Minister of Investment Ashraf Salman said that Emirati and Saudi businessmen invest the most in Egypt at present and pointed to government seriousness in ending the majority of investment disputes before the economic summit to be held in March in Sharm El-Sheikh.
In an interview with Daily News Egypt, the minister said that the government has an integrated vision for the future of the economy and investment in Egypt which will be laid out for participants in the economic summit. He claimed that this will help emphasise the point that Egypt is on the right path and that its economy is filled with investment opportunities that will achieve great returns for investors.
He explained that the package of legislation the government is currently working on will create an integrated framework for an attractive investment environment compliant with international best practices and experiences regarding company incorporation, licence issuance, and market entry and exit procedures.
Do you believe that economic performance indicators reflect improved market activity?
There have been significant improvements for a number of economy activities, and those working in the real estate and construction sectors are feeling the effects of an increase in automotive equipment operation rates. This increase is also related to the real estate sector which grew only 4.5% during the first quarter of fiscal year (FY) 2014/15 and jumped 28% during the same period this year due to manufacturing industry growth. This can be more specifically attributed to increased demand for industries related to construction like steel, cement, and building materials, and real estate sales will grow even further in the future when projects are completed.
Incorporation rates have also increased along with capital for existing Egyptian, Arab, and foreign companies, which affirms that foreigners still have the desire to invest in the future of Egypt.
The number of companies incorporated rose from 544 in July to 897 in September with the total number of companies incorporated for the first quart of the year reaching 2,160 and 2,823 through this past October with capital worth EGP 4bn. Approximately EGP 3.6bn of this originated from Egyptians, EGP 327m from Arabs, and EGP 69m for foreigners.
But isn’t the volume of these investments still low?
We are talking about indications that the economy is moving in the right direction in the midst of reform measures. The economy has grown at a rate less than that of population growth for the past two years and the figures achieved seem limited, but they are an indication that we are on the right path. An increased number of incorporations and new capital reassures investors’ confidence in the future of the economy. The economy registered a 6.8% growth rate during the first quarter of FY 2014/15 [sic – the economy grew 1.1%: an increase of 6.8% on the same quarter in the previous year, which was 1%].
Last year was the worst for performance in this regard, but there is growth, and unemployment rates are decreasing. There is no economy in the world that can begin moving forward strongly after just three or six months, and now the most important indications of economic improvement will move forward and not retreat.
How does the government view the current state of the Egyptian economy?
We are in a stage of comprehensive reform and indicators are clear. Growth rates are low, unemployment is at 13.4%, inflation is over 10%, and internal debt amounts to EGP 1.7tr. The funding gap for the budget stands at 12.5% and government investment does not exceed EGP 67bn.
What Egypt needs is strong reform to restructure the Egyptian economy, which has been initiated by the current government through announcing a clear plan to restructure subsidies along with other measures taken to reduce the budget deficit and attract investment.
Is legislation still an impediment to investment, and what is the fate of the unified investment law?
The name of the legislation or its being issued as an independent law is now what is important. The Ministry of Investment is concerned with the philosophy behind issuing a new law for investment or amending existing laws for the same purpose, and lawmakers have an opinion on selecting either. The tendency right now is toward making amendments designed to remove impediments to investment. The most important of these impediments is the multiplicity of bodies that investors interact with throughout the incorporation process and consequent measures.
Egypt has approached the World Bank and international funding organisations to supervise implementation of the one-stop shop investment window system and the Irish experience was the closest to the Egyptian case in terms of multiple bodies being involved with licensing processes, although the situation in Egypt is more complicated.
Ireland’s success in increasing foreign direct investment (FDI) from $ 4bn to $17bn after implementing the policy means that it can be successful, and this is what we are looking toward.
Have other bodies waived their authority or resist this policy?
No authorisations will be withdrawn from these entities so as not to influence their resources, but they will receive fees due in full and act as an agent for the investor before all parties. The investor will not interact with any other authority except for the General Authority for Investment and Free Zones (GAFI). There are three levels for licences obtained by investors: the ministry and its subsidiaries, the governorates, and the municipalities. Under the new policy these bodies will be linked electronically and the one-stop shop system will only see success through hard work.
Procedures will be facilitated at each body and then the investor just needs to present the papers for his project to GAFI, which will coordinate and follow up on all measures with other bodies throughout a previously specified period, which will help reduce corruption due to higher rates of direct interaction with the investor. Rules will be set out for regulation and discloser in order to ensure that corruption is completely eliminated. The first step in this process includes issuing amendments and bringing the one-stop show investment window system successfully into force. These measures together will lead to a revolution in investment, requiring full implementation of all project phases which will last 6-18 months. We will begin the process and continue until it is successfully completed in full.
Isn’t FDI still weak?
