The National Bank of Egypt (NBE) has agreed to finance 85% of contracting companies’ delayed dues. The move will see contractors relinquish their contracting operations to the bank in return for obtaining the financing at decreasing 8% interest.

Egypt’s real estate sector represents about 20% of the country’s GDP, and about 15% of the market capitalisation on the Egyptian Exchange (EGX).

Mohamed Abdel Raouf, a member of Egyptian Federation for Construction and Building Contractors (EFCBC), said the NBE initiative benefits all contracting companies, particularly small- and medium-sized enterprises (SMEs).

Abdel Raouf said the initiative has not set conditions on business volume, such as the Central Banks of Egypt’s (CBE) EGP 100bn initiative to support the industrial and contracting sectors.

The initiative, which also has a decreasing 8% interest rate, stipulated that companies wishing to benefit must not have less than the size of their business, or annual revenues of EGP 50m.

He noted that the CBE condition reduces the opportunities for SMEs to benefit from the initiative, especially as they generally do not exceed EGP 20m-EGP 30m annually.

Abdel Raouf noted that SMEs make up 85% of the contracting companies operating in the local market. As a result, a system was needed to solve the liquidity problems these companies face.

He added that the NBE initiative will solve cash flow problems and finance the payment of late dues.

Abdel Raouf said that cash flow will be provided by the NBE to enable contractors to purchase equipment and raw materials and to quickly complete construction works before any potential price hikes occur. Contractors will, on the back of this, make temporary gains, although they will bear the interest.

Under the NBE initiative, the contractor will undertake a “sale of loan maturities”, where it will officially relinquish their dues in favour of the bank. This will occur after ensuring the process has not previously been waived for any other party, he explained.

“In case the official waiver cannot be done, it is sufficient to obtain the approval of the assigning entity on transferring dues in favour of the NBE or obtaining clients’ pledge of receipt of dues in the name of the NBE, and that the assigned agency approves it according to legal formula approved by the bank,” Abdel Raouf disclosed. “The NBE initiative does not require that the contractor be a customer of the bank, ensuring it is available to all contractors, provided that the dues to be relinquished are approved by assigned agencies and paid for by social insurance.”

Shams El Din Youssef, Chairperson at Alshams for Contracting and EFCBC member, said the NBE initiative stimulates employment and keeps contracting companies afloat.

He added that bank and construction company cooperation stipulates that companies hand over their dues in favour of the bank. In return, they obtain a loan in accordance with the current initiative.

Moreover, the contracting company has to pay the bank in the form of bills and records, rather than cash, to ensure non-manipulation and to ensure that the bank gets its funds before the end of the contract.

He added that the initiative targets all public- and private-sector contracting companies, adding, “This initiative is better than regular banking borrowing, which exceeds 12%.”

Accordingly, the NBE initiative contributes to absorbing a large part of the country’s informal employment and reducing unemployment rates. This has the added bonus of decreasing the unemployment rate which has been negatively affected in recent months on the back of the coronavirus (COVID-19) pandemic. The contracting sector also holds a strong business volume, as it currently works on many national and private projects, Youssef noted.