Saturday, 03 December 2022

In Governance

Creating an Egypt Fund like Norway

What if Egypt creates an Egypt Fund just like the Norway Fund in order to have people centred national development and resource beneficiation? 

Just a thought.

At present, Oil, Renewable Energy, Construction, and Agriculture are the economic pillars, with mega projects and billions being poured into these industries in Egypt. The renewable energy equipment market is worth billions of dollars. Egypt’s comprehensive sustainable energy strategy aims to increase the share of energy generated by renewable energy to 42% by 2035.

Since the 1980s, the construction market has seen double-digit growth, leading to a substantial boom in residential and commercial real estate. Due to rapid population growth and housing shortages, demand for infrastructure projects is strong. The industry is expected to grow by 70 between 2015 and 2020, reaching US$12 billion.

Egypt is the largest oil producer in Africa outside the Organization of the Petroleum Exporting Countries (OPEC) and the largest consumer of oil and natural gas in Africa. In 2019, the Ministry of Petroleum and Minerals signed 12 new exploration and production concession contracts with ExxonMobil, Shell and BP. These contracts are expected to result in a new initial investment of approximately US $ 800 million. New exploration areas include the Western Desert, the Gulf of Suez, the Nile Delta and the Mediterranean Sea. The Egyptian government is accepting offers for oil and gas exploration in the Red Sea and is expected to open its western Mediterranean waters in a new round of offers in the near future.

Paused for a moment, and let us look at Norway's Oil industry. 

Norway’s Oil Fund, or the Government Pension Fund Global which is its official name, was created after we discovered oil in the North Sea in 1969. The fund was set up to shield the economy from ups and downs in oil revenue. It also serves as a financial reserve and as a long-term savings plan so that both current and future generations get to benefit from our oil wealth.

The fund has a small stake in more than 9,000 companies worldwide, including the likes of Apple, Nestlé, Microsoft and Samsung. On average, the fund holds 1.4 percent of all of the world’s listed companies.

The Norwegian oil fund is one of the world's largest funds. Investments are spread across most markets, countries and currencies to achieve broad exposure to global growth and value creation, and ensure good risk diversification.

Most of the fund is invested in equities, which are ownership interests in companies. Another part is invested in bonds, which are a type of loan to governments and companies, and a final slice is invested in real estate and infrastructure for renewable energy.

The fund exists to help finance the Norwegian welfare state for future generations. The future value of the fund depends on sustainable growth, well-functioning markets and value creation at the companies we invest in.

The fund’s investment decisions are based on research and analysis of the developments in financial markets and the global economy. We share internal research and analysis as well as content from conferences or seminars. We invite to dialogue and have a strong collaboration with academics, peers and practitioners with an aim to improving the investment strategy and our results.

Each year, the Norwegian government can spend only a small part of the fund, but this still amounts to almost 20 percent of the government budget.

Back to Egypt. 

Egypt exports an estimate of US$5 to US$10 Billion in Crude Oil and Natural Gas per year, making it possible for a National Fund like the Norway Fund to be created for future generations.

This Fund can not only be invested externally, but it can be invested in other major areas of its economy. The textiles and apparel industry are the second-largest industrial employer in Egypt, employing 15 percent of Egypt’s manufacturing workforce and nearly half of women working in manufacturing. Together, textiles and apparel account for around 3% of Egypt’s GDP.

Egypt’s economy is diverse, with agriculture, manufacturing, energy and services constituting the bulk of output. Agriculture accounts for 40 percent of employment and 14 percent of GDP.

The Government of Egypt is in a bid to attract international investment in several "major projects," including a large industrial and logistics area surrounding the Suez Canal, the construction of a new national administrative capital, 1.5 million hectares of recovery and development projects of agricultural land and the construction of multiple petrochemical projects. Factories and remodelling of oil refineries, improvement of the country's ports, airports and transportation networks, and development of mineral resources in the Economic Zone of the Golden Triangle between the Red Sea and the Nile.

Sources: Norges Bank, Trade.Gov

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