OBG talks to Basil El Baz, Chairman and CEO, Carbon Holdings

Interview: Basil El Baz

How challenging is it to secure financing for major infrastructure and industrial projects?

BASIL EL BAZ: Egypt will very likely be embarking on a number of mega-infrastructure deals, in the form of highways, toll roads, railways, water desalination facilities, power plants and ports; these projects are likely to be financed by domestic or regional banks. Since the global financial crisis, access to financing has been complicated, to say the least. The methodology has changed. You no longer have a syndicate of 10 or 20 banks financing large deals, so access to capital is more limited than it was previously.

If you look at the downstream petrochemicals sector globally, it is divided into two categories. There are smaller types of transactions, which are valued at less than $750m and have largely been successfully financed by domestic syndicates on a medium-term debt basis. However, once you get into larger projects, the only choice is to involve multilateral agencies, export credit agencies, and quasi-governmental financing institutions.

As a result, this creates problems in Egypt for those large-scale projects. The instability in the country over the last 36 months has served to prolong the situation, but it would have been the case regardless. Political stability is the underlying factor governing everything in a development project, but it is particularly important in terms of financing. Happily, there is a sense of anticipation that – since June 2013 – stability is coming, which is reflected by the behaviour of the private and the public sector. People are looking at opportunities again. Investments on the ground are being mobilised.

What needs to happen going forward is an acceleration of infrastructure spending plans. This is an area that the private sector cannot do anything about, so it must be government driven. I expect Egypt is going to see a major infrastructure push soon. There are already several projects under way, and a continued expansion of these activities is natural.

How can Egypt boost foreign investment throughout the industrial sector?

EL BAZ: Investors operate based on their level of confidence in the government, the economy, the domestic market and their export capabilities. Egypt has managed to tick off the majority of these boxes at various points throughout history, if perhaps not quite all of them at the same time. However, it has never managed to take tick all of the boxes simultaneously. To see a significant increase in investment, this will need to change.

On a broader macro-level, the industrial sector’s ability to create employment opportunities will encourage efforts by the domestic private sector and the government to attract new capital. After all, ensuring job creation is key. One of the basic principles of macroeconomic behaviour is that when a country reaches a certain level of unemployment, socio-economic turmoil will occur irrespective of the level of development. As a result, addressing unemployment in Egypt is a must and the most effective way to do that is through industry activity.

What effects has the implementation of the National Petrochemicals Master Plan had?

EL BAZ: It is a very ambitious plan and it is still being executed. However, people forget that this is a long-term plan that still has at least eight years left before it reaches completion. The Ministry of Petroleum has shown an admirable commitment to implementing the plan in its entirety, which is of course extremely important for any strategic initiative such as this.

This implementation strategy has, however, had to face down a number of significant obstacles along the way. The first and most obvious was with the global financial crisis in 2008, which greatly reduced the sector’s access to international financing for large-projects. The second most prominent obstacle came later, with the revolution, which reduced government spending and limited policy implementation.