The Egyptian Exchange (EGX) has revealed a comprehensive plan to stimulate demand and enhance the development of its stock exchange in 2024. The strategy, consisting of seven pillars, aims to provide new financial instruments that will increase risk tolerance and maximize returns for investors.
Among the initiatives included in the strategy are Shariah-compliant index, financial derivatives, carbon certificates, and real estate shares. Additionally, brokerages will be authorized to trade treasury bills and bonds on the secondary market, according to the plan.
The need for a new strategy arises from the stock exchange’s anticipated role in supporting the country’s economic reforms in the coming years. The International Monetary Fund (IMF) suggests that capital markets in emerging market economies (EMEs) have the potential to play a more significant role in financing infrastructure projects and supporting small and medium-sized enterprises (SMEs).
By bridging the financing gap, the capital market can offer various mechanisms for funding the nation’s infrastructure development in the future. This strategic approach also aims to boost the availability of nonbank funding instruments, such as leasing, factoring, and mortgage finance schemes, in response to high interest rates.
A well-functioning stock market plays a crucial role in enabling companies to raise capital for expansion and investment. By issuing shares to the public, businesses can access funds that can be allocated to research and development, infrastructure enhancements, or expansion into new markets.
Furthermore, a robust stock market fosters a culture of saving and investment among individuals. Investors have the opportunity to grow their wealth by purchasing shares in profitable companies, thereby participating in the country’s economic growth.
The performance of the Egyptian stock market in 2023 demonstrated its potential. Market capitalization surged by 78.8%, reaching EGP1.719 trillion, compared to EGP 961 billion in 2022. Egypt’s benchmark index also experienced substantial growth, increasing by 70.5% and closing the year at 24,894 points. Likewise, the broader indices, EGX70 EWI and EGX100 EWI, recorded significant gains of 95.3%, reaching 5,473 points, according to data from the Egyptian Exchange.
Additionally, financing balances for micro, small, and medium-sized enterprises (SMEs) witnessed substantial growth. In September 2023, these balances surged by 34.9% to reach LE49.653 billion, compared to LE36.814 billion in the same month of the previous year, as reported by the Financial Regulatory Authority (FRA). The number of beneficiaries also increased, reaching 3.824 million in September, up from 3.909 million in the corresponding period of the previous year.
Microfinance companies played a crucial role in this growth, providing finances worth LE6.3 billion to 348,400 beneficiaries in September. Financing balances for microbusinesses increased to LE45.221 billion during the same period, compared to LE35.484 billion a year ago.
SMEs also experienced an upswing in financing balances, which reached EGP 4.431 billion in September 2023, compared to EGP1.314 billion in the corresponding month of the previous year, according to FRA data.
However, the nanofinance sector experienced a decline by 54.6% to EGP7.8 million in Q2 of 2023, down from EGP 17.2 million in the same period of the previous year. The number of beneficiaries also dropped by 68.2% to 9,900 during Q2 of 2023, compared to 31,200 in the corresponding period of the previous year. Agriculture accounted for 53.1% of nanofinance volume, amounting to EGP 4.14 million, followed by the manufacturing sector, which represented 28.32% or EGP 2.2 million of the total nanofinance balances, according to FRA data.
The Egyptian Exchange’s new strategy aims to build on these positive market trends and further enhance the stock market’s role in supporting economic growth and providing financing opportunities for various sectors, including infrastructure development and SMEs.
