Egypt

A rapidly developing method to finance the economy

The work of the conference reviewed the practices, products and volumes of this financing method, which is experiencing rapid development with a billion dollar turnover and an annual growth rate of 30%. It also highlighted the results of a study jointly led by CGAP and AFD.

This conference was organized in the context of the partnership agreement signed last January between AFD and the Islamic Development Bank (IsDB).

The exchanges were rich and lively and brought to light the strengths and weaknesses of these tools, which are increasingly requested in a number of countries where AFD operates. They also more clearly identified the needs of beneficiaries, financial institutions and central banks, which play an essential role in terms of the regulatory framework and regulation.

A whole host of innovative experiences in the field 

Several observations were made: the existence of a strong demand for this type of financial product, particularly from the poorest; the proliferation of innovative experiences in the field, which are often poorly identified; the need to launch benchmarking exercises in order to build technical, financial and institutional references. 

A knowledge platform on the Internet

It was agreed that the various donors and institutions concerned, including IsDB and AFD, will support this process by promoting the implementation of information and exchange tools, such as a knowledge platform backed up by a dedicated website, and by holding an annual conference. An invitation was launched for the next one to be held at AFD’s headquarters in Paris. 

Bilateral talks were held between AFD’s Chief Executive Officer, Dov Zerah, and the President of IsDB, Mr. Ali, on the sidelines of this conference, and meetings between the respective operational departments defined practical ways of implementing the agreement, notably the possibility of staff exchanges and the first cofinancing operations in the Mediterranean.

The proposals made by the study aim to reduce the average cost of migrant remittances and to optimize their impact on the development of African countries. They specifically focus on improving linked bank accounts (dual bank accounts for migrants in their country of residence and in their home country with activities coordinated between the banks of both countries), the development of innovative financial products, support for electronic payment technologies and the adaptation of regulatory and legislative frameworks.

What are the lessons learned from the study?

Due to their importance for the recipient communities, the flows of money from migrants tend to remain stable and are less sensitive to changes in the economic climate.

How to optimize remittances and their impact on development

• Reducing the cost of migrant remittances will increase their contribution to development.
• An understanding of the local context is the key to reducing the cost of remittances and informal flows.
• It would appear that the cost of remittances in the Maghreb region and franc zone has stabilized at a level that remains too high.
• While the profile of actors is becoming more diverse, there is still a need to develop the range of services in order to be more competitive.
• An overhaul of regulatory frameworks, with the aim of promoting diversification in the range of services and financial products, would help increase competition and reduce the cost of remittances.
• Four types of financial and technological services and products can contribute to reducing the cost of remittances.
• Actors, services, tools, new technologies…: there are ultimately five areas to be explored in order to expand and strengthen the range of banking and non-banking products and encourage both a reduction in the cost of remittances and co-development.

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The first agreement is a 80 M€ soft loan to the Social Fund for Development (SFD), aiming at supporting access to credit for Small and Medium Enterprises in Egypt. The Social Fund for Development was established in 1992 as a social safety net, with a mandate to reduce poverty by supporting community level initiatives, increase employment opportunities, and encourage small enterprise development. The project consist in providing SFD with an EUR 80 million long term credit facility at soft conditions to be re-lent through the banking system or directly by SFD to SMEs. The loans shall benefit small enterprises exclusively, i.e. companies with a total workforce of less than 50 employees and with a paid-up capital of between 50 000 and 1 M EGP. About 65 000 SMEs are targeted through that project, that will contribute to job creation.

The second agreement is a 35 M€ soft loan to the Ministry of Agriculture and Land Reclamation, to support on-farm irrigation modernization in the Nile Delta, in areas where upstream irrigation improvement interventions have already been implemented, in terms of infrastructure (branch canal and mesqa improvements have been carried out) and institutional strengthening (creation of water user associations). The Project development objective is to increase agricultural profitability and improve equity in access to higher-quality water for up to 140,000 small-scale farmers on up to 200,000 feddans. Water savings are also expected up to 25 %. This will be achieved through investments consisting of piping the marwa canals, upgrading and electrifying the mesqa pumps - which includes an extension of the medium and low voltage grid - farm-level technology improvements and dissemination, and strengthening of farmer support services and of governmental implementing agencies involved in the Project. This project is cofinanced with the World Bank, which is contributing 100 M USD.

