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Private Sector Key to Egypt Economic Turnaround – Citadel

Now that Egypt has held its elections, many in and outside the country will be turning to the new president to see how he plans to pull the domestic economy back from the brink. The economic challenges former army chief Abdel Fattah Al Sisi faces in many ways resemble those of Citadel Capital, one of Egypt’s foremost investment firms which itself is in the middle of a turnaround.

Citadel Capital website

Citadel Capital once was one of the leading private equity groups in the Middle East until its business model and profitability were undermined by the global financial crisis and the subsequent political period of instability that hit Egypt and other parts of the Middle East. The Cairo-based firm is reinventing itself as a holding company with less debt on its books and a more narrow focus centered around five sectors including energy and transportation.

“That transformation will take a number of quarters if not a couple of years,” said Citadel founder and Chairman Ahmed Heikal. “We’ve completed the first phase which saw us increase our capital by 3.64 billion Egyptian pounds and we have also announced the disposal of non-core assets,” he said.

With the health of the Egyptian economy to a large extent determining the future success of Citadel – the bulk of the group’s assets are located in Egypt and neighboring African countries – Mr. Heikal in return wants his company to help tackle some of the country’s most pressing issues.

“In my view, the debt capacity of the government is consumed by the budget deficit and it is likely the case it has to rely on the private sector – that is a rational conclusion,” Mr. Heikal said.

One such example where the private sector could come to the government’s aid is by combatting Egypt’s energy crisis. Unable to cope with demand, which could peak during the hot summer months, the government is scrambling to secure sufficient energy resources to avoid more power blackouts.

Citadel recently proposed to the government to build a $1.3 billion electricity plant which could help ease the country’s energy problem. Details on the new plant are still sketchy but Mr. Heikal said the swearing in of the new president is a first requirement after which the necessary government approvals can be obtained for the project to go ahead. Funding would be provided by Citadel and a number of co-investors, he said.

A large portion of any of the future investments will inevitably come from abroad as has been the case for Egypt recently with several Gulf countries propping up the interim government with billions of dollars.

Citadel’s own rights issue reflects a similar pattern: Mr. Heikal said one third of investors participating were from the Gulf, another third came from international sources while the remainder originated from Egypt itself.

Egypt’s economic recovery will also largely hinge on the support from abroad and domestic entities such as Citadel. “Egypt will be on the right track and the private sector will be a big part of the solution,” said Mr. Heikal.

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(via WSJ Blogs)