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“Reform of the Egyptian Financial Sector” Conference
Proceedings
Proceedings of the conference on the reform of Egypt’s financial
sector including papers on the development of financial markets
in developing economies, the Egyptian capital and insurance markets,
regulatory development and legislative process in Egypt, real estate
and the mortgage system, and corporate finance in Egypt. Main findings
of the conference are also presented.
(December 2004)
Members: LE200, Non-members: LE250, Int'l Price: $100
(Report Cover in PDF)
(Contents and Session Summaries in PDF)
(Download
Acrobat Reader)
Preface
The relationship between financial sector development and growth
is of particular relevance to all developing countries. Empirical
research and live country experiences have revealed that financial
development is positively correlated with current and future economic
growth. However, the mere erection of stock exchanges and existence
of banks is inconsequential if not accompanied by an appropriate
regulatory environment, institutional framework and market practices
that are conducive to investment.
The six distinctive papers that were presented at the conference
are reproduced in this volume of proceedings followed by the final
set of recommendations resulting from continuous discussions and
debate that took place at the time.
Proceedings begin with the paper presented by Dr. Nadim Ul Haque
on "The Global Experience" for financial sector development.
In his paper, Dr. Ul Haque begins with briefly reviewing development
finance literature. It is then stressed that financial sector reform
should "not necessarily be guided by the path it took in advanced
economies". From the viewpoint that the most fundamental role
of the financial system remains the intermediation between savers
and investors, there are seven core functions that should act as
a guide and anchor for financial sector policies. Using this functional
approach, the paper provides a general assessment of the financial
sector in developing countries, moving on to present a policy agenda
for an emerging economy to develop its financial sector.
Stress is placed on the necessity of adequate public infrastructure,
meaning a credible national regulatory scheme that promotes private
initiative. This is where the role of the government as regulator
comes in. It is also important to allow the development cycle for
each country to determine its own natural sequence for reform. Resistance
to financial innovation will only encourage informal sector growth
and so should not be suppressed. In the end, the paper states that
government policies should be directed towards reducing the costs
of the financial system by facilitating liquidity and promoting
market transparency, rather than stifling innovation and trading.
The second paper on "The Egyptian Capital Market" was
presented by Mr. Mustafa Abdel Wadood, Co-Chairman of the AmCham
Egypt Investment and Capital Market Committee and Managing Director
for Investment Banking at EFG-Hermes Holdings. The paper measures
the current status of the capital market in Egypt against other
emerging countries and Arab countries. It proceeds to analyze the
current structure of the market, going through financial intermediaries,
the equity and bond markets, and the pension system. The paper concludes
that the financial sector in Egypt "is not performing in line
with its peers or at least in line with its potential". To
realize this potential a set of "practical measures" is
given with respect to regulatory issues, disclosure and transparency,
quality of intermediaries, development of the bond market, new products
and technical issues related to trading, and demand/supply-side
issues.
On the second day of the conference sessions began with a discussion
of "Regulation and the Role of the Government" in the
financial system. In this session Mr. Ahmed Abou Ali, Chairman of
AmCham's Legal Affairs Committee and Partner of Hassouna & Abou
Ali Law Offices, presented a thorough paper on the "Legislative
Process" in the Egyptian securities market. In his paper he
points out some of the pertinent areas where additional efforts
in legislation and regulation are needed. After overviewing the
structure and legal framework of the Egyptian financial sector,
internationally known standards and principles governing global
financial markets are explained at length. Principles of the International
Organization of Securities Commissions (IOSCO) are then used as
a test of the compatibility of the current Egyptian capital market's
legal framework with international standards. The three IOSCO objectives,
namely protection of investors; ensuring that markets are fair,
efficient and transparent; and the reduction of systemic risk, are
examined with respect to current securities regulation in Egypt.
To conclude, and in conformance with the capital market paper, realization
of Egypt's full potential requires sustained effort to improve the
current legal framework to meet the evolving challenges of future
development. Focus here is placed on the legal framework of the
securities market, as a key component of the financial sector in
Egypt.
The vital role of the insurance sector in economic growth and development
is addressed in the paper presented by Mr. Saad Mered, who at the
time was Co-Chairman of AmCham Egypt's Banking, Finance & Insurance
Committee and Vice Chairman and Managing Director of American International
Group (AIG) Pharaonic Insurance Company. Recent liberalization of
the insurance sector has led to the entry of several major international
insurers, including AIG Pharaonic Insurance itself, to benefit from
the sector's high growth potential. Egypt's insurance sector is
still in its early stages of development, though, and so must deal
with several structural impediments to growth before realizing this
potential. The main focus of this paper is to identify structural
impediments to insurance sector development one by one. Excessive
premium taxes, restrictive investment regulations, ineffectual pension
fund legislation, lack of effective distribution channels, the slow
progress of privatization, and dual role of the regulatory and supervisory
authority all constrain the growth of the sector. The paper prescribes
solutions for each of these impediments based on best practice comparisons
from other countries. It is concluded that unleashing Egypt's full
growth potential requires a series of liberalization measures, best
implemented simultaneously.
The real estate market and mortgage system are an important and
newly introduced component of the Egyptian financial sector. Also,
with the recent enactment of the executive regulations of the Mortgage
Law No. 148/2001 in 2003, it is definitely a hot topic for discussion.
At the time of the conference, the first private real estate mortgage
had only just been announced.
In this respect, Dr. Amira Shalaby, Consultant at the Housing
and Development Bank and Representative of the Canada Mortgage and
Housing Corporation (CMHC) in Egypt, presented her paper on the
challenges facing Egypt's real estate market. After a clear mapping
of the market and relevant legislation and regulation, the reasons
for the (1998-2002) recession are analyzed. Factors affecting the
implementation of mortgage finance in Egypt, divided into simple
and complex issues, are then highlighted and respective recommendations
are discussed.
Corporate finance issues were presented by Mr. Tarek Mansour,
Country Senior Partner of Mansour & Co. PricewaterhouseCoopers.
Mr. Mansour conveyed the views of the Finance Forum, members of
which hold management or directorial positions in manufacturing
and industry. In keeping with the vision of Egypt becoming a world-class
financial center attracting increased local and foreign investment,
there are several government-related and financial market issues
that constrain corporate finance in Egypt. Resolving these issues
mainly involves creating a credible and transparent environment,
dealing with foreign exchange problems without causing market panic,
removing unwanted red-tape, and strengthening legal enforcement.
All these are in the hands of the government. Other issues are more
related to market conditions and the specific structure of Egypt's
financial sector. Here there is common ground with the other papers
as many of the recommendations are similar in essence.
Without much overlapping the papers presented at the conference
have succeeded in conveying a true picture of the financial sector
in Egypt as it currently stands and covering essentially every aspect
that needs to be covered. The closing session managed to consolidate
all the main issues presented throughout the sessions and stressed
on priority recommendations. In general, less government intervention,
more mergers and acquisitions, increased transparency, fewer taxes
and duties, and stronger enforcement of rules and regulations all
contribute to a more liberalized framework for the financial sector
to operate in and become an engine of growth for the economy as
a whole.
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