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Orascom ‘treading water’ in Egypt but remains bullish

El Gouna in Egypt, one of Orascom Development's sites in the country Supplied
El Gouna in Egypt, one of Orascom Development's sites in the country
  • Currency devaluation hits hard
  • Orasacom grows 60% but feels pressure
  • CEO optimistic for long-term growth

The value of Orascom Development’s strong growth in Egypt has been almost wiped out as a result of continued currency devaluations.

But group CEO Omar El Hamamsy remains bullish on the future of the North African country.

The conglomerate, that is based in Switzerland and develops infrastructure at scale, has grown 60 percent in Egypt in the last year, but as a result of the Egyptian pound’s recent devaluation El Hamamsy admitted they were only “treading water” in the country at the moment.

The Egyptian pound against the dollar stands at 30.8, down from 15.7 at the start of 2022. In early 2015 it was valued at 7.6 to the dollar.

The devaluation was accelerated by the Russian invasion of Ukraine, which led to foreign investors selling pound-denominated government debt and exacerbated a longstanding foreign currency shortage.

This has also served to push up inflation levels, which are currently hovering at about 40 percent.

“If the situation doesn’t start improving soon, it will put a lot of pressure on a lot of investors, operators and businesses in the country, over and above the human challenge that represents for citizens,” El Hamamsy said.

In a note this week, Capital Economics said they had penciled in a 12 percent fall in the pound to 35/$ towards the end of this year. 

Orascom Development currently operates Andermatt Swiss Alps in Switzerland, Hawana Salalah and Jebel Sifah in Oman, Lustica Bay in Montenegro, West Carclaze Garden Village in the UK and The Cove Rotana in the UAE.

The company also has four sites in Egypt: three on the Red Sea coast – El Gouna, Makadi Heights and Taba Heights – and Byoum, 120km outside Cairo.

A fifth site, O West, situated 40 minutes west of downtown Cairo, welcomed its first residents this year.

“Maybe we ought to be a little bit cautious and focus on what is necessary in Egypt and not what is nice to have in the short term,” El Hamamsy said.

El Hamamsy has transformed the company since his appointment three years ago, from reported net losses to profits of more than $60 million.

Credit rating downgraded

Earlier this month ratings agency Moody’s downgraded Egypt’s credit rating to “Caa1” from “B3” – seven rungs into junk territory.

Moody’s said its decision was based on the country’s worsening debt affordability.

The International Monetary Fund approved a $3 billion, 46-month loan programme for Egypt in December last year, including an immediate payment of $347 million. The country is in talks to increase the loan to $5 billion, Bloomberg reported last week, citing unidentified sources.

Nonetheless, El Hamamsy remained optimistic around the long-term outlook for the country.

Future growth

According to Capital Economics, Egypt’s working age population is expected to grow by an average of 1.5 percent per year between now and 2050, while the period will also see the working age population increase as a share of the total population.

“This, in theory at least, should lead to greater savings within the economy, and thus more domestic resources to fund investment,” said James Swanston, Middle East and North Africa economist with Capital Economics.

He added that Egypt’s low GDP per capita – equivalent to around 18 percent of that in the US – allows plenty of scope for catch-up growth.

“Egypt can, in principle, make rapid productivity gains by importing or replicating technologies and business practices from abroad,” he said.

El Hamamsy said the country’s close proximity to large, advanced economies in Europe and the government’s huge infrastructure spend also bodes well for future growth prospects.

“It’s a question of, as you get over this, what’s the right pacing of your investments there, what’s the right portfolio of activities that you do there, to get you over this without hurting your prospects of capturing that future growth that we’re bullish about,” he said.