Egypt Looks South

While the global economy slows, Egyptian banks aim to expand their foothold in Africa and boost intraregional trade.

In April, Commercial Bank of Egypt (CIB) became the first Egyptian bank to establish a presence in Kenya, through the acquisition of a majority stake in Nairobi-based Mayfair Bank (MBL). The $35 million deal allows Egypt’s largest private bank, with over $24 billion in assets, to take over a network of five branches and a portfolio of high-net-worth individuals and corporate clients.  

MBL is one of Kenya’s smallest banks, with only a 0.17% market share as of February, but CIB sees an opportunity to grow its cross-border banking presence in the Horn of Africa and boost intraregional trade.

“The acquisition of a majority stake in MBL will anchor CIB’s expansion into the East African region,” stated the Central Bank of Kenya in a press release following the deal. “Its entry will also strengthen the trade and investment ties between Kenya and Egypt” and “diversify and strengthen the resilience of the Kenyan banking sector.”

The same month, CIB opened a representative office to support trade and project financing in Ethiopia, Africa’s second-largest country and one of the fastest growing economies in the world. The Egyptian lender is currently exploring acquisition opportunities in other markets, including Tanzania and Uganda. 

 “When we sought to expand our presence globally, we looked no further than Africa,” says Hossam Rageh, head of regional expansion at CIB. “We are looking to continue expanding our presence in Africa through partnerships with established banks. These partnerships aim to combine the strengths of both entities: CIB with its technical expertise, experienced know-how and vast correspondent banking network, and the local bank with its knowledge of the market and navigation via its existing shareholders.”

CIB isn’t the first Egyptian bank to look south. Late 2019, Banque Misr (BM),  Egypt’s second biggest lender announced a five-year strategy to establish a presence in 20 African countries, starting with the Horn of Africa.

Banque Misr already received approval from the Central Bank of Somalia to open a branch in Mogadishu, the capital of the war-torn state, as well as representative offices in Kenya, to be turned into a full-fledged branch within three years. The expansion plan also includes the transformation of the existing Ivory Coast Banque Misr Liban office into a full-fledged branch reporting to the Cairo headquarters and a new branch in Djibouti.

“Opening a Banque Misr branch in Mogadishu as the first Egyptian bank in the Somali banking sector would add value to serving mutual interests between Egypt and Somalia,” says Mohamed el Etreby, Banque Misr’s chairman. “Within the same context, BM aims to increase the volume of bilateral trade between Somalia and Egypt as well as other countries in which BM maintains a presence. This is going to motivate and support the investments of these countries in Somalia and drive their trading transactions.”

At the time Egyptian banks crafted their expansion plans, Egypt was showing strong signs of economic recovery following a decade of political struggle and currency crisis. In 2018 and 2019, it notched annual GDP growth above 5%, backed by tourism, Suez Canal user fees, remittances and offshore natural gas production.

That was before Covid-19. In 2020, tourists are nowhere to be seen, international transport came to a halt, energy prices fell off a cliff and remittances from abroad, which accounted for over 8% of GDP in 2019, have dropped as many Egyptians have lost jobs abroad, especially in Gulf Cooperation Council countries.

Egypt is expected to withstand the shock far better than its neighbors, however. Both the International Monetary Fund and the World Bank expect it to be the only country in the Middle East and North Africa (MENA) region not to enter a recession in this year. “Prior to the outbreak of Covid-19, Egypt had one of the best-performing economies in the region,” Oxford Business Group says in its 2020 Egypt Report. “And, despite the disruptive effects of the pandemic, this trend looks set to continue. Egypt’s banking sector has also long been seen as one of the most stable in the region.”

“Egypt’s economy is on the right track,” El Etreby agrees. “It has successfully begun to reap the fruits of the notable success of the comprehensive economic reform program, which resulted in a positive impact on national economic performance during 2019 and enabled the Egyptian economy to face the negative effects of Covid-19 in 2020.”

A Position of Strength

When Egyptian banks enter other African markets, they do so from a position of strength. According to a 2019 Business Insider survey, five of Africa’s 15 biggest banks were Egyptian. “Egyptian banks are already some of the biggest in the continent in terms of revenue, branches and scale of operations,” says Rageh. “We’re looking to transfer the expertise we gained from operating in the Egyptian market south to African countries.”

Africa’s second-largest economy and third-biggest country, with a population of over 100 million, Egypt is also familiar with the continent’s number one banking challenge: financial inclusion. More than 60% of Egyptian adults are unbanked, and Egyptian financial institutions have become experts at digital banking and fintech solutions, which the Central Bank of Egypt has pushed to the top of its agenda as of 2019.

“We identified growth opportunities in the African market, mainly the continent’s young population and low bank-penetration percentages,” says Rageh. “We’re also looking to integrate our financial-literacy work with that of local banks that have successfully utilized mobile phones in banking transactions, especially in rural areas.”

Egyptian banks are also eyeing new business deals. The core of their cross-border strategy is to offer trade finance and boost regional integration. “Egypt will turn into a cross-continental hub in various sectors,” says El Etreby, “thanks to its vast resources along with the government’s mega projects, including a pan-African road project extending from northern Egypt to Cape Town, which is currently under construction.”

Egyptian authorities hope increased trade with the rest of Africa will help raise export volumes, enable their banks to participate in infrastructure projects and reduce the country’s commercial deficit. Egyptian businesses already benefit from the country’s membership in the Common Market for Eastern and Southern Africa (Comesa) and other more recent trade agreements, and should also be beneficiaries once the African Union–led African Continental Free Trade Area is implemented. Scheduled for July 2020 but postponed until 2021 due to the Covid-19 crisis, the deal removes most tariff and non-tariff obstacles to cross-border business and is expected to more than double the volume of trade on the continent, according to the United Nations Economic Commission for Africa. 

Several Egyptian companies have already expanded their work in other parts of the continent, Rageh notes. “CIB and other Egyptian banks will be able to easily support” projects like the $3 billion hydroelectric dam in Tanzania that El Sewedy Electric Company and Arab Contractors are building.

“Banks in Egypt are supporting the growth of continental trade via different alternative finance tools,” says El Etreby, “like supply-chain finance products and commodity-backed finance, supported by export credit agencies and other global trade support programs. The expansion of Egyptian banks is not limited to physical presence, but rather will be a gateway to the presence of the Egyptian entities that will invest and trade in the African market.”