Despite Egypt reforms, investors seen wary of returning

Sunday 12/03/2017
Hoping for economic recovery. The third line of Cairo’s Metro, which is under construction. (AFP)

Cairo - Egypt is pursuing a raft of reforms to revive an econ­omy weakened by years of turmoil but analysts say successfully wooing for­eign investors will take time.
Since the 2011 uprising, the Arab world’s most populous country has suffered a slump in key tour­ism revenues, slowing economic growth and investment, double-digit inflation and falling foreign currency reserves.
In November, the International Monetary Fund (IMF) approved a $12 billion loan for Egypt after the government committed to re­forms including floating the Egyp­tian pound, which subsequently plunged against the US dollar.
Authorities pledged a new in­vestment law with tax incentives, a “one-stop-shop” to simplify invest­ment procedures and a new bank­ruptcy law.
“Egypt’s economic recovery will come with a lag, until the govern­ment follows through on reform policies with a successful imple­mentation,” said Hany Farahat, a senior economist at the Egyptian investment bank CI Capital.
Authorities have also introduced a value-added tax and cut fuel sub­sidies, moves the IMF said were re­quired to fix government finances and boost investor confidence.
“Everyone is expecting 2017 to be a difficult year,” said Walid Al­lam, the chief financial officer in Egypt for Swiss elevator manufac­turer Schindler, “but we expect that starting in 2018 there will be a bit of a revival. We are talking about a state, not a company that would take a decision and profit from it af­ter a week or two.”
Foreign direct investment in Egypt fell from a peak of $13.2 bil­lion in the fiscal year ending in June 2008 to $6.8 billion in the year end­ing in June 2016.
The tourism sector in particular is reeling from years of upheaval and a series of jihadist attacks, includ­ing the 2015 bombing of a Russian airliner carrying holidaymakers from the popular Red Sea resort of Sharm el-Sheikh.
Even before the tumultuous 2011 uprising that ousted longtime pres­ident Hosni Mubarak, Egypt’s econ­omy was suffering from decades of structural problems and delayed reforms, said Ahmed Abdelnaby, a strategist at Mubasher Financial Services.
Investors will need time to see the government’s commitment to reforms if the business climate is overhauled, he said.
One of the challenges for Egypt is to diversify its sources of foreign currency, said political economist Amr Adly, non-resident scholar at the Carnegie Middle East Centre. This is particularly important as the main sources now — workers’ remittances, crude oil exports, the Suez Canal and tourism — “proved to be very volatile and cannot be depended on”, said Adly.
A key part of the government’s ef­forts should be directed to improve the business climate and reduce bu­reaucracy for small and medium en­terprises and not just foreign inves­tors, he said, adding that this would help boost local industries includ­ing agriculture and manufacturing.
Potential investors are keen to see additional structural reforms before committing to long-term investments, said Esraa Ahmed, an economist with Mubasher. She said more than half of the problems facing investors still need to be re­solved.
“Investors have always suffered obstacles in procedures, corrup­tion and bureaucracy. Reforming these issues will take some time,” she added.
The former chairman of the Gen­eral Authority for Investment, Ziad Bahaa-Eldin, said fixing “genuine barriers” to investment would have a bigger effect than a new invest­ment law.
These include “the state’s un­clear economic and social vision, its competition with the private sector in all fields, the spread of corruption, and clogged, slow courts, as well as security and po­litical conditions,” he wrote in an article for the Ahram Online news website.
Despite the remaining chal­lenges, there are signs that inves­tors are responding positively to the reforms. In January, Egypt sold $4 billion of dollar-denominated bonds on international markets, al­most double its initial target.
“Every time I attend a discus­sion one can sense that officials are aware of everything they should be doing,” said an official at a multina­tional company. (Agence France-Presse)