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Egypt govt brings banker to lure investment

Cairo - Egypt's new Investment Minister, Ashraf Salman, will need to make full use of his investment banking experience to attract businesses to a cash-strapped country where taxes are rising to boost revenues.

Unlike most ministers in the new Egyptian cabinet that was sworn in on Tuesday, Salman is a businessman who co-founded and ran Cairo Financial Holding investment bank after heading the investment banking division at the Arab African Bank.

"He knows the private sector inside Egypt and outside," said Hussein Sabbour, president of the Egyptian Businessmen's Association.

"When he was in the investment banking sector he worked with a lot of Arab investors from Saudi Arabia and other places," Sabbour added.

Tourists and foreign investors, previously Egypt's main sources of foreign currency, have been unnerved by political and economic turmoil since a 2011 revolt swept autocrat Hosni Mubarak from power. Over the past two years Egypt has depended on aid from wealthy Gulf Arab allies.

They have sent more than $20bn worth of grants, loans and petroleum products, according to numbers given by President Abdel Fattah al-Sisi during his election campaign.

Yet economic growth, disrupted by repeated and often violent political change, has remained at around 2 percent, too little to combat the rampant unemployment that stokes discontent.

Now the biggest Arab nation wants to raise new taxes to reduce a budget deficit forecast to stick close to 12% of gross domestic product (GDP) in the fiscal year starting July 1.

New minister Salman will have to persuade investors that taxation will pay off in boosting economic growth and stability.

Inconsistent laws

Businessmen often cite Egypt's ever-changing tax regime, large bureaucracy and recent political upheaval as a hindrance to investment.

Last year Salman criticised the government of ousted president Mohamed Mursi when it unexpectedly announced a 10% tax on major stock market transactions, including initial public offerings and takeovers.

Shares tumbled on the news that a takeover of its second biggest private bank, National Societe General, by Qatar National Bank would be subject to the new capital markets tax. The tax was later reversed.

"The fact that someone's been in the financial markets makes them more aware of the investment climate and the impediments to investment," said Angus Blair, chairman of business and economic forecasting think-tank Signet.

"However, his job is trying to increase investment despite the increase in the corporate tax rate."

Egypt's interim government has introduced a capital gains tax and a supplementary tax on companies.

Corporations that earn less than 10m pounds ($1.40m) annually would be taxed at 25% instead of 20%. Firms making more than 10 million would be at taxed 30% instead of 25%.

Market reaction prompted some revision to the capital gains tax, such as exempting bonus shares.

Whether Salman will provide business incentives to balance the tax squeeze remains to be seen.

"The process of building projects is holding promise but we still have a lot of issues from the financial side like the taxes and the amount of pressure that will appear," said a Saudi businessman in Egypt who asked not to be named.

Besides raising taxes, Egypt is under pressure to cut subsidies that eat up around a quarter of state spending. That too could hurt industries accustomed to subsidised energy costs.

In remarks published in local al-Mal newspaper last year, Salman said a $4.8bn loan that Egypt has sought from the International Monetary Fund would help the government commit to a reform programme, rather than seeking other foreign aid packages, but the economic climate must be right.

Tourism fund

Karim Helal, chairman of Abu Dhabi International Bank's Egypt division, said Salman's Cairo Financial Holding had been chosen to manage an investment fund to revive tourism.

Egypt hopes to raise $1 billion through the fund launched earlier this month by tourism minister Hisham Zaazou with support from private sector advisors. A roadshow is likely to start in July with Gulf Arab states.

More than 14.7 million tourists visited Egypt in 2010, dropping to 9.8 million after Mubarak was toppled. The sector picked up in 2012, but shrank again to 9.5 million last year after attacks on tourist destinations. This year's first quarter revenues dropped 43% to $1.3bn.

Salman is likely to focus on both official and private investors from the Gulf, who have repeatedly pledged to help Egypt. Saudi Arabia, Kuwait and the United Arab Emirates have promised more than $12bn in aid since Sisi deposed Mursi.

But so far, two stimulus packages worth around 30bn Egyptian pounds ($4.2bn) have failed to steady the economy or erode the unemployment that feeds political disruption.

"I'm just sitting back and seeing ... whether (Salman) will help foreign investors or is not up to the task," the Saudi businessman said. "Let's see how he will perform and if we are pleased then good results will start showing," he added.

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