The future for FDI in post-revolutionary Egypt?

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By John Adams

During the upheavals of the revolution Egypt witnessed one of the largest flights of capital ever seen in such a short period of time. Billions of dollars left the country. Many foreign companies took fright and will now be in the process of re-evaluating their “Egypt strategy”.

This can go one of two ways — either they pull out completely and look for another country to invest in or they are given full confidence in the country’s commitment to encouraging and supporting FDI (Foreign Direct Investment). Egypt’s investment promotion agency (GAFI) has done a fantastic job in attracting and supporting FDI and long may this continue.

But despite this success it is still the case that Egypt is punching below its weight in the FDI stakes. For example, even before the global downturn started, Egypt was receiving only half of one percent of Global FDI flows but contains nearly one and a half percent of the world’s population. We should be doing better than this. And it is very important for many reasons: it can be a real stimulus to local companies, it can strongly foster entrepreneurship and the creation of new firms, it can be a tremendous demonstrator of good management and good practice quality production, it can boost exports and domestic consumption and it can help the balance of payments. We need all of these things and we need them sooner rather than later.

As I said, GAFI has been very successful but we still have a long way to go. In the 2010 Doing Business Report from the World Bank, Egypt ranked only 106th out of 183 countries of how easy it is to start or do business here. In the Corruption Perceptions Index (2010) we ranked 98th out of 178 countries — that means we are in the worst half of the world’s countries for corruption — and the same as or very close to Mexico, Dominican Republic, Zambia, Swaziland and Guatemala.

This is not a basis for attracting our ‘fair’ share of FDI in future years. A recent UNDP survey asked many multinational firms what their plans are for FDI in 2012 and where they will invest — they plan to increase their FDI and the top twenty list of their ‘target’ countries does not include Egypt. This is worrying and we need to reverse it. How can this be achieved?

First we need to enable much faster administration and speeding up of licensing and registration procedures (we are good at this, but not good enough), achieve a much better position in the corruption rankings and introduce drastic penalties for high level corruption, remove any maximum allowable equity percentage for foreigners, abolish all monopolies, open more sectors to foreigners, liberalise land acquisition and begin immediately a global campaign of marketing Egypt a la Indonesia, Malaysia, Croatia and India — all of which have been very successful in the FDI stakes.

We need to get maximum added value from our natural resources (not just exporting of non-processed stuff), some technology transfer, substantial and meaningful training programmes for local employees and a significant and meaningful proportion of local content into the foreign companies’ products made in Egypt.

This will really enhance our supply chain. If these things are done and done quickly we can reverse what has happened to our share of the FDI cake and increase it substantially. We are right next to the largest market in terms of purchasing power — the European Union — and Egypt’s political street cred is at a high now; we must capitalise on that before the ‘honeymoon’ with the rest of the world is over.

Professor John Adams is the Head of the Department of Economics at the British University in Egypt.


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