Speech to be presented by the Minister of Investment at the
9th Annual Conference for the African Stock Exchanges Association
Cairo, 11-12 September 2005
It is an honor that Egypt hosts the 9 th annual conference for the
African Stock Exchanges Association. The Association represents the
ideology of systematic mutual cooperation, assistance and exchange of
information and expertise. It is well known that the African continent is
the most resourceful continent in the world, but unfortunately this
precious potential is left unutilized. Real Per Capita GDP growth has
been lower than in other developing regions and growth rates have been
more volatile. This entails the African nations to come together in search
for positive synergies with the aim of developing the continent. This
cooperation, whether political, economic, social or financial, has become
a must, not a luxury, for alleviating poverty and achieving prosperity in
Africa.
Stemming from this goal, it is without a doubt that strong African
capital markets would realize vast constructive effects. This is true due to
the underlying role of capital markets which could be summarized in
diversifying the available sources of finance available to economic agents
in the economy in addition to mitigating risks through the adoption of
financial derivatives. In the absence of well-developed capital markets the
effects of volatility in developing countries are substantial, as households
and firms face large non-insurable employment, income, and investment
risks.
Once more, I would like to reiterate my pleasure to host this
conference, and I consider it an opportune chance for me to present you
with some of the recent reforms implemented by the Government of
Egypt and the Ministry of Investment with respect to the financial sector.
Some of these reforms are broad based reforms that affect all the
institutions in the financial sector and others are sector specific.
Broad
based
reforms
(corporate
governance,
information
dissemination and transparency):
It could be said that it is widely accepted nowadays that recent
events starting with Enron scandal and followed with a series of
revelations of companies misrepresenting their financial statements
plagued investors confidence in the sort information provided to them to
build on their financial decision. This highlighted the high importance of
corporate governance whether in developed or developing markets.
Recognizing this crucial point, the Ministry of Investment is
undertaking the responsibility of establishing the Institute of Directors
(IOD). The IOD will soon issue the first code of corporate governance
principles to listed firms. Additionally, the IOD will also issue guidelines
on the corporate governance of the state-owned enterprises based on the
OECD principles. And to ensure the implementation of the corporate
governance principles, the IOD will provide training and education to
promote high professional standards particularly for boards of directors
regarding the application of corporate governance principles.
Additionally, a new law is being drafted and expected to be ratified
in the next parliamentary session concerning "Disclosure and Information
Dissemination". This law would be a cornerstone in the process of
enhancing transparency in the Egyptian market as it will set the
responsibilities of the various agencies with respect to provides the public
with timely, accurate and factual information and data.
Insurance Market:
The insurance sector is considered a vital component to the
Egyptian economy; it provides a mean of mitigating and diversifying risk
for Egyptian and foreign businesses. Stemming from this crucial role, the
Ministry of Investment started a comprehensive program for reforming
the whole sector. The components of the program touched almost every
aspect in the insurance market.
Starting with regulatory and legislative reforms, several new
calibers have been introduced in the Egyptian Insurance Supervisory
Authority to promote the liberal and market oriented approach of the new
government of Egypt. Additionally, several new laws have been approved
or expected to be approved by the parliament concerning allowing
corporate bodies to act as insurance brokers instead of being mandated
only to individuals and reducing stamp duties on insurance contracts.
Additionally, a project for restructuring and gradually privatizing
the four-state owned insurance companies is being implemented. The aim
of the project is to create financially sound insurance companies in
preparation for privatization.
Mortgage Finance Market:
It is well known that mortgage financing have a crucial role in
revitalizing any economy. Based on this fact, the Ministry of Investment
adopted and implemented several reform measures to activate this
market. The executive regulations of the mortgage finance law have been
amended to provide more flexibility for mortgage finance lenders in
respect to income recognition of mortgagors.
In addition to the above, the process of providing subsidy via the
Subsidy and Guarantee Fund (SGF) has been amended to provide a more
pragmatic mean of providing finance to the low-income citizens. The
current system's strategy is to pay the subsidy upfront to the mortgagor
instead of subsidizing the interest payment paid by him. The value of the
subsidy could reach 15% of the value of the property with a maximum
value of EGP 10000.
Last but not least was tackling the problem of registering
properties. A committee has been created with representatives from the
Ministry of Administrative Development, the Ministry of Justice and the
Mortgage Finance Authority to oversee the development of registration
pilot projects and assess their success. Additionally, the Ministry worked
on increasing public awareness with respect to mortgage finance via
publishing a highly informative mortgage finance guide to provide
guidance to any prospective investor on how to obtain a mortgage loan as
well as his rights and liabilities throughout the process.
Capital Markets:
The Egyptian capital market has experienced significant reforms
since the newly established ministry of investment in July 2004. As for
legislative reforms, several laws and decrees have been issued to
introduce new financial activities or tools to the market such as
securitization, margin trading and short selling. Additionally, an
amendment to corporate law took place allowing the adoption of
employee stock option plans. Moreover, a decree was issued to establish
the Investor Protection Fund which is an insurance fund for investors
against non-commercial risk. This fund coupled with the proper
monitoring of brokerage companies; provide insurance to investors
against any misconduct by brokerage firms. Last but not least is the
introduction of intra-day trading on the same stock. The agenda for
introducing new financial mechanisms comprises the introduction of
Exchange Traded Funds issued by CASE tracking the movement of
CASE-30 index. Additionally, financial derivatives will be introduced by
the end of 2006.
From a functional perspective, an electronic link between the Stock
Exchange and the Clearing House has been complemented successfully
which will promote better market surveillance. This link enabled the
introduction of Primary Dealers System for government bonds trading.
Once this system took effect in November 2004, the percentage of bonds
traded to stocks increased significantly to reach an average of 15.6%
during the period November 2004 to June 2005 compared with only
0.054% during the previous months in the fiscal year 2004/2005.
Additionally, a trading backup system and backup network have been
designed and set in place to ensure the smooth operations of trading.
Moreover, serious steps are being taken for the establishment of the
Egyptian Financial Services Authority which will be concerned with the
supervision of banking and the non-bank financial sectors. The first of
these steps as mentioned earlier was combining all the regulatory bodies
of the Non-bank Financial Sector under one umbrella, the Ministry of
Investment.
It is worth mentioning that the above-mentioned reforms coupled
with other reforms in the sector and the economy lead to an outstanding
performance of the Egyptian stock exchange not only in terms of price
increase, but also in terms of value and volume of trading. CMA Index,
which constitutes all companies in the market, rose by almost 100%
compared to mid July which is the date of appointment of the new
government. Additionally, CASE-30 index, the index for most 30 active
stocks, increased by more than 220% compared again with the
appointment date. From another perspective, Market Capitalization
increased from EGP 173 bn by the end of June 2004, which represented
slightly more than 40% of GDP, to EGP 344 bn which represents more
than 70% of GDP.
Finally, it is worthy of mention that these reforms are just a step
and not the end of the reforms embarked on by the government. The
government will continue, in aggressive steps, reforming the market by
all means necessary for developing a strong financial sector in Egypt,
which is in the benefit for the whole African continent.