Egypt approached Egyptian nationals and corporations in September this year to support the enlargement of the Suez Canal. President Sisi urged Egyptians within and outside the country to subscribe to investment certificates that are dedicated to finance this national dream for Egypt. The five years certificates were the market’s largest maturity and were offered in three, quarterly paid categories: 10 EGP ($1.39), 100 EGP ($13.9) and 1,000 EGP ($139). The guaranteed return on investment of 12 percent was higher by 3.5 percent over what banks offered on deposits maturing up to one year.
While Egyptian citizens applauded the issuance with a turnout of 81%, (i) expatriates purchased less than 1 percent of the certificates as officially announced. However, it is expected that Egyptians working abroad have further contributed to the 64 billion EGP (almost $9 billion) subscriptions collected through (ii) funds in existing bank accounts in Egypt, particularly, in foreign currency or through (iii) sending remittances to allow the family to buy investment certificates. A total of 17% of the subscriptions were foreign currency bank deposits that depositors converted to domestic currency to book certificates. Around 42% of contributions came from outside the banking system, while remittances rose significantly in the last two quarters compared to 2013.
Even if one takes these three different channels into account, we think participation was below potential considering the size of the Egyptian diaspora and its potential savings. Based on conservative assumptions it has been estimated that the around 3.5 million Egyptian migrants abroad have savings of around 6.7 billion US Dollars. The actual diaspora savings are probably higher as amongst others the estimation does not include the second and further generation diaspora stocks.
Why was the participation rate so low? The investment certificates were oversubscribed by 6.6% within only 8 business days. This did not give Egyptian expatriates enough time to buy certificates. The procedure to subscribe to certificates through the four state owned banks was cumbersome from abroad: The presence of national banks or the use of other institutions in host countries would have facilitated the marketing of the bonds. It is undoubted that low bank penetration in Egypt – only 9.7% of adult population – was also a key constraint.
Other international experiences in leveraging diaspora savings, including developing countries like India, have shown that bonds for the diaspora can be an important and innovative source of financing, targeting new and previously untapped investors. The diaspora is likely to be more willing to invest in the country of origin than foreign investors, also in local currency, and might provide a “patriotic” discount (Ketkar and Ratha 2011). Compared to national investors they have the added value of bringing foreign exchange to the country.
Egypt could make stronger use of its diaspora for financing for development in the future. Projects like the issuance of retail bonds for the Suez Canal enlargement are attractive for diaspora investors, leveraging patriotism and the willingness to invest in the countries future and offering an attractive investment opportunity at the same time. Further investments will be needed in the energy sector and for other developments related to the Suez Canal. Through a reengineering of distribution channels inspired by international experiences but based on the characteristics of Egypt’s financial system and its diaspora, the country could further tap the resources of its diaspora for these upcoming national investment projects. This should be a priority topic on Egypt’s Investment and Development Partnership Conference to be held early next year.
While Egyptian citizens applauded the issuance with a turnout of 81%, (i) expatriates purchased less than 1 percent of the certificates as officially announced. However, it is expected that Egyptians working abroad have further contributed to the 64 billion EGP (almost $9 billion) subscriptions collected through (ii) funds in existing bank accounts in Egypt, particularly, in foreign currency or through (iii) sending remittances to allow the family to buy investment certificates. A total of 17% of the subscriptions were foreign currency bank deposits that depositors converted to domestic currency to book certificates. Around 42% of contributions came from outside the banking system, while remittances rose significantly in the last two quarters compared to 2013.
Even if one takes these three different channels into account, we think participation was below potential considering the size of the Egyptian diaspora and its potential savings. Based on conservative assumptions it has been estimated that the around 3.5 million Egyptian migrants abroad have savings of around 6.7 billion US Dollars. The actual diaspora savings are probably higher as amongst others the estimation does not include the second and further generation diaspora stocks.
Why was the participation rate so low? The investment certificates were oversubscribed by 6.6% within only 8 business days. This did not give Egyptian expatriates enough time to buy certificates. The procedure to subscribe to certificates through the four state owned banks was cumbersome from abroad: The presence of national banks or the use of other institutions in host countries would have facilitated the marketing of the bonds. It is undoubted that low bank penetration in Egypt – only 9.7% of adult population – was also a key constraint.
Other international experiences in leveraging diaspora savings, including developing countries like India, have shown that bonds for the diaspora can be an important and innovative source of financing, targeting new and previously untapped investors. The diaspora is likely to be more willing to invest in the country of origin than foreign investors, also in local currency, and might provide a “patriotic” discount (Ketkar and Ratha 2011). Compared to national investors they have the added value of bringing foreign exchange to the country.
Egypt could make stronger use of its diaspora for financing for development in the future. Projects like the issuance of retail bonds for the Suez Canal enlargement are attractive for diaspora investors, leveraging patriotism and the willingness to invest in the countries future and offering an attractive investment opportunity at the same time. Further investments will be needed in the energy sector and for other developments related to the Suez Canal. Through a reengineering of distribution channels inspired by international experiences but based on the characteristics of Egypt’s financial system and its diaspora, the country could further tap the resources of its diaspora for these upcoming national investment projects. This should be a priority topic on Egypt’s Investment and Development Partnership Conference to be held early next year.
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