Episode Transcript
The Finance Ghost: Welcome to episode 268 of Magic Markets. I am your co-host, The Finance Ghost, here as always with my friend and co-host Mohammed Nalla.
I am freshly back from honeymoon in Egypt, which was an absolutely fantastic experience. And Moe has decided to make me feel even worse about not being on holiday anymore by making us talk about Egypt this week.
So, thank you, Moe. I will now spend the next 15 to 20 minutes reminiscing about how utterly breathtaking that experience was, while we talk about the financial side of Egypt, just because it's really interesting and of course, it's also in Africa. Vodacom's got exposure there, so there are actually a few good reasons to talk about it.
Welcome to our show!
Mohammed Nalla: Yeah, Ghost, our listeners can't see you, but you're looking visibly refreshed. You're sounding visibly refreshed too, so it must have been an absolutely awesome trip.
But again, we can't waste that experience of being on the ground in a new country and not actually lean into some of the market learnings from that. So that's why the show is really quite apt at this point in time.
Egypt has, probably, one of the largest economies in Africa. You’ve got South Africa, you've got Nigeria, and you've got Egypt. And anecdotally, whenever I speak to Egyptians - I've got an Egyptian neighbour up here in Canada - Egyptians view South Africa as a whole as a very wealthy country.
I find that interesting. When you look at Egypt, it's very similar on a macro level in some respects to classic emerging markets. And we'll get into some of that. But that perspective was interesting for me, is every Egyptian I've ever come across sees South Africa as a rich country.
Ghost, I'm going to let you lead this one because your insights on the ground are definitely quite valuable. I can give everyone a quick primer on what the Egyptian economy looks like, but a conversation is probably where we'll get the most value out of this discussion.
The Finance Ghost: Yeah, so it's interesting that you say that Egyptians view South Africa as wealthy, because on the ground you can definitely see that the average South African is wealthier than the average Egyptian.
I can just see that from the cars on the road, from the areas around me. That much is very clear. There's a reason why Egypt is not in BRICS. They are further down the ladder than South Africa, in my view. I don't actually have the GDP per capita at hand, but I can tell you the lived experience is that the average South African is wealthier.
Interestingly enough, my experience was that, going out of the more sophisticated, educated parts of Cairo, if people ask you where you're from and if you say South Africa, they were all very surprised to see my pasty white skin (as a South African). And then the next question is, “But where were your parents from?”
It's cool that you're African, but also, you're “not”. So that was interesting. I've had that before in the world, but not as much as I had it in Egypt.
I will, however, say the Egyptians were probably the friendliest people I've ever met overseas in my life. And I've had the luxury of traveling to quite a few countries. And the Egyptians were genuinely just fantastic, just really, really cool.
It’s the most populous country in the Arab world, third in Africa. And get this, we talk about the birth rate in places like Canada (where you are) and South Africa. Well, let me tell you, there are plenty of cute little habibis popping out of people all the time. The population growth rate is 1.4% to 1.7%.
One of my Uber drivers had five children and was one of nine. So, you're still getting those really big families coming through. I did some research, and - it's not something you see out there - but government is actually encouraging people to only have two children.
They had this “two is enough” campaign, which is quite fascinating. So that's obviously very different to what you're seeing in the developed world.
And here's another absolutely bonkers stat for you: around 95% of the population lives on 5% of the land, and that is because they live right next to the Nile, pretty much from top to bottom, and then along the coast, essentially. The middle is just desert, just literally desert.
So, where I was for most of the trip, in Hurghada and El Gouna, which is on the Red Sea, you're literally driving down the highway, and on the Red Sea side you can see buildings, and on the other side you can see nothing. I mean, nothing, just desert. And it's like that from there, basically, until the Nile. So it's actually quite remarkable.
And of course, that creates lots of challenges around resources, right? Water, et cetera. And that, of course, is one of the reasons why government has some concerns around the sheer number of cute little Egyptians that are coming out, running around in the place.
Fascinating country. Obviously a completely different experience to going to somewhere like Europe.
