Interview with Dr Mohamed Farid Saleh | The Egyptian Exchange

Wednesday, 26 August 2020


FEAS holds an interview with the Executive Chairman at The Egyptian Exchange & Chairman of The Arab Federation of Exchanges – Dr. Mohamed Farid Saleh. Ms. Armenuhy Hovakimyan, FEAS Deputy Secretary General spoke with Dr. Farid about EGX’s main key strategic initiatives, financial literacy programs, how COVID-19 affects the market and more.

Armenuhy: Hi, this is FEAS Talks and I am Armenuhy Hovakimyan, Deputy Secretary General of the Federation of Euro-Asian Stock Exchanges. FEAS Talks series is continuing its journey and today I am virtually visiting Egypt, Cairo. Where our FEAS member, one of the most active FEAS member, the Board member: the Egyptian Exchange is located. My guest today is the Executive Chairman of the exchange, Dr Mohamed Farid Saleh who is also the Chairman of the Arab Federation of Exchanges. Dr Farid, thank you very much for joining me.

Dr. Farid: Thank you Armenuhy, It’s always a pleasure to participate in whatever means we can do to increase the awareness about FEAS and our market.

Armenuhy: Dr Farid, let’s start with the current situation that the whole world is in the pandemic. How has the Egyptian market been affected by the coronavirus pandemic? And what are the measures taken by EGX and the regulator to accommodate this current situation?

Dr. Farid: So basically, what we witnessed at EGX was more or less what other markets as well have been witnessing since the pandemic started to grow in terms of numbers and impact. And we in the initial days of having cases in the Egyptian market, in the Egyptian economy, we started to witness some excessive volatility as other markets have been witnessing during that period. And then there has been a quiet, very, I would say, coordinated actions and measures taken by not only the exchange and the regulator in Egypt, but also the banking sector, the Central Bank and the Government, as well, on various fronts.

And since that date and the announcement of the concerted plan that was put to action that every single player is going to do in the market, we’ve seen a U-turn, let’s say, in the volatility level that we have been witnessing before that. So basically, let’s say, that pre 18th of March and post 18th of March, it’s a different market. But before getting into the details and how we manage to pass, I would say, this turbulent period, it might be worth it to mention that one of the main pillars that we at EGX had to insure, was the safety of the personnel working in the entity. We managed to create a network, whereby everyone can be working remotely and everything being conducted effectively and efficiently from home, limiting the number that is exposed. I would say to the public as much as possible implementing the curfew by the book, and that was to maintain the personnel and the lives of people that are working within the exchange and as well, brokerage companies.
We supported them in developing plenty of technological requirements and advancements whereby we enabled the brokerage companies’ employees to be working from home as well and to have these connectivities up and ready to deal with the exchange in that regard.

So this was our first and foremost plan to do to ensure that things are being run smoothly when it comes to the exchange while maintaining, I would say, the health of the employees and the people working in the sector in general.

The second point, when it comes to how we dealt as a country and as an exchange, of course, that has been the health measures being taken by the government itself, and this maybe is not the place to be discussing it, but this had a positive impact on how the people’s perception about the entire pandemic and its impact.

The second aspect, that we had a concerted and coordinated action between the exchange and the other players that I mentioned previously, among which, for example, was that we facilitated the process of companies to buy Treasury stocks, for example. That was before the recent amendments that we required, the regulator that approved it, and amendments within the executive regulations of the exchange. Whereby, we amended it very quickly to enable companies to buy their stocks. Given that they are the ones who know their performance and to what extent they are impacted by the covid-19. And this gave a clear message to investors that the companies, the issuing companies themselves, are quite confident about the performance.
We’ve seen a significant activation of the Treasury stocks implementation. We enable brokerage companies as well to be receiving e-mails rather than the traditional or the types when it comes to trading and receiving orders to facilitate the trading forces significantly.

The banking sector announced in a coordinated action that we want to increase their investments in the market. This had a positive impact. Then there was a big initiative announced by the President that there would be a stability fund to ensure the continuous trading function in the market.

So this was our first and foremost plan to do to ensure that things are being run smoothly when it comes to the exchange while maintaining, I would say, the health of the employees and the people working in the sector in general.

