REUTERS SUMMIT-Investment recovering in Arab Spring economies

Thu Nov 15, 2012 11:04am EST

* Signs of increasing interest from foreign investors
    * Minimum levels of political stability viewed as reached
    * Growing confidence in Egyptian real estate market
    * Cash-rich Gulf countries account for much of interest

    By Andrew Torchia
    DUBAI, Nov 15 (Reuters) - When two real estate developers
from the United Arab Emirates announced a big project in Egypt
last month, it was more than a boost to the country's property
market; it was a sign of a revival of cross-border investment in
the region.
    Al-Futtaim Group and Emaar Properties said they
had reached a preliminary agreement to spend about 5 billion
Egyptian pounds ($820 million) on building the "Cairo Gate"
complex off the Cairo-Alexandria desert highway.
    The 65-hectare complex would be built around a shopping mall
and include an office park, a luxury hotel, schools, medical
facilities and residential space.
    A year and a half after Arab Spring uprisings erupted across
much of the Middle East and North Africa (MENA) region,
countries affected by the unrest are again starting to attract
foreign capital for securities portfolios and for direct
investment in factories and property.
    The process is hesitant and incomplete, with economic
conditions still grim in many countries. Egypt, for example, is
wrestling with a balance of payments deficit that may cause a
depreciation of its currency and is forcing Cairo to seek a $4.8
billion loan from the International Monetary Fund (IMF).
    But in some countries - Bahrain, Egypt, Libya, Morocco,
Tunisia and Yemen - there are signs that investors feel that
sufficient political stability has returned for them to begin
looking for business opportunities. 
    "There's a good amount of interest in investing in North
Africa," said Adnan Ahmed Yousif, chief executive of Bahrain's
Al Baraka Banking Group, adding that the interest is not only in
traditional sectors such as banking and real estate.
    New areas of interest include infrastructure, consumer
industries and even entertainment, said Yousif, who also heads
regional banking body the Union of Arab Banks.
    More than two dozen top executives and officials from around
the region will discuss business prospects and opportunities at
the Reuters Middle East Investment Summit, a series of
interviews taking place from Nov. 18-21 in more than half a
dozen Arab cities.
    
  
    The Arab Spring took a heavy toll of investment in the
worst-hit countries. Egypt's stock market was down
about 50 percent last year and the country suffered a $483
million outflow of foreign direct investment. That compared with
a $6.39 billion inflow in 2010, according to the Arab Investment
& Export Credit Guarantee Corp. 
    The latest balance of payments figures show that the picture
is improving. Egypt's net portfolio investment outflows slowed
to $456 million in the second quarter of this year, from $1.58
billion a year earlier, central bank data shows.
    That has permitted a 56 percent leap by Egypt's stock index
so far this year, making Cairo one of the world's
best-performing markets.
    Sherif Salem, portfolio manager at Abu Dhabi's Invest AD,
said that Egypt's rally had stalled in the past few weeks as
investors realised the size of the country's economic
challenges, including the need to cut the state budget deficit
with politically difficult reductions in subsidies.
    "We haven't reached that point where you can say if Egypt
has turned the corner or not - there's clearly a lot of
potential, but the potential is not yet reality," he said. 
    However, other Egyptian asset classes are also showing more
strength. Consultants Jones Lang LaSalle said that the election
in June of President Mohamed Mursi has provided a boost across a
number of sectors.
    "With a return to a more politically stable environment,
under a business-friendly government, we are seeing increased
investor and consumer confidence," it said in an October report.
    
    GULF SUPPORT
    Foreign direct investment is recovering in many countries.
Tunisia attracted 1.48 billion dinars ($931 million) in the
first nine months of 2012, up 27 percent from a year ago, its
investment promotion agency said. The total was down only 1
percent from the same period of 2010, before the Arab Spring.
    Masood Ahmed, Director of the IMF's Middle East and Central
Asia Department, said that some investors expect the Arab Spring
would strengthen economies in the longer term as new, democratic
governments worked harder to create jobs and reduce poverty.
    "These investors are conscious of the fact that medium-term
prospects for the region remain very favourable," he said.
    One of the biggest developments in the wake of the Arab
Spring is the emergence of Gulf Arab states as top investors in
North Africa, partially offsetting a drop in Western investment
because of economic woes in Europe and the United States.
    High oil prices - lifted in part by political tensions in
the region - will help the Middle East's oil exporters to post a
combined current account surplus of about $400 billion this
year, close to a record high, the IMF estimates.
    Some of that is now being recycled to the Arab Spring states
in the form of aid and investment.
    Many big investments are by state-backed Gulf companies. But
Al Baraka's Yousif said there was also growing interest among
cash-rich private companies in the Gulf.
    For example, Saudi food group Savola bought out
two Egyptian firms late last year and Saudi-based private equity
firm Amwal Alkhaleej has said it is eyeing investment in Egypt.
     "The private sector in the Gulf has become quite big and
powerful. It is therefore looking overseas," Yousif said.