Mohammed Nalla: Ghost, that's really fascinating. I've got the GDP numbers. The GDP comes out in US dollar terms just shy of $400 billion. It's upper $300s. And with a population of north of 100 million, you're looking at an average GDP per capita of around $3,500 per person there.
If you compare that to South Africa, South Africa's GDP per capita is a fair amount higher. I would say Egypt is a lower middle-income market, whereas South Africa's a middle-income market. And again, if you judge it by the fancy cars, well you can't judge by Sandton and Cape Town where you are, because again, there are very different kind of dynamics there.
The Finance Ghost: Technically you can, because I was in similar places on that side. So even in El Gouna, which is a rich Egyptian area (that's where their celebs allegedly hang out), the celebs are driving a decent BMW at most. On the roads in Sandton, at any time of day, or Cape Town or Durban or whatever, you're going to see just a much higher level of spending.
And it's interesting, that direct comparison. Obviously, when you're going to the poorest of the poor areas - what I didn't see a lot of was slums. Now that could well be because they're just not anywhere where tourists would be. Obviously in South Africa you do see them as part of your day-to-day, and tourists do see them.
So you see poor areas. But I can't say that I saw slums really that were noticeable. That was interesting as well.
Mohammed Nalla: With regards to your point around the concentration of development around the key waterways, Egypt's an ancient country so that goes all the way back - thousands and thousands of years. But maybe that's why you haven't seen slums, right?
The urban centres are very dense. They're not developed the same way you see that development in South Africa, or any other Western economy. That might explain some of that.
I looked at some of those GDP stats. You mentioned the population growth. That's fascinating. Interestingly enough, they have an unemployment rate that's only around 6%. They don't have the same kind of social pressures that South Africa has.
And to your point around water, the other thing there is that there are some concerns around the Aswan dam – where they share water resource with some countries further upstream of the Nile there. So pay attention.
You've mentioned it's an economy in Africa. Yes, but it's also in the Middle East. And I'll get into this when I look at some of the economic drivers. I want to talk about the Suez Canal and so forth.
But you were a tourist in Egypt. And here's the interesting stat. If you look at travel and tourism, and how much it contributes to the Egyptian economy, the last time I had a look, it comes through at around 8.5% of GDP, and that's massive. So that tells you that it's not just a very large portion of GDP, but it's also one of the largest FX earners.
And for an economy like Egypt (you'll go into some of the detail here), there’s lots of volatility. The ability to earn FX - hard currency, dollars - let's call it what it is, it’s really so important. And tourism is a very big driver of that.
It's an engine in South Africa that maybe South Africa's underutilised to a degree, just given the natural resource endowment that South Africa does have.
But remember the other thing that Egypt has that South Africa doesn't: its geographical location means it's easily accessible, not just for Middle Eastern visitors, but for the rest of the Mediterranean, and for Europe.
The ability to optimise on tourism is a lot higher than South Africa's, just being geographically quite remote.
The Finance Ghost: It's also much safer. I can tell you now, you can walk around in Egypt.
Mohammed Nalla: No ways.
The Finance Ghost: I felt much safer in Egypt. Much safer. And that's from speaking to locals as well. I've made a couple of friends in Egypt. I met a couple of people who were down here on holiday and then I met someone in Florence who I then hung out with now when we went to Cairo.
It's just funny. Egyptians, like I say, are just really friendly. In my opinion it’s safer there than it is in South Africa. And that's including going to… I don't want to call them rough areas, but there are parts of Hurghada where you can see it's not fancy at all. But you just never get that feeling like you are a target ever. You really don't.
They are so nice towards tourists, and just genuinely helpful. It's not scammy like it was for me in Turkey. My experience in Istanbul was, I always felt like I was two seconds away from being scammed. So I was warned about that; specifically around the pyramids, for example, you'll get some of that. And I don't doubt that you do. Obviously it's a big country, it's always going to have bad people.
But on average, the most dangerous part about being in Cairo is the roads. The roads are absolutely, truly terrifying. I went on Uber drives where I felt like I was in one of my old karting races at Killarney. It was absolutely mind-blowing.
I actually joked with my friend in Egypt that the only reason Cairo works is because no one brakes. There's this unwritten rule where just no one brakes, because there are no following distances and there is no space given.
