Stricter Penalties Urged on FX Real Estate Purchases

Dina Abdel Fattah

This past week was filled with a wide range of events, situations, and emotions, from uplifting and inspirational to very sorrowful which marked the death of persons who will be missed. The quick sequence of economic and political changes, moreover, has been so overwhelming that it appears beyond our ability to comprehend properly.

Positive economic news made headlines in both global and regional media. Egypt received a cash transfer of 14 billion dollars from the UAE in addition to the USD 6 billion UAE deposit in the Egyptian central bank to complement the second batch of the Ras El Hekma deal advance payment.

Due to this favorable progress, expatriate remittances have surged and reintegrated into the Egyptian banking system, which had been grappling with a shortage of foreign exchange in recent times.

Remittances from expatriates will continue to be a major source of foreign currency for Egypt’s economy. The scarcity has an adverse impact on the country’s macroeconomic situation. Restoring trust in Egypt’s economic regime, which raised interest rates to more than 27%, contributed to a spike in hot money inflows.

The net foreign assets deficit of the Egyptian banking system decreased significantly, falling to USD 2.8 billion, compared to the USD 13.2 billion recorded in the previous month. This positive trend is attributed to increased foreign exchange inflows.

Positive economic outlook

The outlook of international rating agencies on Egypt has undergone a significant transformation. In contrast to their previous cautious stance, accompanied by warnings to investors against investing in the Egyptian market, a marked shift has emerged, encouraging investment in Egypt.

This shift has had an immediate impact, leading to a surge in hot money inflows. Meanwhile, ratings have also improved, reflecting a move towards a more stable and positive outlook, replacing the previous cautious and apprehensive assessments.

Among the recent positive trends, Fitch rating agency has upgraded the outlook for four major Egyptian banks, from stable to positive: National Bank of Egypt (NBE), Banque Misr (BM), Banque du Caire (BDC), and Commercial International Bank (CIB).

The agency forecasts these banks to maintain strong performance in the medium term, supported by rising interest rates, business growth, and a more stable macroeconomic environment.

These positive developments come on the heels of an overall improvement in Egypt’s economic ratings, as discussed in previous articles. This includes the reinstatement of Egyptian stocks and bonds on some global indices and an upgrade of the country’s sovereign rating. These improvements reflect enhanced debt-servicing capabilities and increased foreign currency liquidity.

Marketing investment opportunities

Building on the momentum of positive economic news and further enhancing the attractiveness of the current investment climate in Egypt, the Egypt Sovereign Fund (ESF) has announced its upcoming promotional tour in Gulf Co-operation Council (GCC) countries during June to attract new investments in state-owned assets.

The tour will include talks with investors, sovereign wealth funds, and financial institutions to highlight the exciting investment prospects in the Egyptian market. This endeavor comes at a time when GCC nations are more interested in exploring competitive potential in Egypt, with investment returns steadily rising.

The total investments of the United Arab Emirates (UAE) in Egypt reached $65 billion. This figure establishes Egypt as the second investment destination for the UAE, after the United States.

State-owned assets

In line with the growth of state-owned asset offerings for private investment, the Cabinet has adopted a draft law regulating state ownership. This law calls for the establishment of a central entity inside the Cabinet known as the State-Owned Companies Inventory and Follow-up entity.

This entity will be in charge of identifying all state-owned assets and developing recommended strategies for optimizing their revenues. These procedures may include privatization, mergers with other enterprises in the same industry, or any other steps deemed acceptable to maximize the utilization of these assets.

The unit, led by a chief executive officer (CEO) with extensive experience in investment, will be responsible for developing timelines and procedures to achieve the policy’s objectives, ensuring that the goals are met effectively and efficiently. Additionally, the unit will proactively identify and address any challenges that may hinder progress, ensuring that the implementation process remains smooth and uninterrupted.

I believe that Egypt’s investment and asset management sectors are brimming with competent individuals who possess the necessary expertise to lead this crucial role. The right appointment will be instrumental in ensuring the unit’s effective achievement of its objectives. To maintain transparency and public trust, the entire selection process should be conducted within a framework of full disclosure and transparency.

Moreover, the comprehensive identification, classification, and preparation of state-owned assets are paramount. Diverse solutions and proposals for their management and selling must be meticulously crafted and debated by the Parliament before approval. This approach will ensure that the public is fully informed about the proposed plans for state-owned assets, the rationale behind the decisions, and the anticipated outcomes, including the potential for enhanced performance and value creation across these institutions, companies, and assets.

Illegal real estate sales in FX

Amidst the recent regulatory measures implemented in the Egyptian market, a significant step has been taken to address the illegal sale of real estate to foreigners in foreign currency. An alarming practice that emerged in the wake of the currency crisis that has impacted markets over the past two years.

The currency crisis prompted some individuals to conduct transactions, not only for real estate but also for gold and durable goods, in US dollars instead of the Egyptian pound. It represents a severe threat to the stability of the local currency and the overall economy.

I strongly believe that the government’s decisive response to these illegal practices is of paramount importance.

To address the problem, the Real Estate and Documentation Authority has issued a circular outlining clear guidelines for such transactions. The circular mandates that all payments by foreigners must be processed through authorized channels, namely banks. It also outlines specific procedures for handling different payment methods, including conversions to the Egyptian pound or direct collection in foreign currency. Furthermore, it instructs real estate registry offices to strictly adhere to these instructions before registering any contracts.

To deter illegal currency transactions effectively and safeguard the Egyptian economy, I strongly advocate for the implementation of stringent penalties for any violations in this regard. Imposing such a penalty is crucial to mitigate the severe negative consequences of such practices which boost black market and pose a significant threat to public confidence in the local currency.

There is no doubt that the challenges and practices imposed by the crisis have resulted in numerous changes that necessitate the development of updated plans to address them and introduce new mechanisms to solve the problems and confront the challenges in order to enable the economy to achieve better results, maximize the return on investments, manage resources efficiently, and apply the latest technologies and operational and management methods.

Sad news

One of the saddest news for many public circles in Egypt this week is the death of Engineer Hisham Arafat, Egypt’s ex-minister of transportation from February 2017 to February 2019.

He is one of Egypt’s most notable engineers in road construction and contributed to Egypt’s current rise in road infrastructure, which has sparked global interest.

He was generous with his knowledge, effort, and time to serve his nation in all of his roles. He also contributed to teaching as a university professor, to pass on his expertise and experience to future generations.

Dr. Hesham Arafa has made significant contributions to the development of Egypt’s infrastructure. His knowledge and dedication were critical to the successful completion of numerous mega-projects that required exceptional skills, particularly in overcoming the complexities of boring the Cairo Metro project beneath densely populated areas with intricate underground infrastructure.

His sudden death from a recent cancer diagnosis left a tremendous loss in the hearts of everyone who knew him. This ruthless sickness took his life in a matter of months, but his legacy of labor, ethics, and character will live on in our minds forever.

Farewell to the late Hesham Arafat

Farewell, Dr. Hesham Arafa. You exemplified noble behavior and left a mark of grief in the hearts of everyone you touched during your brief but significant trip.

Written by Dina Abdel Fattah

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