Egypt’s recent economic success has largely been propped by foreign direct investment (FDI), and as investor confidence grows with the economy, it attracts even more FDI, creating what can best be described as a snowball effect.
With a staggering $11.1 billion last year and $7.8 billion in the first half of fiscal year 2007/08, Egypt overtook South Africa as the prime destination for foreign investment in the continent. With vigorous tax reforms, privatization efforts and a general restructuring of the economy, the country has been able to triple its inflow of FDI in just two years.
Investments are pouring into tourism, telecom, real estate and infrastructure, with FDI in the non-petroleum sector now accounting for more than 80 percent of the total, according to figures by the US Treasury Department. A Ministry of Investment report shows that net FDI inflows stood at 8.5 percent of GDP last year, up from 5.7 percent the previous year.
Egypt is looking particularly attractive to investors from the GCC. Awash with petrodollars from skyrocketing oil prices, more and more Gulf countries are encouraging their public and private sector firms to seek out new markets with larger populations and more opportunities.
With a population of around 80 million, vast undeveloped land, beaches, ports and new satellite cities, it’s a promising investment destination for Egypt’s wealthy neighbors.
The United Arab Emirates (UAE) is one of the largest investors in the country. The state has a population of seven million, and is home to some of the biggest real estate companies in the world, most prominent among which are Damac and Emaar.
The booming local real estate sector is taking a large piece of the FDI pie, and UAE developers are keen on exploring the lucrative Egyptian market. In the short time that they’ve been players in the market, Damac and Emaar have launched several multi-million dollar projects nationwide – with many more in the pipeline.
Sameh Muhtadi, chief executive officer of Emaar Misr for Development, said, “Egypt is one of the key emerging markets in the region, with phenomenal growth of the real estate sector that is becoming more competitive, whereby customers can maximize value. We are constantly studying new growth opportunities in Egypt, and will announce new projects as and when the details are finalized.
Along the same lines, Damac Group Chairman Hussain Sajwani said, “We are delighted to enter this exciting new market, and are grateful to the Egyptian government for their confidence in us.
Their zeal comes from carefully studying the market, and makes perfect business sense. Although half of Egypt’s population earns less than $1 a day, which puts many under the UN defined poverty line, the housing market will need to provide homes for six million people of the upper and middle class within the next seven to ten years.
In the maritime sector, Dubai Ports (DP) World made headlines when it acquired Sokhna Port for $670 million earlier this year. The UAE’s global marine terminal operator plans to invest $1.3 billion in various expansion projects at the port.
“Egypt is the largest Arab market, and the UAE is the largest foreign investor in that country, said Sultan Ahmed bin Sulayem, chairman of DP World.
Bin Sulayem needs no convincing about Egypt’s growth potential. “We see considerable potential for other Dubai World companies to invest in Egypt, including those that can offer value adding supply chain services, such as business parks associated with the port as well as real estate, tourism development and others, he said.
In the telecommunications sector, the Egyptian unit of Emirates Telecommunications Corporation (Etisalat) launched operations in May 2007, winning the coveted third mobile line license in an intense competition of international mobile telecom magnates.
It is investing up to $1.4 billion by 2010 to build a state-of-the-art telecom infrastructure in Egypt. Company chairman Mohammad Hasan Omran most recently announced that Etisalat plans to compete for the second fixed-line license in Egypt, which is set to end Telecom Egypt’s monopoly over the market.
Even with wealthy Gulf investors flocking into the country, it is becoming even more crucial for Egypt to continue on its path of fiscal reforms, to raise the level of professionalism in the country to keep up with the international competition.
“Egypt has successfully moved towards creating an FDI-friendly environment. However, the pace of reform must multiply in order to remain competitive with other emerging markets, said Alexander Severens, US Treasury Department financial attaché.
Taxation regimes are one important variable in investors’ decisions – they need to be simple, predictable and transparent in order to achieve the desired results, he added.
Facilitating inter-Arab trade via a functional Arab Union would help attract more Gulf money. “The integration of the economies of Arab countries has been a dream for about 50 years. Many efforts have been made in this regard, but what counts is the outcome, which is very modest, if not a failure, when compared to other realized experiences, such as the European Union (EU), which began at almost the same time as the Arabs started dreaming, “said Said Samir, freelance economic consultant.
“There are different economic and political factors that hinder Arab economic integration. One missing necessary condition is the lack of ‘political will.’ Political leaders of Arab countries are focused on the existence of their political power and authority, and are not willing to give up any of their authorities in favor of real Arab economic integration, he explained.
“There are some opportunities and potential that can be capitalized on, but the Arab’s political will must go towards developments that reach the roots of societies, and empower all citizens, continued Samir.
“Because the human factor is the key tool, and development is the key objective, an ideological and cultural reform is a must in the course of advancing this region.