I'm terrified that a tourist will, at some point, rent a car (which you do not want to do), slam on the brakes, and cause a 38-kilometre pile-up in the middle of Cairo. Because no one, no one contemplates that anyone might brake. It is truly remarkable [laughs].
Mohammed Nalla: That is just so interesting, right? If you've driven in Europe, it can get quite hair-raising there as well. They say if you can drive in Cairo, you can drive anywhere. In India, there was this funny thing where people are just constantly hooting; they constantly signal.
The Finance Ghost: Yes! It’s the same.
Mohammed Nalla: And you get used to it, right? And I almost think that's signalling. It's like Light Detection and Ranging (LiDAR)
The Finance Ghost: Echo location!
Mohammed Nalla: It's like LiDAR, but in the previous generation where everyone's just letting you know where they are.
I find your comments around the fact that Egypt's safe, very interesting. Because if you look at these societal dynamics, if you look at inflation, their inflation's in the double digits, and the interest rates are in the double digits because inflation's in the double digits. And they've gone through these massive crises.
Now, yes, it's safe, but again, if you go back to 2012, the Arab Spring, Egypt wasn't a very safe place to be. Just geographically where they're located right now, Hurghada’s on the Red Sea, just on the other side of Sharm El-Sheikh. There are some very fancy resort neighbourhoods there, if you want to call it that.
But again, maybe it's not in the most optimal of global locations, given what's happening. With that whole backdrop, with the inflation, with a lower GDP per capita - people aren't rich necessarily, versus South Africa, and yet you still have a much safer societal construct. That for me is very interesting. Thanks for sharing that insight.
The Finance Ghost: It's also because the tourism is so important there. And sorry, just another point. The police presence - and it's military police - I mean, you go to Dubai or whatever, you don't mess with the Arab police. These are not people where you are going to have a conversation on the side of the road. Let's just be super clear.
So, if you mess around with tourists, particularly, in that part of the world, let me just tell you, there's a very large desert where you will disappear and no one will ever find you. I really do get that feeling. It's essentially a military dictatorship. That is basically the vibe.
So geographically, Egypt might be in Africa, but culturally it's Arabic. It's Middle East, without a doubt. Parts of the Middle East are obviously really tough. It's obviously always a very political conversation, where Westerners are probably not safe, and probably not exactly welcomed.
But actually, the parts of them where tourism is a thing (I love traveling to those parts of the Middle East), I've got to say, are really amazing. The hospitality is incredible, the food is ridiculous, the culture is so fun.
And where Egypt can really give South Africa a go on the tourism aspect is, they've just got the attractions, right? You must see the Grand Egyptian Museum that opened at the end of last year. A massive project right near the pyramids.
I've been to the best of the best museums in Italy. I've been lucky enough to go and see that stuff. But the modern take on that - that you'll find now in Egypt – is amazing. The modern technology around the building, the way it's built, the virtual reality inside it, the way the exhibits are all put together, but also the most ancient culture possible - that combination is genuinely incredible.
And of course, let’s talk about the cost of being there. Alcohol is very expensive, as you would imagine for an Arabic country. They'll let you drink as a tourist, but you are going to pay probably three times the price of alcohol in South Africa, I would say, once you've converted.
In terms of food, I would say if you're eating at the equivalent level, it's probably - in the tourist hotspots in Egypt, it's probably similar to what a tourist hotspot in Cape Town will cost you. So it’s pretty easy to just compare.
But the cost of getting around in Egypt is like, zero. It's almost shockingly low. I've never tipped Uber drivers so much, because I just felt like I don't understand how they make a living. Also, because I was so happy to be alive by the end of the drive.
You can Uber across Cairo - and Cairo is enormous - you can Uber across Cairo for like, R150. I kid you not.
I can't recommend going to Egypt enough. I don't know if that's coming through yet?
Mohammed Nalla: I can't Uber 3km without spending that kind of money.
The Finance Ghost: The 1st World is hard work, these are the facts.
