Could Egypt Be the Next India?

03/18/2011 11:18 am EST

Focus: GLOBAL

Jack Ablin

CIO & Executive Vice President, BMO Private Bank

Recent turmoil in the Arab world has left the region too unstable to invest in now, of course, but the combination of a young and eager populace with high education levels could boost these countries' economies quickly once they stabilize, says Jack Ablin, chief investment officer of Harris Private Bank, in this exclusive interview with MoneyShow.com

The last few months have been full of amazing news, first from Tunisia and then from Egypt—popular uprisings unseating longtime, entrenched autocrats.

We don’t know how that’s going to work out, but you’ve been looking at some of the deeper issues there from an economic perspective and you think there are some signs of hope there for the future.

I’m actually hopeful. You know, these uprisings are being fueled by a young, educated, yet unemployed population. You’ve got unemployment among 15- to 25-year-olds in Egypt at upwards of 30%—and yet nearly a third of them are college-educated.

You can see that when you watch the television coverage. These people are speaking superb English—really smart people— saying, “Look, we just really want opportunities.”

It’s been pretty inspiring, actually.

It’s really a situation where the economy itself, which is largely agrarian—I mean, they’re tapping oil and they’re picking cotton—is falling way behind the capabilities of the people. So, if we can look into the future and even just get Egypt and Tunisia and other countries like them into the global supply chain, we could see perhaps another India emerging, for example.

There probably wouldn’t be another China. They don’t have much manufacturing capability or tradition doing that, but certainly India has another big, educated population blocked by a lot of bureaucratic, socialistic policies, corruption, things like that. That was cleared away, and they have really become a major force.

That’s it. And, you know, the starting point is so low. If you look at GDP per capita in Egypt, it's less than $6,500, so there’s a long way to go.

The nice thing about shifting into more of a service orientation is the start-up costs—the way to get going—is rather straightforward. I mean, we could potentially set up a software outsourcing facility out there and get going in months.

Really, it can be done sooner rather than later.

Well, one of the people leading the whole thing [in Egypt] was working for Google. Kinda symbolic.

You’re right.

So, are you positive on some of these markets? Egypt has been one of the best -performing markets. It’s a so-called frontier market, or the Next 11, or whatever marketing term people use.

Are you bullish on those countries? Should people invest some in those frontier markets?

We’re certainly taking a hard look at it. I think that one of the things that the events in Tunisia and in Egypt remind us—particularly those who are investing in the emerging countries—is that there are huge political risks. This isn’t just a mini-US that’s only a few years behind, there is unrest and uncertainty there.

As a result of that, these markets do deserve to trade at a discount. Whether they deserve the substantial discount they’re currently at remains to be seen, but we are taking a hard look at it.

We’re not investing there yet, but I’m sure that it's something we’re probably going to be adding to the portfolio soon.

[There are two ETFs that offer exposure to frontier markets: Guggenheim Frontier Markets (FRN) and PowerShares MENA Frontier Countries (PMNA). The Guggenheim ETF has investments in Egypt and Lebanon, but also includes Latin America (Chile, Argentina, and Colombia) and Eastern Europe (Kazakhstan, Poland, and the Czech Republic). The PowerShares fund focuses exclusively on the Middle East and North Africa, and includes significant exposure to Kuwait, Qatar, the United Arab Emirates, Egypt, Morocco, Jordan, Oman, and Lebanon—Editor.]

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