That was announced probably on the 20th or the 21st of March. This, as well, had a very positive impact on stabilizing the markets and reducing the volatility levels that we had.
Another measure that has been implemented by the Government here, based on the initiative announced by the President to be implemented through the Central Bank of Egypt.

Then, we have the initiative by the Government whereby we slashed stamp duty taxes on trading in the Egyptian market. And all of these combined measures had a very positive impact and I would say reduced the market volatility significantly.

And since that day, probably the 19th of March, we haven’t witnessed excessive volatility as it was the case before that date in that regard.

Armenuhy: Great! So, all the participants, everyone was in this process of managing the pandemic in your market, which is good, and which was it was visible from the communication, from the Egyptian exchange communication through all the channels. So it was visible from our side as well.
A great job, I think, you have done during the pandemic and the management of pandemic.
Now coming to the next step, what are the key strategic initiatives that EGX is working on at this moment?

Dr. Farid: We have three strategic initiatives. One, we started implementing or two of them we started in the implementation phases.
The first two are complete revamp for the SME’s markets that we have in the Egyptian Exchange. So, we started already implementing. And this has been conducted with the help of the European Bank for Reconstruction and Development, whereby we develop a certain plan trying to improve and increase the visibility and increase the quality of companies listed on this SME’s board in the Egyptian market.

So basically, this is one key strategic initiative because, we believe, a part of, I would say, accessibility of financial services is accessibility to capital markets and the stock exchange as the heart of capital markets. Improving the quality and using investors by ensuring that the quality of companies that are getting to be listed, even if they are small in size. However, we’re trying to ensure that there would be sufficient quality and adequate quality to ensure that institutional investors would have some interest in these types of companies. So that’s one important strategic initiative.

Another strategic initiative is to establish the spot market, to participate in the establishment of a stock market for commodities because this is a key pillar that would build upon it the derivatives on commodities. Once we have the stock market up and running and hopefully actively traded. In this regard, we are not doing it ourselves only. We need to coordinate with market participants, investment banks, even the relevant ministries and public bodies are participating with us in the inauguration of this. For the Exchange to be able to have this regulated and orderly market for specific types of commodities and mercantile. So these are the two main initiatives that we’re working on.

And probably the third initiative would be the derivatives market and the CCP. We at the EGX were more or less ready when it comes to the entire plan. What is pending for the regulatory framework to be up there and to decide on the potential ownership structure of all of these, I would say, derivatives markets and associated CCPs.
So basically, these are the three main or four main, initiatives that we’re trying to cover during the coming period.

Armenuhy: Good! You are right about my third question, which was about derivatives and CCP. The topic is the trending one now and also connected with this pandemic. CCPs resilience, organization of it. So thanks for this.
I will proceed to another question about financial literacy. Before the pandemic, the EGX was very active in financial literacy front: campaigns, advertising campaign, activities with universities, a lot of stuff. And we are very happy about this, for our member.
How did you continue this kind of work? What do you plan to do and how the communication has been changed or it hasn’t been changed?

Dr. Farid: Well, definitely the pandemic in its initial phases and stages had its impact on the activity associated with financial literacy, because definitely when you have excessive volatility, it’s quite difficult to explain why it is natural to see excessive volatility when you have this type of uncertainty. But with the stabilization of the markets, basically the pandemic, even though it had halted probably how we have been operating before it, but it enabled us to work from different angles and initiate things. And here you have FEAS talks, maybe you have taken it from EGX talks (smiling).

Armenuhy: A lot of ‘talks’ (smiling).

Dr. Farid: So basically, we initiated something whereby we increase the communication between the listed companies across investors and created a special series and platform. Either CEO’s of companies or IR (investor relations) of companies do communicate directly with and through connectivity, electronic connectivity. Go get directly to brokerage houses, investment banks, investment management firms and so on to increase. Because ultimately people need to be aware of that, ultimately, we’re working through a value chain.

You have the supply side of companies and their disclosures on the quality of the management and so on. And then you have the intermediation process at the exchanges and the associated trading platforms and trading mechanisms that are an enabler for stocks to be traded and bonds to be traded and so on and so forth. And then you have the demand side whereby these are the investors and you need to link the entire value chain to be able to have an impact at the point.