Mohammed Nalla: Talk about transport, right? I mean, there is an element there where Egypt does export some sort of petroleum. They're obviously exporting the unfinished product and then they import the refined petroleum and there's a bit of a gap there, but potentially that might also play into the low cost.
They should actually compensate themselves a lot more because they're risking their lives and yours while driving across Cairo.
If you look at energy, what Egypt actually exports versus what they import, there's around a $3 billion gap, there and thereabouts, some 2024 data where that's going to change, because oil prices have moved quite a bit.
But they send out some oil products and then bring in the refined petroleum. And again, that might contribute. I don't know if you actually saw the pump prices of gas right now. Again, just given what's happening in the world, maybe that's not an accurate reflection, but you managed to actually look at what they're filling up for in petrol?
The Finance Ghost: Funnily enough, on the one Uber drive, the Uber driver said, “Can we just go fill up?” And I was quite excited for that reason, because I'm a nerd. So I was like, “Great, I'm going to get to see what their fuel costs”.
So we arrive at this pump, and it looks weird, and then the price is per metres cubed. And I'm like, “What am I looking at here?”
And he takes it out, sticks it in the front of the car, and starts filling it. And I'm like, “What is this?” So I say to the driver, “Listen, is this petrol?”. And he's like, “No, it's gas”. And I realised it's Liquefied Natural Gas (LNG), which obviously made me even more excited.
So I said to him, “Can I take a photo of it?”, and he looked at me like, “This guy's not well”. And then my fiancée was like, “You need to understand, you are dealing with the biggest business dork on the planet. Yeah, just let him go do what he needs to do”. So out I got, went around, took a photo of the car being filled with LNG.
Fascinating. That car had been converted to run on either gas or petrol. And then the driver can control that with a switch near the steering wheel. So they've got LNG as an alternative. But obviously their petrol price is going to be lower. I don't know exactly what it is, but I mean, just where it is in the world, it’s going to be much lower
So that contributes. You've got this cheap cost of labour, and it's cheaper cars. Make no mistake, the Uber you're getting is not good. You're not getting a nice Uber. If you're getting a Corolla with working back seats, you are styling, and you can get much worse than that. Very much an emerging market in that regard.
Kind of fun in a wildly endearing way, in the same way that you go on holiday and you like to not feel like you're in as much control. It's quite a liberating experience. Driving every day in Cairo would probably be utterly terrifying, but the cost of getting around is just much lower there and fuel prices will be part of it.
But it's also just cheaper labour, as I said. And of course, it makes it a fantastic place to travel because you can do whatever you want. You just go, “oh, I actually really want to go see that on the other side of town”. It's just so cheap to get around. It's amazing. It really makes it fun.
Mohammed Nalla: Going back all the way to your point around the new, fancy museum. I almost think it's a bit of an unfair comparison, because that was a massive, massive investment by the Egyptians. They've been showcasing that on social media for the longest time. I actually want to go and have a look at that.
Their natural endowment is the history: they've got the pyramids, and they've got all of that. And so they've doubled down on that, they've invested in that. But at the same time, it sounds as though they've made an investment in just making sure there's no violence, making sure the crime is lower. And those go hand in hand.
And to South Africa's point, your natural resource endowment is the nature. It's absolutely breathtaking. You've got fantastic food. I want to hear about the food.
But like I said, not a fair comparison, because South Africa's got a long way to go to reach that level of investment in the tourism sector, by several magnitudes. It's chicken and egg: do you invest and hope people will come? No, you've got to actually tie this all up together.
Egypt's been doing a very good job of not just building the museum, but then also promoting that very actively in international media to core markets.
They've got the airline, EgyptAir, one of the few that were actually functioning when the rest of the Middle East shut down in this current war situation. And so that again gives you that veneer of stability.
And I say “veneer” because if you go and look at Egypt on various political stability rankings, it does better - it's not terrible - but they still rank quite badly in terms of corruption.
You speak to any Egyptian who's left the country, and they have the same kind of gripes anyone else would have in any other emerging market. Those dynamics you can't ever run away from.
But let's go back to the food because I want to hear more about that?
