Egypt’s investment hopes clash with harsh realities
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.”