1- Market Review

The Leasing law in Egypt was introduced in 1995 and governed by Law 95 for 1995, which was amended buy law 16 for 2001. The leasing law in Egypt is for commercial purposes only and does not include end consumers. The regulatory body responsible for leasing is the Egyptian Financial Supervisory Authority (EFSA) supervision. According to EFSA, there are currently 207 companies registered to carry out financial leasing activities, after canceling the operations of 61 companies as of 31/12/2009. However, most of these companies are inactive, as they are essentially "single-contract companies", established for the purpose of one-off leasing deals enabling them to benefit from the five-year tax holiday granted to financial leasing companies. Consequently, the financial leasing industry in Egypt is consolidated in approximately 10 major market players, accounting for more than 90% of the newly booked contracts in the market.

2- Changes in the Leasing Environment

The most important change taking place in the leasing industry is the change in regulator. As at July 1, 2009, all non banking financial service sectors in Egypt have fallen under a new single financial service regulator called "The Egyptian General Authority for Financial Supervision" or "EFSA". The purpose of EFSA is to unify the non bank financial supervision in one authority. This includes: the Egyptian Insurance supervisory Authority, the mortgage finance Authority, the Capital Market Authority CMA, as well as the regulating the leasing industry instead of EFSA and any other financial instruments that are non-banking. This also includes any future financial instruments that will be introduced in the market. This aspect is very important in light of the financial crisis and the need to closely supervise and regulate innovative financial instruments.

3- Growth in the Egyptian leasing Market

Egypt's Gross Domestic Product (GDP) continued to grow steadily to reach EGP 1.38 Billion compared to EGP 895 Billion in 2008. The current size of the leasing market in terms of total value reached almost EGP 3.6 Billion in 2009, which represents a contribution to GDP of 0.34% in 2009. In contrast, the total value of the total borrowings reached EGP 430 Billion, which currently represents a contribution to GDP of 0,83 % in 2009. The year 2009 however showed a slight drop in terms of the number of leased contracts. Leasing contracts booked during the year showed almost a 6% drop from 2008. New leased equipment booked reached 3.6 Billion in F.Y. 2009 versus EGP 3.8 Billion in F.Y 2008 as shown in exhibit (1).

Exhibit (1): Number and Volume of contracts (2004-2009)

Source: Egyptian Financial Supervisory Authority (EFSA)

Figure (2): Trend Analysis for the Leasing Market (2004-2009)

Source: Egyptian Financial Supervisory Authority (EFSA)

Figure (3): Leased contracts per Asset Class (2009)

Source: Egyptian Financial Supervisory Authority (EFSA)

Figure (4): Trend Analysis for the Leasing Market (2010 Q1)

Source: Egyptian Financial Supervisory Authority (EFSA)

Figure (5): Leased contracts per Asset Class (2010 Q1)

Source: Egyptian Financial Supervisory Authority (EFSA)

4-Development in the Egyptian Leasing Industry (per asset Class)

a. Commercial and Administrative Real Estate Leasing

In addition, the leasing industry has witnessed a tremendous growth in the volume of real estate which represented a share of almost 30% of the newly booked leasing contracts in Egypt in F.Y. 2009 compared to 23% in F.Y. 2008. The trend continued in the first quarter of F.Y. 2010 to reach approximately 46%. This surge in the real estate sector was buoyant due to domestic demand for infrastructure and housing. In addition, this was manifested in several major touristic resorts, hotels, and other administrative projects or office spaces. The commercial real estate sector is still witnessing a large scale development, which are represented in office buildings and shopping malls, are also moving to the new suburbs. Office spaces can be segmented into two main areas; office spaces in commercial buildings, office spaces in residential buildings and companies building their own premises. In the first segment, developers build office buildings and companies rent spaces in these buildings. These office buildings are usually managed by professional property management companies. A Few years ago, the supply of professional office spaces was only limited to less than five office towers, such as Giza Nile Tower and World Trade Center Tower. However, the situation has changed recently with the introduction of two landmarks, high standard office building projects, City Stars and Nile City Towers and many more in the pipeline. Another development in the area of office spaces is the construction of the smart village in 6th of October and Maadi, where companies operating in IT and communications are relocated to benefit from the high-tech infrastructure and tax exemption. The new financial district, including Cairo and Alexandria Stock Exchange, as well as many financial authorities and companies, will be established as an extension to the smart village. The strong inflow of foreign companies and the growing private sector in Egypt are expected to increase demand for high-end office spaces, mainly in the first and third segment of the office space market. In addition, demand for retail spaces comes mainly from Shopping malls and hypermarkets, as well as supermarkets developers. For example, Palm Hills almost invested EGP 270 Million to build a new mall in its Kattameya Village project. The project is in East Cairo near the new American University in Cairo (AUC) campus. The total area of the mall to be leased is 30,000 square meters and 28% is already leased out. Construction will start during end of July and the company is planning to open the mall in the first quarter of F.Y. 2011. Also, the Ministry of Communication embarked on a substantial leasing deal in financing its administrative premises in Smart Village 6th of October and Maadi. Thus, it seems obvious that leasing played a major contribution in this sector. This was mainly attributed from the need to capitalize on tax advantages of leasing to both building and land. In this context, financial leasing played a major role in financing telecommunication, financial and governmental institutions in Smart village, and other similar locations.

