Cairo – Decypha: Egypt has been caught in an economic turmoil since the 25 January uprising in 2011. The political uncertainty has undeniably landed its hands upon the investment climate in the North African country.
However, the country has taken several measures over the past year in order to freshen its investments and attract more foreign investors. The country is aware of the importance of investments to address its economic challenges and helping its economic reform program succeed.
In a step to restore the investors’ confidence, the Central Bank of Egypt announced in November 2016 the floatation of its currency against all foreign currencies upon the request of the International Monetary Fund (IMF). Egypt had to comply with the request of the IMF in order to secure a $12 billion loan that is a part of its economic reform program. Along with several other measures that include gradual removal of subsidies, and other measures that are deemed hard and challenging..Egypt aims to increase its Foreign Direct Investments (FDI) over the long term, according to export.gov.
Foreign Direct Investments
Prior to the Egyptian revolution, Egypt was an attractive market in the Middle East for FDI, according to Santander Trade. Following years of low performance and economic instability , Egypt managed to raise its rank in the 2017 Doing Business report that was published by the World Bank. It ranked 122 out of 190 countries in terms of providing a suitable environment for investments.
Also, Egypt is ranked among the top five destinations for FDI in Africa, according to the UNCTAD 2016 World Investment Bank. Egypt attracts investments from the United States, the European Union and multiple other Arab countries. Additionally, Egypt signed bilateral agreements with more 100 countries which is deemed as a step to ease up investment environment for foreign investors.
FDI increased in Egypt by about $3348.80 million in the first quarter of 2017, according to trading economics. The average of FDI in Egypt between 2002 and 2007 is $2401.42 million.
Citing minister of Investment and International cooperation Sahar Nasr, the net FDI during the fiscal year 2015-2016 reached about $6.8 billion, Egypt Independent reported. Minister of Finance Amr al-Garhy also said the FDI is expected to reach $13-15 billion in the fiscal year 2017-18.
Egypt’s parliament passed in May this year a new investment law that is expected to lure more FDI to the country, Al-Monitor reported. The law was ratified in June by Egypt’s president Abdel Fattah al-Sisi following months of amendments.
The vast majority of investors were impatiently waiting for the new law to get to know more about the investment environment in Egypt, Reham al-Desouki, an economist at Arqaam Capital, told Reuters.
One of the key measures included in the law to ease investment is the golden license, which gives the prime minister a carte blanche to include all required business establishments and operating licenses by issuing one single approval, according to Oxford Business Group. This new law should alleviate the burden on the investors as they were dealing with state agencies.
Challenges facing Investors in Egypt
Even though the investment climate looks promising currently, it doesn’t negate the fact that investors still face challenges in Egypt.
The new investment law doesn’t necessarily eradicate the persistent bureaucracy in Egypt, according to a research published by Capital Economics, Daily News Egypt reported. There are also still hardships regarding repatriating profits and establishing private free zones, the new law however is aiming to provide solutions for these hardships. While the new law attempted to alleviate these problems, it didn’t contain them thoroughly. The research also believes that the new law fosters corruption.
Moreover, Capital economics thinks that Egypt has a poor infrastructure which makes it falls behind in adopting new technologies. This hinders productivity growth and the increase in living standards.
Other challenges as well still persist such as political uncertainty which hinders the private sector development, low access to finance, lack of adequate market-based incentives and underdeveloped domestic value chains, according to a report by the European Bank.
The US department of state wrote on its website that there are often some delays in obtaining the required licenses, approvals and permissions.
Among the challenges that often face investors are the bias against the manufactured exports, low quality of Egyptian products, shortcomings in scientific research and lack of skilled labor, Ahram Weekly stated.
Despite its efforts, managing to contain the large fiscal and account deficits the highly inflating environment will remain a challenge for investors in 2017.
In some sectors, and despite privatization, the inefficient public sector remains present everywhere, according to Santandaer Trade. Besides the rapid growth of population that makes it rather challenging for Egyptian to raise their living standards
Key sectors that attract investments in Egypt
There are several sectors that attract investments in Egypt. However, one sector that has seen robust growth in the FDI is the oil and energy sector. After several discoveries of gas fields in Egypt, including Zohr field, investors have been eyeing closely this sector.
Egypt witnessed a net FDI inflow of $6.6 billion in the first three quarters of the fiscal year 2016-17, Daily News Egypt reported.
The financial sector in particular attracts more investments. It has seen rapid growth since the stability has returned to Egypt, according to Daily News Egypt.
Several other sectors have also become attractive to investors such as telecommunications, pharmaceutical industry, automotive and raw materials.
Conversely, Santander Trade said that the banking sector in Egypt is exclusively dominated by the state and the telecommunications sector has one lie operator—Telecom Egypt. Hence, they witness lower investment opportunities.
Overall, the growth of the communications sector in Egypt is considered the highest in the world. However, several other sectors need more investments such as textile and clothing sectors, weaving in particular. Also, capital goods, packaging and packing are sectors that need more investments Santander said.
Why Invest in Egypt?
The North African country’s geographical location is rather distinctive. Also, it has cheap labour force due to the nonstop growing population, according to Santander Trade.
Additionally, Egypt has launched over the past few years a public works policy, including improvement in the rail network. The country has been also relentlessly attempting to attract more foreign investments.
The General authority for investments and free zones (GAFI), an affiliate of the ministry of industry, established in 2004 an economic program that aims at attracting investors by reducing customs duties by up to 35% and simplifying tariffs. Privatization programs are also available for foreign investors. With exception of a few cases, the foreign and local investors are usually given the same privileges when it comes to investing in Egypt, according to the US department of state.
The risk of investing in Egypt currently is not as high as in 2013, according to Daily News Egypt’s interview with the chairperson of Egyptian-American Enterprise Fund (EAEF).
The country’s economy grew at 4.3% in 2016 and its economy depends principally on primary industries, including oil. A total of 70% of the FDI in Egypt comes from oil, according to investment frontier.
Egypt has long attempted to reform its economy, the recent loan that it successfully secured from the IMF is set to keep the government on the path towards reform. Several investors believe that the economic reform program of Egypt is a good step for the businesses in Egypt.
By Toqa Ezzeldin
