You Need to Invest in Egypt

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Cairo, Egypt. Sometimes referred to as the Gateway to the Middle East, this hustling and bustling city of close to 20 million people is constantly moving. Considering that all of Egypt has a population of about 75 million, you could say that Cairo plays the biggest part in Egypt's development; after all it's the largest city in all of Africa and in the Middle East. As such, two things are happening: They are building up and they are building out; mostly out though, and the urban sprawl is resulting in a lot more people coming to the area. You can see it driving around the outer parts of the city. Take a drive around Ring Road (if you dare) and you'll see what I am talking about; the desert is filling up fast.

But why invest in Egypt? And more importantly, isn't it tough to do? Great questions indeed Fools, and the answers are: (1) because it is growing at a torrent pace, and (2) no, it's not difficult to invest there. Even with the iShares MSCI Egypt Fund on the horizon, there are many other ways to benefit from international growth trends right here at home. Heck, I bet a lot of you are already invested in Egypt and don't even know it. Allow me to explain ...

It's more than just Coke
Coca-Cola (NYSE: KO  ) has been running strong in the Middle East for some time now. Although the drink of choice in Egypt is hot tea (ironic, I know), nothing beats the Cairo heat like a cold Coke. In 2009, the company did about 15% total unit case volume in its Eurasia and Africa sector alone, and growth in this sector is clocking in at a five-year compound annual growth rate of 8%, higher than any other. And hey, if you're a tea drinker, well, you cannot turn a corner in the city without seeing a sign advertising Unilever's (NYSE: UL  ) Lipton Tea.

Communication is crucial
Telecom is a huge and competitive market to say the least. Cell phones are becoming more and more prevalent everywhere, and Vodafone (NYSE: VOD  ) is taking advantage of the trend. With 24.6 million customers and 5.1% year-over-year revenue growth, Vodafone certainly has a strong position in the Egyptian market, and considering the company's global reach, I look for this to continue. In fact, you can use your Vodafone cell phone to call and have McDonald's (NYSE: MCD  ) , or Yum! Brands' (NYSE: YUM  ) Pizza Hut or KFC delivered right to your front door. Fools, I can assure you this is all quite doable in Cairo, as I have done this exact thing many times before.

The O word
Oil is a volatile commodity for sure, and it is pretty hard to find any news these days sans the Gulf oil spill and BP (NYSE: BP  ) . Further, it is anyone's guess as to what is going to become of the British exploration and production giant. Regardless, over the past 44 years, BP has been responsible for almost half of Egypt's oil production, and it is the single largest foreign investor in the country. Don't like BP? That's understandable. Apache (NYSE: APA  ) is spending a good bit of time and money in the country these days as Egypt represents Apache's largest acreage position with more than 11 million gross acres. In 2009, the region was responsible for 30% of Apache's production revenue and 26% of its total production with 152,600 barrels of oil equivalent per day. With such a robust oil industry, I imagine the exploration and production companies will be walking like Egyptians for some time.

Like desert sand through the hour glass
Of course, none of this means diddly if you aren't finding value in what you are buying. Price matters, and it really matters when there is still some significant growth to be had. Truthfully, I think the real story is the action these companies are seeing in places like Egypt and where they are going to find it next. The world is getting smaller, folks (thank you, Internet). As such, we are witnessing a consolidation of epic proportions, and the companies we grew up with are creating value in new places. It would be wise, nay Foolish, to consider being there one way or another.

Jason Moser does not own shares in any of the companies mentioned, however he did live in Cairo, Egypt, for three years and likes his pizza on a felucca. Coca-Cola is a Motley Fool Inside Value pick. Unilever is a Motley Fool Global Gains recommendation. Coca-Cola and Unilever are Motley Fool Income Investor recommendations. Motley Fool Options has recommended a bull call spread position on Yum! Brands. The Fool owns shares of Coca-Cola. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.

Read/Post Comments (2) | Recommend This Article (9)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 21, 2010, at 9:17 AM, junaidfarooq wrote:

    But have you considered political side of the argument when recommending Egypt. Egypt has been ruled by Hosni Mubarak for the last 29 years and rumours are he is terminally ill and doctors have given him 6 to 9 months. Given that the man is 83 years old odds of recovery are not exactly staked in his favor. Imagine when a long standing dictator passes away there would be a huge power gap that would need to be filled by second tier leaders (he hasn't identified any successor yet!). In emerging markets power struggles are bloody affairs and sometimes they wreck havoc to the social, economic and political fabric of the country. Given a change is imminent going long Egypt directly is not the best possible advice. I would strongly urge the author to look at the political aspects of his recommendation as for emerging markets politicals is too critical an issue to be ignored.

  • Report this Comment On July 22, 2010, at 10:22 AM, TMFJMo wrote:


    You make some excellent points here in regard to Egypt and their political process/status. I remember quite well the demonstrations back in 2003-2005 when they really started trying to get more names on the ballot in the name of democracy. Demonstrations were held all over Cairo, both for and against choice (though it seemed like mostly for). My best guess is that when Mubarak steps down, his son will take his place, but who knows? Regardless, in this article I am trying to get more to the point of the companies that already give us exposure to countries like Egypt. I do not disagree with you that these are more volatile environments for sure and caution should be taken when investing in places like these. But the growth potential is certainly there and stable companies like the ones mentioned can offer the exposure while limiting the amount of risk.

    Thanks for the comments!



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