The Finance Ghost: The food is great. I love Arabic food. Again, that sort of traditional food - falafel and lots of stuff to dip it in … it's all just delicious. So obviously it is very much a Muslim country. So you're not going to find pork anywhere. That won't bother you at all, Moe. I was not too fussed by not having access to that - that was more than fine because you're very, very blessed with the food that you can get there. It really is fantastically good.
And what's also quite nice is, it's not like going to Italy where every restaurant is basically a trattoria just stamped out over and over again. That's my one irritation. I love going to Italy, but it really does feel like it's “Italy or nothing” - you don't really get an option to have anything else. It's hard to find people taking a risk on what the restaurant does, et cetera.
Whereas in Egypt, again, if you walk at the marina in El Gouna, for example, you can have the more traditional food for sure, but then you can also have lots of fusion-type takes on it. I mean, there was an Egyptian-Japanese restaurant at the one place.
It felt a bit like South Africa in that regard, where it's quite forward-thinking on some of the stuff around food, etc. and some of the entertainment in Hurghada, which is actually quite a playground for Russian tourists. I was there a little bit out of season.
It was quite interesting to hear the locals talk with some contempt about the drinking habits of Russian tourists. Obviously it's a Muslim country, so they will accept a level of alchohol use, but they're not fans of people getting “fall-down” drunk all over the show. And that comes within the nightclub culture, the cabaret shows, etc. One of which we went to. That was very fun.
It's a fun place. If you're coming from South Africa and you are not going to get frightened off by some dirt in the street, or a car that’s not exactly perfect - if you're coming from an emerging market, traveling to Egypt is spectacular.
If you're coming from a very sanitised environment, like, I don't know, Switzerland, then maybe that won't be for you. But as a South African, you're happy with almost anything, right? Egypt really, really delivers in that regard.
Mohammed Nalla: I would assume they serve a lot of meat. I know from the Middle Eastern diet, there’s a fair amount of meat in there. You were on the Red Sea. Was there lots of seafood, or is that not really a thing there?
The Finance Ghost: Not as much as I expected. I was expecting seafood everywhere. You can get seafood and it is very good, but it's not just seafood. There’s lots of beef. I don't know where on earth Egypt get their tomatoes from, but they were the best I've ever had in my life. Genuinely; weirdly so. I really don't know why.
Mohammed Nalla: Maybe across the Mediterranean?
The Finance Ghost: I will say, one other thing that I wanted to talk about while we have time is, Vodacom's got an investment there. And what's interesting is, the Egyptians are always on the phone. It's the weirdest thing I've ever seen in my life. My Uber driver was on the phone constantly, Moe.
There were people on scooters. There'll be three guys on a scooter, none of whom have a helmet, and two out of three are on the phone. I was just driving around like, “This is insane”.
And guess what? Out of the billboards, other than the banks, the next billboard that I noticed the most - and I tried to adjust for this because obviously I've got the familiarity bias of the logo, so I really tried hard to look at lots of billboards and try and gauge this properly - but lots and lots and lots and lots of Vodafone Egypt billboards.
Why does that matter? Because Vodacom is investing like crazy there. Vodacom has the controlling stake in Vodafone Egypt, after that deal was done with Vodafone, where they bundled all the African interest together with Vodacom locally. They’re investing about R5.5 billion rand in spectrum licences in Egypt over the next few years.
And I've got to say, if the Egyptian pound can just stop devaluing, then Vodacom is onto an absolute winner there because there's population growth, and there's immense smartphone usage.
I don't know if it's the Egyptian friendliness, or why they are on the phone so much. And I'm not talking DMs, I'm talking phone calls all the time.
Mohammed Nalla: It's an emerging markets thing. India is the same, and even up here in North America you get people of various ethnicities. Whenever you see someone who's Middle Eastern or Indian or whatever, it's the same thing. They're constantly on the phone. I guess they’re talking to their friend who's driving a taxi down in Egypt or in Mumbai, or wherever it might be.
That ties so nicely into that whole narrative around telecoms. Those markets are massive. Yes, okay, population of over 100 million - your active user base, your Total Addressable Market (TAM), even when you drill that down to just adults and so forth, is still absolutely massive versus a market like South Africa.
