Here’s What Makes Egypt A Great Deal For Investors

If you really do the maths, Egypt isn’t all bad.

Obscurity, fear, uncertainty, and opacity create opportunity.  Value investors love markets that are inefficient, out of favour, ignored, scorned, and misunderstood.  I think there is a dislocation in Egypt that the brave and discerning eye might be able to exploit.

The key factors in the equation: Enterprise Funding from the US + Large, Young Egyptian Population + Free Market Forces.

While most of the world shudders at the horror show, I think there’s a brighter future in Egypt.  If handled adeptly, the dawn of democracy could catapult the nation into a new age of prosperity.  The numbers imply that the burgeoning population, if positioned correctly, could make Egypt the next high growth market. Here’s the maths:

  • The median age is 24 years old, and 33% of the population is 0-14 years old.[1]
  •  Educational spending is 3.8% of GDP.  This is higher than Chile, Singapore, India, Japan, and Hong Kong.[2]
  • The labour force (largely private sector) comprises over 26 MM people, ranking it #21 in the world.[3],[4] This is equivalent to the amount of people who live in the country of Saudi Arabia.

Egypt hasn’t moved.  It is still situated on the highly fertile banks of the Nile, and is still the centre of commerce in the Arab world.  Egypt produces natural gas, which may become a popular substitute for oil in the future.

Venture capital, anyone?

Economic assistance has already begun to flow into Egypt, and there is likely more to come once democracy fully takes hold.  Let’s recall the SEED Act (Support for Eastern European Democracy), promulgated by George Bush after the raising of the Iron Curtain.[5]  These deals work like venture capital, with appointment of an independent Board of Directors to manage the investment. 

Here’s the maths on SEED:  the $70MM that the United States invested over 15 years paid off handsomely, generating an estimated return of over 130% and attracting an additional $5 BB in incremental capital.[6]

Senators Kerry and McCain, along with Joe Liebermann, are working to award over $50 MM to The Egyptian-American Enterprise Fund and $10 MM to the Tunisian-Enterprise Fund.  The State Department and the United Stated Agency for International Development (USAID) would monitor and advise post allocation.  It is akin to a venture capital investing in a startup, or a foreign firm receiving foreign direct investment. 

In summary, here’s the maths on Egypt:

    26 MM people going to work everyday

+ $50 MM to Egypt from US

+ $2 BB to Egypt from the Overseas Private Investment Corporation[7]

+ $80 MM insurance coverage approved by US Export-Import Bank[8]

+ A new age Public-Private advisory system to oversee the process

+ Time

+ Democracy

This equation has worked before.  Now may be a great entry point for patient, long term investors who believe that Egypt will follow the path of many other nations that have flourished under Democracy.

[1] CIA World Factbook 2010. People:: Egypt.

[2] CIA World Factbook 2010. People:: Country Comparison: Education Expenditures. Figure as of 2008.

[3] CIA World Factbook 2010. Country Comparison:: labour Force

[4] ANIMA Investment Network.

[5] The Entrepreneurialist, “The Politics of ‘Aid for Trade’: The US, Egypt, and Enterprise Funds.”de Kerros, Tatjana, March 16, 2011.

[6] Ibid.

[7] Ibid

[8] Ibid