Why investors prefer Egypt to Nigeria amid coronavirus pandemic

Egypt has continued to distinguish itself from Nigeria in the eyes of foreign investors for reasons ranging from foreign exchange liquidity to higher economic growth rate and lower inflation.

For foreign portfolio investors, foreign exchange liquidity is the latest reason why Nigeria is being sidestepped in favour of Egypt.

Although both countries are facing dollar liquidity challenges amid the coronavirus pandemic, foreign portfolio investors say it is easier to move money in and out of Egypt than it is in Nigeria.

“In Nigeria, there’s a near $1 billion worth of trapped funds due to the dollar scarcity and the CBN is somewhat suppressing demand as a result,” one investor told BusinessDay.

“Nigeria’s foreign exchange challenge is not unique but the situation is more bearable in Egypt,” the investor said on condition of anonymity.

For the more crucial foreign direct investors, Nigeria’s appeal is less than Egypt due to faster economic growth, lower inflation rate and better ease of doing business.

While Nigeria is said to be Africa’s most promising economy given its huge market and the abundance of resources, offshore investors took their patient capital to Egypt in 2019, making the North African country the hotspot for FDI on the continent.

“The data show Egypt is more serious than Nigeria,” a money manager told BusinessDay. “There’s a lot of catching up for Nigeria to do in terms of making the environment more conducive for investment. The Petroleum Industry Bill, for instance, which should trigger FDI into the oil sector, has no business being stuck for decades.”

Last year, Nigeria with an inflow of $3.4bn barely got half of the FDI receipt Egypt had ($8.5bn), according to data from UNCTAD, the main UN body dealing with trade, investment and development issues.

After the oil crash of 2016, Egypt undertook structural reforms that have moved the economy to a more market-oriented one. Under the auspices of IMF, the country embarked on a three-year reform programme and the results have seen stronger FDI inflows compared to peers.

Among other things, Egypt took steps to keep public debt on a downward trajectory, phased out subsidies on most fuel products as part of the IMF-backed economic reform programme and freed up fiscal space for social spending.

Fuel subsidies, for instance, are gradually making way in order to incentivise private investment.
According to Egypt’s petroleum minister, the country’s spending on fuel subsidies dropped by about 65 percent to 21 billion Egyptian pounds ($1.34 billion) in July-March.

These steps improved the perception of Egypt in the eyes of foreign investors.

Notably, floating the Egyptian pound has helped the country attract foreign flows into its economy via the oil and gas sector, while major investments have been in telecommunications, real estate and tourism.
Today, the dollar exchanges for 15.79 Egyptian pound while the naira, at N360/$, is said to still be too strong.

The Central Bank on Sunday promised an orderly exit for investors repatriating capital but the naira non-deliverable forward contracts are showing signs of currency pressure with five-year contracts above N500.
Another clear distinction between both economies is seen in their respective central banks’ firepower. For Nigeria’s more rigid currency regime, the CBN has $34bn while its Egyptian counterpart has $37bn.

The availability of dollars for Egypt has helped ease pressure on consumer prices which have fallen from over 20 percent to just 5.881 percent while Nigeria’s inflation, at 12.26 percent, is moving further from CBN’s preferred maximum of 9 percent, according to latest data.

Egypt’s economy, as a result of some of the fiscal, monetary reforms including privatisation of assets, has led to its fast growth and the resilience of its economy.

Compared to Nigeria’s 2.3 percent, Egyptian economy grew by 5.6 percent for their respective 2019 fiscal year.

The International Monetary Fund (IMF) says the country’s economy would expand 2 percent in 2020 and Nigeria’s would contract 3.4 percent due to the COVID-19 effects.