CAIRO: Despite a 5-percent decrease of global FDI inflows in 2010, Egypt retained its position as one of the leading FDI recipients in Africa, second to only Angola, according to the recently launched World Investment Report.
For the second consecutive year The Egyptian Institute of Diplomatic Studies in conjunction with the United Nations Conference on Trade and Development launched the report in Cairo. Presented by Guoyoung Liang, UN Economic Affairs Officer, the report examined recent global and regional trends in Foreign Direct Investment (FDI) flows and policies along with insights into the present status of the Egyptian economy.
The World Investment Report indicated that FDI flows worldwide increased slightly to $1.24 trillion in 2010, but was still 15 percent below pre-financial crisis levels. This increase was heavily manifested in developing nations, where for the first time transition economies absorbed more than half of global FDI flows (52 percent or $642 billion).
Even though in 2010 FDI inflows had decreased by 5 percent from $7 billion to $6.4 billion, according to the report, investment in Egypt alone contributed to about 12 percent of inflow of foreign capital into the continent. Liang reacted to this figure by challenging Egyptian policy makers saying, "This is a significant share, but it could be higher as it was in 2006 at around 22 percent.”
Liang was adamant in commending the Egyptian public and private sectors in facilitating and acceding to various investment treaties saying, “According to my data, Egypt has facilitated a very large number of deals behind only China in terms of number of investment treaties."
He went on to say, "What is crucial for the new Egyptian government is to provide a clear and predictable investment regime. If they make clear the outlines of their investment policies as well as facilitate an accessible market, these treaties will come to fruition.”
Each year the World Investment Report highlights a specific investment strategy and topic in relation to FDI. The 2011 feature was “Non-Equity Model of International Production” or NEMs, which was deemed as a middle ground between trade and FDI. NEMs consist of transnational corporations outsourcing activities (contract manufacturing and framing, franchising, licensing, management contracts, etc.) while coordinating the activities of host-country firms, without owning a stake in those firms.
The report highlighted the recent success of cross-border NEMs, which generated over $2 trillion of sales this past year. This revenue was seen largely in the garment, automotive components, electronics and footwear industries.
Liang highlighted the advantages of NEMs. “This arrangement offers host economies considerable potential for long-term industrial capacity-building through a number of key development impact channels such as employment, value added export generation and technology acquisition,” he said.
Liang then went on to prescribe the adoption of NEMs in the Egyptian economy, when asked in what arena the module can be employed.
"I think Egypt is an attractive investment location that has a great potential for contract manufacturing,” he said. “Egypt possesses a large pool of skilled labor at an attractive cost in the region. It would be advantageous for the Egyptian government to construct policies that would enable the absorption of low cost activities of foreign companies.”
The report went on to highlight the risk of investment protectionism that has increased as investment-related restrictions and administrative procedures have accumulated over the past few years. Furthermore, it was concluded that a third of global policy measures in relation to investment, were deemed “restrictive to FDI” in 2010.
Using this as a speaking point Liang moved on to issue considerable focus on the impending policies by the interim Egyptian government, relating to potential investment.
“The Egyptian government needs to support efforts to build domestic productive capacity to ensure the availability of attractive business partners that can qualify as actors in the global value chains.”
When asked of the sweeping changes and possible stagnation of the Egyptian economy, Liang reiterated his confidence in the Egyptian marketplace.
“The macroeconomic fundamentals of the economy remain. I believe this country, in an economic sense, will achieve stability in the near future,” he said.
Khawla Mattar, Director of United Nations Information Center, concluded the conference by issuing her confidence in Egypt to “integrate more closely into the rapidly evolving global economy by strengthening the potential of the homegrown productive capacity while improving Egypt’s international competitiveness.”