2- Equipment Leasing

Driven by the growth in real estate sector, the construction and building sector, represented by heavy equipment, reached a share of 14% in the F.Y. 2009 and continued in F.Y. 2010, compared to 21% in the F.Y. 2008. The Construction and Building sector growth is expected to rise given a further mount in the real estate sector over the coming years. Driven by the growth in hospitality real estate sector and health tourism, the medical and general equipment hiked in which it represented 9% growth in the F.Y. 2009.

3- Production lines Leasing

The leasing industry has witnessed a drop in the volume of production lines, which represented a share of approximately 15% in the F.Y. 2009. This drop has even continued in the first quarter of F.Y. 2010. This was due to Egypt's lower exports to the U.S. and European markets due the worldwide financial crisis.

4- Aircraft Leasing

Despite the low share of Egypt's aircraft leasing (1%), it is expected to grow tremendously over the years. Outlook for Middle East and North Africa (MENA) region is currently witnessing the highest growth trend and commercial Low cost carrier is booming in the MENA region. This creates a growth opportunity in the leasing of aircrafts during the coming period. According to Rolls Royce report African intra-regional market is largely untapped and traffic is set to grow strongly. Africa RPKs growth rate is expected to be 8%, while the Middle East growth rate is at a rate of 9.2% for the period 2007-2014. This performance is expected to prosper in light of the emergence of the main player in the aviation sector is CIAF Leasing ("CIAF"). In this regard, CIAF LEASING seeks to meet untapped opportunities in Egypt, with an emphasis on the civil aviation domain. The company was launched on June 16th, 2009 at the Paris Air Show, and started operations by holding its Founding General Assembly in Cairo on October 7th, 2009. The company targets both investment in aircraft and equipment. CIAF-Leasing is a joint-venture company between the Civil Aviation Finance Holding Co. (CIAF Holding), an Egyptian corporation founded under the Capital Market Law in November 2008 to serve as the financial arm of the Civil Aviation Sector in Egypt; Aviation Capital Group (ACG), an aircraft leasing enterprise rated among one of the top five companies worldwide in the industry and which owns 240 aircrafts.; and the Civil Aviation Support and Development Fund, an Egyptian entity founded to support and develop Egyptian Civil Aviation activities. The initial investment profile of the Company will concentrate primarily on new and younger narrow-body aircraft to be operated in Egypt, the Middle East and North Africa region. The initial investment profile of CIAF Holding concentrates primarily on new and younger narrow-body aircraft.

4. Leasing Future Outlook

Despite the fact that 2009 has been a tough year as a result of the global crisis, there exist few signs that indicate an improved business environment in the F.Y. 2011. This is expected to attract increased flows of FDI (Foreign Direct Investment) and domestic investments, which shall in turn increase the demand for banking business, including financial leasing. In addition, the leasing market has been responsive to the government's initiative towards supporting SMEs and Mirco financing. Although leasing has existed in Egypt for many years, it is still in its nascent stage. Still, competitive pressure is likely to mount over the next few years particularly as the market grows and encourages more active entrants. Despite the continuous growth of leasing sector, it is yet unforeseen whether the new regulator will enact any modifications in the existing legislation that will have an impact on the operating and regulatory environment for the leasing market. In addition, the market is expecting several securitizations in the near future. In fact, the leasing market has witnessed two securitization transactions and one bond issuance by three various market players.

Sources:
All the information on the Egyptian Financial
Supervisory Authority (EFSA) can be found at
www.efsa.gov.eg
www.oecd.org
www.sme.gov.eg
All the information about investment in Egypt can be found at
www.economy.gov.eg
For all the latest news about Egyptian laws and reforms regarding economic issues, see:
www.us-egypt.org US-Egypt Business Council
Business Monitor International Ltd., Egypt Quarterly Forecast Report Q42009
www.CiCapital.com
Economic intelligence unit
country report- 2010 - Global research - Merris report June 2010 - Rolls Royce report 2009

 
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