Welcome to the hot seat: Egypt’s position in the regional financial industry is at an inflection point. After competing for years with the UAE, we’re now also competing with Saudi Arabia — for resources, talent, capital, and investment appetite — as the kingdom rises as a burgeoning financial hub. And then there is the fallout from the FX crunch, rising interest rates in development markets. And yet there are reasons to be bullish about the industry’s prospects.

In the opening panel of the Enterprise Finance Forum, we welcomed on stage three leading figures in the financial industry to discuss some of the challenges and opportunities in the sector: HSBC Egypt CEO Todd Wilcox, group CEO of EFG Holding Karim Awad, and Leila Serhan, group country manager and senior vice president for Visa.

We are most certainly competing with KSA and the UAE: Saudi Arabia isn’t just growing, it is backed by plenty of capital to pour into more of the same, Wilcox said. “They’re certainly going to be a difficult neighbor [from a competition for opportunity point of view],” he said. Saudi’s GDP is on an upward trajectory with an annual non-oil growth rate of around 5.5%, said Wilcox, adding that this economic engine will continue to thrive for some time.

Industrialization will help ensure Egypt retains an important position in the regional financial ecosystem : Many of the world’s leading financial centers, including London, New York and Tokyo, developed in countries with strong industrial bases, Wilcox noted. Playing to our strength as a manufacturing hub with with a large real and diversified economy will be key. Finance will follow: “That’s where the country's moving to and that’s where I think the future and the benefits lie,” he said.

We still have comparative advantages to KSA: “Egypt has got natural advantages in terms of location, cost of production, industry and logistics,” Wilcox said. “The Egypt brand plays well in other countries trying to pull in FDI,” he added, pointing to increasing appetite in Asia for Egypt, particularly as manufacturers in China look at a “China +1” strategy.

The war for talent is at least as real as the competition for opportunity: The best and brightest are being attracted to Saudi: Compensation is high, living conditions are becoming more and more attractive, and we’re finding that plenty of younger talent wants to move there, said Awad. This competition is going to make it harder for Egyptian banks and financial institutions to retain talent, making it more important that they offer more competitive packages and promote better work-life balance, he added.

Bringing more women to the table could be a key element in the battle for talent: “We have a shortage of talent, so this is the chance to go and hire more women and help them grow,” Serhan said, emphasizing the importance of having women in leadership positions. Bringing more women into the industry — and reintegrating mothers following maternity leave, for example — “makes business sense because it would be crazy not to encourage half of the workforce.”

BUT- Saudi Arabia isn’t just a direct competitor: It’s also a complementary market for Egyptian firms. With its large population of 30+ mn people and healthy capital flows, Saudi has many of the characteristics of a classical emerging market and should be on the list of potential expansion territories for many Egyptian companies, said Awad. “At EFG we recognized this potential 15 or 16 years ago and we decided to expand there in 2007 because we foresaw it developing into a major hub.”

Plus, it’s not all rainbows and butterflies in Saudi: Serhan and Wilcox agreed that the Saudi regulatory framework can still be difficult to navigate because of issues related to data usage and protection, among others. “Companies would need to make a lot of investments in terms of risk management and other compliance related tools” to be able to effectively operate there, Serhan said.

Egyptian companies have a chance to outsource infrastructure expertise to KSA: There’s a significant opportunity in Saudi for Egyptian infrastructure companies, Wilcox said. “Egypt has done a lot on infrastructure in the last few years, we've got experience that we should be able to take there,” he said.

CHECKLIST FOR ECONOMIC RECOVERY- Inflows + IMF review + robust monetary policy: Wilcox emphasized the need for rapid reform progress if the country is to transition to a more normal economic environment. Accelerating inflows from FDI and asset sales under the state privatization program, completing the delayed reviews of the IMF program, and rethinking monetary policy ideally should all take place before the end of 1Q 2024, he said. These moves should all be communicated in a clear message to the market that the government is making a decisive shift in its approach to the economy, he added.

The answer to those high-yields clogging up bank balance sheets? More lending — when interest rates come down. High-interest certificates of deposits (CDs) weigh on banks’ long-term profitability because it’s difficult for them to lend at similar rates, Awad said. He stressed that banks should look to increase lending and wait out the current unfavorable situation until rates begin to fall. “A lot of the balance sheets of banks today are dedicated to treasury bills rather than lendingor even overdrafts,” he said. Meanwhile, Wilcox told the conference that HSBC’s asset-to-deposit ratio “isn't where it should be” and that the bank needs to be doing more lending. “We need to see where the yield curve is at. We need to see that inflation is starting to break, and I think we get to a much healthier place.”

And there are some asks for the regulator: Wilcox highlighted the need to amend digital regulations enabling electronic signatures, cloud services, and facilitating data movement. There’s also work that needs to be done on the data privacy and security front, particularly with advances in artificial intelligence: “AI is not going to happen in your backyard data center, but rather in the cloud,” Serhan said. “You don’t want to be in an industry that is behind because of a lack of or restraining regulations.”

And our regulators need to remember that we’re in a global competition: Asked what he would request of the regulator if given one wish, Awad said: “Speed, speed, speed.” Egypt is moving forward, but other countries are racing, Serhan and Wilcox agreed.

One area where we’re not behind: Fintech. “Egypt is obviously standing out in terms of fintech innovation,” said Serhan. Egypt, along with Nigeria, Kenya, and South Africa have not experienced a slowdown in capital inflows, unlike Gulf countries which have experienced a “major slowdown attributed to founders and to equity investors becoming more demanding.”

Expect more consolidation in fintech than in the traditional finance sector, whatever happens with the state asset sale program. Wilcox expects to see consolidation happen in the fintech sector more than in the traditional banking sector. “Fintech startups are built for M&A because they want to build scale and that’s where the money is,” he said.

What will trigger M&A activity in banking? Traditional banks will eventually catch up with the consolidation drive especially if the regulator insists they start to scale and build their capital base, said Wilcox, adding that “banks will need to grow bigger and deeper” if they want to compete regionally and attract foreign investments.

A marriage of banks and fintechs? Awad and Serhan explained that consolidation between traditional banks and fintechs is an effective way for banks to improve their tech offerings and for fintechs to scale. “Larger financial institutions weren’t initially built for tech and that’s why they are looking to acquire smaller fintech companies because they need that marriage,” said Awad. Serhan also highlighted the requisite regulatory licensing changes needed to facilitate this transition for traditional banks.

What are the pressing questions keeping so many of us in the industry awake at night? In brief, it’s about how to future -proof. While Wilcox expressed concerns over future external shocks, Awad said that for EFG it’s all about how to stay ahead of emerging trends, while Serhan contemplated the imminent influx of young people into the financial sector as clients — particularly Gen Z — stressing the necessity of understanding their behavior and serving them better with advanced technology.