During the signing, Ibrahim Mayaki, Chief Executive Officer of the NEPAD Planning and Coordinating Agency (NPCA) and former Prime Minister of Niger, and Yves Boudot, Director of AFD’s Sub-Saharan Africa Department, had the opportunity to discuss – in addition to ICT development in Africa – the headway made by the Programme for Infrastructure Development in Africa (PIDA), an initiative led by the African Union Commission, NEPAD and African Development Bank.

AFD’s long-standing support to NEPAD’s New Information Technologies initiatives

Since 2003, AFD has been supporting NEPAD’s activities in the telecoms sector (e-Africa Program) via an earmarked grant and the joint AFD-DBSA Project Preparation and Study Fund. These funds have cofinanced preparatory services for NEPAD’s ICT operations and have provided a residential technical assistant (on assignment since July 2009) to support the project for the UMOJANET (“umoja” means “union” in Swahili) broadband transmission virtual network.

This new financing has been delegated from the European Infrastructure Fund (EU-ITF) and follows on from an €850,000 AFD grant (allocated in 2006) to support NEPAD’s initiative to develop a continent-wide broadband transmission virtual network.

Umojanet is extending Uhurunet

The grant that has been allocated will finance the study program that results from the technical assistant’s research to finish off the design of the concept and of the UMOJANET network. The aim is to extend it to the 29 countries in North, West and Central Africa. This will complete both coverage on the continent and the UHURUNET project for Southern Africa.

This project aims to offer African operators a pan-African network of fiber-optic transmission channels. The resulting interconnection offer is required to meet criteria for comprehensiveness, guaranteed quality, open access, non-discrimination and lowest possible cost. The bid invitations will be published in February 2012.
AFD’s approach in supporting NEPAD’s activities is based on its research on promoting regional integration via the construction of major communication networks as a complement to the private sector. This strategy is in line with those adopted by other donors (World Bank, ADB, EIB, KfW, DBSA…). It previously prompted AFD to provide USD9.5m of cofinancing alongside other donors in 2007 for the Eastern African EASSy submarine cable project.

The signing of this additional financing for the implementation of the UMOJANET project should allow NPCA to present an effective implementation plan for a fiber-optic broadband network in West, Central and North Africa over the next 12 months. This will complete both coverage on the continent and the UHURUNET project for Southern Africa.

WADI is primarily active in the production of poultry and poultry feed. Since 2009, the group has diversified significantly based on synergies with its core business activities. Accordingly, the group moved into container glass manufacturing, olive growing and agriculture. This project will help WADI continue its expansion, notably through the construction of a tomato concentrate production plant, the development of its agricultural business and the construction of a second poultry feed plant.

This operation consolidates an existing partnership between WADI and PROPARCO, initiated by a $US 3m stake in WADI equity in 2009. The senior loan will enable the group to diversify its long-term sources of financing, not adequately available on the local market.

"In the current political and economic climate, investment needs in Egypt and more particularly in the agro-industry sector, are huge. PROPARCO is proud to support a major agro-industry player supplying top-quality food products to the local market. Its exemplary management of health, environmental and social issues makes it a partner of choice", explains Marie-Hélène Loison, Deputy CEO of PROPARCO. WADI contributes to disseminating high standards in food safety, especially with regard to limiting the spread of bird flu, by supplying healthy chicks to farmers and providing veterinary support.

“For us, this loan is a real vote of confidence from PROPARCO in light of our performance and expansion plans. It will endorse our desire to pursue our growth strategies in agriculture, poultry and other industries. PROPARCO’s financing will enable us to implement new production projects that will help uplift the Egyptian economy as it will help us create more job opportunities for Egyptian people », states Musa Freiji, Chairman of the Board of WADI. The group, which employs more than 3,700 people, has a considerable impact on local employment. Its expansion plan should help create further 2,000 jobs by 2014.

ABOUT

PROPARCO is a Development Finance Institution jointly held by Agence Française de Développement (AFD) and public and private shareholders from the North and South. Its mission is to catalyze private investment in emerging and developing countries with the aim of supporting growth, sustainable development and the achievement of the Millennium Development Goals (MDGs). PROPARCO finances investments that are economically viable, socially equitable, environmentally sustainable and financially profitable. PROPARCO is one of the main bilateral development finance institutions in the world. It invests on four continents encompassing the major emerging countries and the poorest countries, particularly in Africa, and has a high level of requirements in terms of social and environmental responsibility.