The EAEF on 10 years of investing here — and how to attract more FDI in the current climate: The Egyptian American Enterprise Fund (EAEF) recently released its 10 year impact report (pdf) detailing its decade of investing in homegrown companies, largely through local private equity and venture capital firms. We spoke with EAEF Chairman James Harmon on the fund’s portfolio, how to push private-sector growth, and how we can attract more FDI as the government pushes ahead with its privatization program.

ON THE EAEF’S IMPACT-

The last decade in EAEF investments: To date, the fund has invested USD 267 mn in local firms, according to the report. Its portfolio has generated close to USD 200 mn in realized proceeds and is currently valued at more than USD 500 mn. Its portfolio investments have directly created some 15k jobs, the report adds. Job creation “has become a very important measure for us,” Harmon said.

The fund works with some of the country’s best-known investors — who in turn have invested in household names: The EAEF largely operates through a fund of funds model – channeling funding to local businesses through Egyptian venture capital and PE outfits. It has invested in funds managed by Tanmiya Capital Ventures (TCV), Lorax Capital Partners, Algebra Ventures, Ezdehar Management, and Flat6Labs Cairo. Among the local companies it has helped finance are fintech giant Fawry, Hassan Allam Utilities, and food company Abu Auf. The fund earlier this month announced an EGP 250 mn investment alongside Al Ahly Capital Holding in primary care company Dawi Clinics, following on from a USD 3 mn investment in 2018.

The EAEF intends to invest at least USD 100 mn by the end of 2023, according to Harmon. That figure could increase if the fund successfully completes “the sale of a portion of one or two of our businesses.”

The fund is largely sector-agnostic: “We never pick industries that we think we want to focus on”, said Harmon. “We’re open to everything that our managers bring to us,” he said, while adding that the fund does have an interest in export-oriented firms and the education sector.

And it relies on local fund managers for their expertise: “One thing I can tell you for sure, we’re not going to put people from the US on the ground in Cairo to do business,” Harmon told us. After 10 years investing in Egypt, the EAEF has found Egyptian VCs and PEs “knew pretty much what they wanted,” says Harmon, but “they were short of capital…and they still are short of capital.”

ON THE OUTLOOK FOR FDI-

The talent is here — but more capital is needed: “Egypt has excellent human capital. The people that have helped us to invest and made us successful are just a fraction of the talent that exists in Egypt,” said Harmon. But he added that “there’s a shortage of capital” without which “the private sector does not have the adequate funds to expand.”

Now is a good time for investors to come in, Harmon says: “You can't get bargains in the UK or the US, but you can get bargains in Egypt,” Harmon said. “We have to talk about Egypt being attractive today…and I would admit that we hope someday it’ll get expensive.”

Foreign investors tend to go for controlling stakes, Harmon noted. “To start this ball rolling you have to create the impression around the world... that you can buy control if you're interested.” The state has reportedly been reluctant to sell controlling stakes to Gulf and other investors under its privatization program, preferring to offer minority stakes.

We need a turnaround in sentiment: “There's a lot of pessimism right now in Egypt — I'd say probably as much pessimism today as there was when we first arrived…. that has to be turned around,” Harmon said.

REMEMBER- The government is aiming to raise USD 2 bn by the end of June through the sale of state-owned assets. This would give it more room to meet the conditions of the IMF review — which include transitioning to a fully-flexible exchange rate — and unlock the second tranche of its USD 3 bn loan. The government kicked off the privatization process with the sale of a 10% stake in Telecom Egypt earlier this month, though with only 9% of the shares bought by foreigners the sale did little to bring in FX.

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