The main reason behind weak FDI are government debts owed to foreign companies working in the petroleum sector, and a payment for a portion of the debts is expected to occur in the second quarter of this year while companies will be granted payment guarantees. Some companies are indeed ready to supply huge investments into gas and deep water projects, while the Ministry of Petroleum is ready to pay the companies, reflecting on its commitment. The ministry has several alternatives, one of which is the Ministry of Finance’s pledge to provide equipment to pay for these dues. Claims of ministry disapproval of these guarantees are false.
The delay in foreign investments inflow is a natural outcome of a continual lack of dollar resources, which is why the petroleum sector becomes an important way out. It is easier to release this burden on the state’s budget and the balance of payments and make dollar resources available. This will require an improvement in tourism and Egyptians transfers abroad, as well as Suez Canal revenues, which is one of the main resources for dollars. Tourism income reached $12.5m in 2010 compared to $5m last year, a drop that is negatively impacting foreign currency in Egypt..[c1]
What about Arab investors, like Emiratis and Saudis, in light of their support for the Egyptian economy?
Governments support is stronger, and we understand that an investor has many considerations to review before making an investment decision, since activity is usually directed by expectations for the future. What is reassuring is that the Egyptian economy is moving in a direction of growth, while most economies are shrinking, and despite the slowdown of the global economies, the local economy was able to take advantage of a decline in petroleum and grain prices. With the increase in imports, costs will drop, and hence the economy is heading toward a phase of reform and growth amid the slowdown of the global economies. In this way Egypt will be able to grab the world’s attention and attract investors that are looking for new success stories and high income.
Our having achieved current growth rates, despite some doubts, indicate that we are moving in the right direction and the expected [GDP] growth is 3.8% [At the end of FY 2014/15].
Are you optimistic about the future of FDI?
FDI is moving in the right direction, although this does not mean that all issues are solved, as they are actually larger than growth rates. With growth indicators increasing for all sectors, the impact will move to other sectors and we are seeing an improvement in trade, tourism, conferences, and entertainment sectors, which means optimism for the future. Arab investments are attracting many investors, specifically Emirati and Saudi investors prior to the economy summit next March. Before the summit is held, the majority of investment disputes will be solved and there will be no issues with Emirati investors after the Al-Futtaim Group licence issue is settled. Labour rates in at the Mall of Arabia in 6th of October City started to see an increase, and expansion works are underway for Maadi Mall. Recently, the conflict resolution committee issued a decree in favour of Emaar Misr regarding the issues with the Marassi project.
The government is committed to solving conflicts with serious investors who are ready to work and invest in a way that guarantees the rights of the investor and the state. Supplying investments for these projects will impact market activities and quicken growth rates.
But there seem to be some issues that will not be solved soon, like that of Omar Effendi and Egypt Kuwait Holding, for example?
There is no such thing as an insolvable problem when the will to solve it is there, which was what investors have felt through our relations in recent times. Regarding Omar Effendi, an enforceable court ruling was issued which gives the investor the ability to negotiate to settle the dues. The investor did not demand negotiations nor propose a settlement for dues. There is no issue regarding El Ayyat land, owned by Egypt Kuwait Holding, and there will be no problems if the serious desire to invest is there. Various governments offered proposals to the company which included a deal obligating the company to shift from agricultural activities to real estate. The company rejected this, and when we asked for a proposal from them, we did not receive a response.
The company has to begin work on implementing its agricultural project if there is a desire to do so, and we will be able to provide water for the project easily. But there is a cost associated with the project, and the government asked the investor to choose between either an agricultural project or paying to convert it to a housing project, because in that case, the numbers are huge.
There are high expectations for foreign investments resulting from the “Egypt is the Future” summit. Are these numbers achievable?
The main goal of this summit is to market economic reform in Egypt and to clearly state the challenges the country is facing as well as our plan to combat them. We have an energy deficit but there are investment opportunities in one new energy program which hopes to produce 4.3GB, with investments of up to $7bn, in addition to power stations that depend on coal and provide gas in order to increase production efficiency in stations. This means that any investor beginning a project to operate within three years will not face any power issues.
We have a clear vision of the projects that the country requires in different sectors. Through 2020, we are expecting an increase worth 3m tonnes for iron, and 80m tonnes of cement need to be produced although current production is 65m tonnes. There is also a gap with respect to petrochemicals projects, which will all be laid out before summit participants within the state’s plan. Prior to the summit, a body of legislation will be issued regarding amendments to investment laws, laws protecting local producers, and laws pertaining to mining and medium and small projects.
The Egyptian economy has great untapped potential and we will work side by side with the private sector to unleash it.
What about the public-private sector participation?
We have begun to present the projects and assets of the public working sector and which will be of great use to the investor and the country. Wadi Degla Holding Company won the tender to develop land in Ain Sokhna, which was presented in participation with the private sector. Revenues for the country will reach EGP 1.6bn compared to EGP 650m if the [c2] land is sold, while the investor gain revenues of EGP 1.1bn.
Salman added that the government is aware that strong growth rates will only be achieved through private sector participation and a strong role in investing in Egypt.