It's interesting that you mentioned the banks and then the telecoms, because in India it was very much a similar story. It's financial services. Some South African companies have invested in that emerging market in the financial services industry. And then telecoms comes through quite strongly.
I wonder if there's an emerging markets element that comes into that, because you see a similar kind of flavour in Turkey to some degree as well, where people are on the phone a lot, maybe not to the same degree as Egypt. That's fascinating.
One last question to you as we wrap up the show. What else stood out for you, from a markets and investments perspective, on Egypt? Because I feel as though when you look at Egypt, you get rosy-eyed, and it's the pyramids and it's ancient and it's stable and it's tourism.
If you look at other macro-indicators, you mentioned the Egyptian pound, and how that's weakened so much. If you look at the interest rates in the double digits, it's 20%. Their policy rate is 20%. Let that actually settle in for people who complain that the SARB is too tight, right? 20%, inflation in the double digits.
So, I'm trying to square the circle there and ask, what's the investment thesis after you've actually visited a country, and seen the “on the ground” experience?
The Finance Ghost: Look, tourism would have to be the big winner in Egypt. There's a lot happening there. There's a lot going on in renewable energy. I saw a couple of wind farms. Obviously, the sun shines a lot, the wind blows a lot.
We had one terrible day of weather in Hurghada where we could have been in the worst of Cape Town weather. It was actually kind of funny that we went from Cape to Cairo and then ended up with that weather.
That's a big part of it, because they need to sort out their energy requirements, and the population growth is obviously part of that.
The other thing that I'll just mention is that you don't get the chain stores like you do in South Africa. I honestly cannot tell you who the big grocery chain would be in Egypt, because I have no evidence of this. I've seen nothing. It's very much like Thailand, almost. It's those line shops down the street, it's small general dealers. It's that kind of vibe.
And so that's probably why the unemployment rate is so low. Because when you get into an emerging market where labour is cheap, and then you have large companies running world-class, efficient operations, then you end up with a scenario where you just don't have enough jobs for the people who want to do the jobs.
But when you're in an environment where it's more on the cusp of informal trading, then people have got a lot of ways to make micro-livings. So that's why you have a GDP per capita that's lower, but you see more activity. So, from that perspective, it’s super interesting.
I think it's an exciting growth market, but as you say, there’s some really difficult stuff around their currency. I had a look three years ago, or four years ago - the pound to the rand was almost one to one. Now when you are swiping for Egyptian pounds, you're dividing by three to get to the rand. It's 30 cents or so; 33 cents to an Egyptian pound.
So obviously, if you are planning to go to Egypt, now is the time, because I don't know - if Egypt stabilises, if the pound gets much stronger against the rand it will become more expensive to travel there. At the moment, you can do it.
This was my first ever five-star experience. It was a honeymoon so we did a few nights of genuine five stars in El Gouna. It was absolutely sensational.
But you can just do normal hotels obviously, and it works out super cheap. There are great hotels you can stay in there for R1,000 a night, which is less than you'll spend in South Africa.
The key take-out of all of this would be: if you can travel to Egypt, then travel to Egypt. Because it is a very, very cool experience. Maybe not for everyone. I tend to love the desert and the Middle East; I want to go back.
And interestingly enough, of all the places I've ever been, this is the one I want to go back to the most. That really says a lot. It was an incredible experience.
Mohammed Nalla: I love that. My one frustration with places like Dubai, for example, is that it's very shiny, it's very new, but it kind of lacks a bit of a soul. And you only really feel that soul when you head out into the desert. Now, Egypt, I guess, gives you that soul. The Middle Eastern flavour, less of the modernity.
Ghost, that's unfortunately where we got to leave it. This has been a very insightful discussion. I've certainly enjoyed it. I hope our listeners have enjoyed it as well.
Let us know what you thought of the show. Hit us up on social media.
It’s @MagicMarketsPod, @FinanceGhost and @MohammedNalla, all on X. Or go find us on LinkedIn. Pop us a note on there.
We hope you’ve enjoyed this. And until next week, same time, same place. Thanks, and cheers.
The Finance Ghost: Ciao.