Another initiative that we embarked on probably that would be related to another question. But I embarked on, it was creating a competition amongst youngsters on our social network pages to induce young investors and potential investors who get to read more about capital markets, about the benefits of diversification, about the benefits of having income in the long term, saving mechanisms. And that it’s not a one size fits all. That is quite an important aspect.
And it doesn’t have to be that you are the expert of investing to be able to invest in capital markets. Capital markets are available for small investors, large investors, qualified or very much knowledgeable investors. And you can be a passive investor, a long term passive investor as well if you don’t have sufficient time and knowledge to be able to invest. And these are the principles that we try to either educate through our financial competitions or financial literacy programs.

We also provided training for potential investors and new investors and new incumbents in that regard.
Probably we’re going to resume our traditional media campaign and so forth in the coming few months after we have seen that the volatility levels have been going down a little bit. And this is an enabler to attract a new set of investors to come to the market.
We will be reactivating that point going forward but ultimately, financial literacy is one of the key components and challenges, not only in the Egyptian market.
That would be on a global scale. Probably after the global financial crisis in 2008, 2009 and the eurozone crisis and all other types of crisis we got to see, the level of financial literacy and investment literacy (it’s not only financial literacy, it’s financial inclusion, investment, inclusion, availing information and knowledge) has been hit in general in all markets.

And that’s why it is of paramount importance to get to see exchanges and other market participants because not only a single entity can affect the desired change that we’re talking about, but all participants in the capital markets field and the financial sector should be participating in that regard.
That’s why we took a hard turn when it comes to improving financial literacy and improving investment knowledge amongst the youngsters to increase the investor base for investors.

Probably after the global financial crisis in 2008, 2009 and the eurozone crisis and all other types of crisis we got to see, the level of financial literacy and investment literacy (it’s not only financial literacy, it’s financial inclusion, investment, inclusion, availing information and knowledge) has been hit in general in all markets.

Armenuhy: Thank you for this comprehensive answer. Yes, financial literacy is the top topic in the capital markets of all countries. There is no exception here. And FEAS is also in this topic thanks to you and we are working together in this regard. Also, I would like to mention for our people who are watching this interview about the competition. The name of this competition is “Mohsen Adel Competition for Financial Culture”, which has been started and launched amid pandemic through the social media channel.
Dr. Farid when we will see the results of this competition? Will this be available for the public?

Dr. Farid: It was announced and the people winning it already have been informed. Yeah, and the specific video was with them. And we’re going to repeat it going forward with a new set of questions for people to participate. And we get to choose randomly amongst the people who answered correctly. So everything was done transparently to ensure participation. The more people participating in those venues, the more they get to know what is happening. And as well, bearing in mind that it’s not sufficient to just present questions and to post questions, but we developed a series of infographics on our website and we developed a website to be more accessible to investors and more people to get to know what is happening in the market in terms of data, in terms of peer issues, how many companies distributed cash dividends during a good year.
So all of these aspects we get to post on our website. So it’s not only a matter of just posting questions, but it is the entire ecosystem around it, the entire information ecosystem, let’s put it that way, to enable people to participate and to acquire the required knowledge.

One of the initiatives we developed, a small brochure or book that we went to the book smart, that was going in the books forum in Egypt. Whereby we had both presenting the book and how it is quite simple to get to learn on a gradual basis how to invest and how to incrementally save in the capital market. So this is part of our plan.

Armenuhy: EGX is fully in boosting financial literacy. Great!. Good luck with this.
Coming to the next point – to the technology. Where is your country standing in terms of adopting new technologies and new trends?

Dr. Farid: Well, when it comes to technology, we are adopting quite advanced technologies in general, and that was quite several years ago. If you’re talking about the blockchain and these type of trends, I believe it’s quite early for anyone and specifically during the pandemic to start adopting these types of technologies. These types of trends and technologies are not probably that connected to exchanges. It’s more connected to clearing and settlement. If we’re talking about the blockchain and having a distributed ledger for the settlement of the transactions and the ownership of the particular assets.
So, in terms of technology, we’re using quite advanced traditional technology, the new trends we are tinkering. It doesn’t have to be from a production perspective, but we have one of our subsidiaries, more or less is either participate with other entrepreneurs and young companies that are thinking about electronic KYC, that are thinking about other ideas that would further enable investors to participate easily in the markets.

