"Burning the furniture"

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Interesting tidbit about the recent OCI transaction here — and a good and alarming piece overall:

Foreign currency is increasingly difficult to come by in Egypt, even if you are rich by local standards. A number of the companies represented in the Cairo share index have substantial, viable, foreign operations, which the equities allow you to buy for Egyptian pounds. What is supposed by capital markets theory to be a measure of investor sentiment about the future has become a measure of half-concealed capital flight.

It could be argued that an interesting recent example of this is the Orascom Construction Industries share exchange offer. This was talked about in some quarters as “Bill Gates invests in Egypt”. Well, no. Orascom is one of the few internationally competitive Egyptian groups; I have used the group’s mobile phone providers in the Middle East. The ongoing exchange offer essentially allows an Amsterdam-based holding company to buy the Cairo-based construction company in return for a net payment of something more than $1bn to the forex department of the Egyptian central bank. Bill Gates’s family group is among the investors in the Amsterdam holdco. This would allow the central bank to make up for a few weeks’ drain of forex reserves at the current rate of loss.

So a resounding vote of confidence in Egypt’s future may actually be a case of burning the furniture. On the other hand, buying three weeks to a month may seem worth it if it’s your food ration that is being financed.