Egypt’s investment hopes clash with harsh realities

Sunday 21/05/2017
‘Good step.’ Headquarters of the National Bank of Egypt (NBE) in Cairo.

Cairo - Egypt is hoping that a long-awaited investment law will remove hurdles to the flow of foreign capital and simplify investment procedures but economists said it would take more than new legisla­tion to attract investors.
“The law is a good step, which re­flects the government’s keenness on improving the investment climate here but other things are needed for investors to come,” said econo­mist Amr Hassanein. “For investors to come, they need infrastructure, transparency and a sound monetary system.”
It is hoped that Egypt’s invest­ment law, approved by parliament on May 7 after more than two years in the legislative process, will stimu­late economic growth.
The legislation offers investors unprecedented tax and customs exemptions, price breaks on land in some areas and paid-for infrastruc­ture development. Investors placing industrial projects in investment-deprived areas, including southern Egypt, would be repaid half the amount they paid for land used by the projects if they start production within two years after getting the land.
The government would pay for technical training of work­ers in industrial projects and in­vestors would be allowed to hire foreigners for up to 20% of their total workforce.
By Egyptian standards, the in­centives are revolutionary. Invest­ment and International Cooperation Minister Sahar Nasr said the entice­ments were designed to turn Egypt into a foreign investment magnet.
The new law sought to simplify investment procedures, boost trans­parency, accelerate the resolution of investment disputes and boost gov­ernance, she said in a statement.
However, some local economists faulted the measure for giving away too much.
Egypt, which has received tens of billions of dollars in aid from the oil-rich Gulf states over the past three years, is seeking to generate new investment at a time when aid is de­clining.
Egypt has a poverty rate that is on the rise (27.8%), a high unem­ployment rate (12.5%) and high in­flation (32.5%). New investment is indispensable to addressing these problems and boosting economic growth, economists said.
“You cannot make the economy grow, create jobs or reduce poverty without investment,” said Bassant Fahmi, a member of parliament’s Economic Committee. “Invest­ments are a matter of life or death for our country.”
Egypt’s economy grew 3.9% in the 2016-17 fiscal year, which will end in July, up from 3.6% growth the pre­vious fiscal year. The government hopes the economy will grow 5% during the 2017-18 fiscal year and in­vestment represents a central pillar of its growth plan.
In the first half of the current fis­cal year, foreign direct investment stood at $4.3 billion, representing a 39% rise compared to the same pe­riod of the previous financial year.
To reduce poverty and unemploy­ment and hit economic growth tar­gets, Egypt needs to attract foreign investment of up to $15 billion in the 2017-18 fiscal year, Finance Minister Amr al-Garhi said.
However, it is very possible that Egypt will meet these targets, econ­omists said, given its untapped in­vestment potential.
“Look at the economic map and you will get to know those vast opportunities are available here,” Fahmi said. “Egypt is a huge market and has a location that makes it an important link between Africa, the Arab region and Europe.”
Egypt also wants to invite inves­tors’ attention to what it describes as the drivers of its economic devel­opment.
The Egyptian government is par­ticularly touting the Suez Canal project as an investment magnet. It aspires to attract billions of dollars in investment in shipbuilding, ship maintenance, industrialisation and logistics.
Oil and gas are also promising fields with recent natural gas dis­coveries expected to bridge the gap between production and consump­tion when they come online this year and later produce enough to be exported.
Egypt is also inviting internation­al mining companies to explore its eastern desert amid expectations that gold is present in relatively large amounts.
Nonetheless, economists said in­vestors would not turn to Egypt un­less the country also takes steps to address administrative corruption and improve transparency.
Egypt was ranked 116th out of 140 countries in the 2015-16 Global Com­petitiveness Report produced by the World Economic Forum. It came in 122nd in ease of doing business in the World Bank’s Doing Business Report 2016.
“Laws are not everything but when it comes to actual practice, investors need easy administrative procedures, a transparent legal sys­tem and local administrations free of corruption,” Hassanein said. “So, it is necessary that our government addresses problems in these sectors to make the law more effective.”