Or another subsidiary that is already an IT technology development platform and one of the platforms that they have developed was an electronic voting mechanism and system for board meetings and General Assembly meetings because one of the challenges and probably that is one of the things that we have adopted to ensure the continuity of business despite not being capable of people meeting during the pandemic itself.
So it was of paramount importance to develop a mechanism that would enable investors to participate in General Assembly meetings and that that is called E-Maglis (Maglis means board in Arabic).
So it is E-Maglis program through our subsidiary called EGID, which is the Egyptian information Dissemination Company. So here we are not only adopting new technology but as well, we are trying to promote and invent further services and technologies to enable companies to operate in the normal business.

Armenuhy: Technological path is also very active on your site.
Coming to the emotional part. You mentioned in the beginning that EGS’s taken a lot of measures for the safety of its employees during this pandemic times. But how are you encouraging your employees to stay positive, not to get into this negativity things and to move forward with the positive way? How are you doing this?

Dr. Farid: Well, the starting point is to ensure them that their health is one of the key aspects. So this in itself is ensuring them that the entity it’s not only about the workplace, it’s about the workplace, about your health, about your life that we care about and we take it seriously.

The second aspect, we ensure them through various board decisions that we will be backing you in case of anything bad happens, “God forbids” when it comes to the coronavirus or being hospitalized or anything. And the entire entity would be backing you to ensure that you, your family as well, and even your parents are not badly inflicted by such a pandemic, or at least we are there financially and emotionally to support these cases.

Probably those two important pillars are the key aspects for them to be, I wouldn’t say motivated, but at least call them when it comes to dealing with the pandemic and not having anxiety associated on how can we deal as families, as members of the exchange, how can we deal if several people in a certain family got to receive this pandemic, this virus, how they’re going to deal with it.
We ensured them that we are backing you. And you need not worry about this aspect and you need not have anxiety towards this issue, have anxiety about any other issue, but not about this one.

Armenuhy: So, yes, empathy and support from your side. Great to have this from the company. I know this is an important thing for employees.
And the very last question, on your personal opinion, Dr Farid, what will the life look like after the pandemic and what new challenges will be there in our new life?

Dr. Farid: Probably that’s the last and the toughest question, I have to say.
Well, life will change. I mean, life changed. Let’s put it that way. We need to accept that the modus operandi pre-pandemic would be very different than post-pandemic when it comes to everything: travel, meetings, technologies adopted, everything would be quite different. But it’s not only from that perspective.
The pandemic showed us that investments in areas that have always been and been deemed sluggish in terms of the returns and the number of years. It takes a long time like it and the health, education and so forth. But this showed us that it is of paramount importance to increase the level of investments in general in these areas to ensure that we have the sufficient arsenal to deal with such pandemic and anything that can come up in the future, because probably, yes, of course, every 100 years or 100 plus years, you get to see a pandemic of that magnitude like the previous one was the Spanish flu, if I’m not mistaken, in the 1918 something and within those years.

So this in itself is changing how businesses are being done. Travel would be very different. Of course, we still have tourism, but the travel needs are going to be quite different and the travel frequency is going to be very different.

So here we’re talking about 100 years to see something of that magnitude. But we’ve seen, I would say, some cases whereby, yes, it has been controlled quite early, but it could have gone out of hand in that regard. So investments in the area, in the fields of research associated with healthcare, medicine and so on, we’re going to see that this is going to be highly impacted positively in that area.
Then there will be some aspects associated with the usual need to be moving from B2B to B2C, given that the middlemen are being cut significantly because of the pandemic and the curfews that took place during that period.
One last point, that people are starting to realize that they cannot take anything for granted. So basically that is an important aspect and that we need to be appreciative if we are in good health, can breathe properly without being afraid of breathing.
So this in itself is changing how businesses are being done. Travel would be very different. Of course, we still have tourism, but the travel needs are going to be quite different and the travel frequency is going to be very different.
The rise of technology would be different – what used to take 10 years for adoption will probably take weeks, months and very few years compared to the ten to fifteen years plans of adopting new technologies and relying on technology extensively in that regard.
So how this is going to unfold is still yet to be known. But there would be a significant change with new sectors rising and other sectors declining. But the most important thing would be to hopefully increase the humanity and thankfulness for what we have.

Armenuhy: Thank you, Dr Farid. Thank you very much.

Dr. Farid: – Thank you!