de­ci­sion comes in a nor­mal con­text, af­ter the re­form mea­sures taken by the CBE to lib­er­alise the ex­change rate.

The mech­a­nism for trans­fer­ring for­eign in­vestors’ funds has al­ways been present in the Egyp­tian mar­ket, ac­cord­ing to Ab­del Kader, but it was not im­ple­mented be­tween 2006 and 2011. “The mar­ket was en­tirely de­pen­dent on in­ter­bank, as there were large in­flows of for­eign in­vest­ments in govern­ment debt in­stru­ments in that pe­riod. The in­ter­bank sys­tem proved ef­fec­tive then, and the Egyp­tian pound was ap­pre­ci­at­ing,” he ex­plained.

“But with the Arab Spring, the exit of in­vest­ments from the Egyp­tian mar­ket, and the loss of con­fi­dence in it, at that time, the mech­a­nism was ac­ti­vated to re­as­sure in­vestors they can re­cover their money when leav­ing the mar­ket, as the CBE served as a guar­an­tor.” Hence, he added, the de­ci­sion of the CBE to ac­ti­vate the mech­a­nism to repa­tri­ate funds aimed to stim­u­late in­vest­ments in Egyp­tian se­cu­ri­ties, when in­vest­ment was lack­ing.

Ab­del Kader fur­ther ex­plained, “The mar­ket is ready for such a de­ci­sion and to rely on in­ter­bank again. Dur­ing 2017,over 90% of the in­flow used the mecan­ism while in 2017 al­most 40% of the flows hap­pened through the Egyp­tian in­ter­bank.”, not­ing that with the lib­er­al­i­sa­tion of the ex­change rate, and the elim­i­na­tion of the black mar­ket, the in­ter­bank grew more re­li­able again.

He stressed, “In­vestors do not come to a mar­ket with duel for­eign ex­change, but with the re­sump­tion of for­eign ex­change re­sources, such as tourism and re­mit­tances, the in­flow of hard cash was ris­ing, and for­eign in­vestors started be­com­ing in­creas­ingly de­pen­dent on in­ter­bank.”

The Egyp­tian mar­ket wit­nessed the exit of nearly $10bn, dur­ing the EM cri­sis, which ac­counted for 50% of the to­tal in­vest­ments in T Bills. Ac­cord­ing to Ab­del Kader, this means that the mar­ket has po­ten­tial to see fresh flows next year in case EM im­pove and those will be rooted to the in­ter­bank mar­ket.

Via this de­ci­sion, Ab­del Kader ex­plains, for­eign in­vestors are deal­ing in a free mar­ket which en­tirely de­pends on sup­ply and de­mand, hence re­flect­ing the Egyp­tian mar­ket’s full trans­parency.

Ab­del Kader said that not ap­ply­ing the de­ci­sion retroac­tively re­as­sured in­vestors.“The CBE did not want to shock in­vestors. For­eign in­vestors also asked all the ques­tions they had, and the CBE an­swered to as­sure them,” he noted.

With the ex­is­tence of a free mar­ket, Citibank may ben­e­fit from di­rectly deal­ing with in­vestors, with­out the pres­ence of the CBE as a third part­ner, in ad­di­tion to stim­u­lat­ing com­pe­ti­tion be­tween banks in favour of in­vestors.

With the im­pov­e­ment of the bal­ance of pay­ment and the cur­rent ac­count on the back of strong tourism flows and re­mit­tances, the in­ter­bank is ex­pected to serve the flows of the in­vestors.

“It is nec­es­sary to have the real eco­nomic for­eign ressources sus­tain­able and have for­eign di­rect in­vest­ment to keep the in­ter­bank mar­ket strong” he stressed.

On the im­pact of that de­ci­sion on the ex­change rate, Ab­del Kader said it will have no im­pact as there are real re­sources of hard cash.

“How­ever, it could cre­ate some lim­ited volatil­ity. In fact, if it was not for the EM cri­sis, the de­ci­sion would have had a pos­i­tive im­pact on the ex­change rate,” he ex­plained.

The de­ci­sion of the CBE be­came ef­fec­tive on Wed­nes­day—one week af­ter the de­ci­sion was is­sued last week.The CBE noted that funds en­ter­ing the mech­a­nism un­til Tues­day will not be af­fected.

Citibank’s Coun­try Of­fi­cer, Mo­hamed Ab­del Kader

The mar­ket is ready for such a de­ci­sion

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