Much is written and said about the need to create a competitive investment environment in Egypt. Academics and experts argue constantly over the proper role of government in the investment process: Should the government actively promote projects and sectors to investors or should it focus on getting the policy environment right and leave promotion to the private sector?
Many commentators imply a consensus on the definition of a competitive investment environment — that there is some global benchmark which, if reached, will result in flows of investment capital so great as to become a problem. Capital account balances record surpluses, currencies appreciate, liquidity rises and all the high-quality problems of capital inflows will arise.
But consensus does not exist. There is no global benchmark and there is no “one way” of creating a competitive investment environment. Measures of competitiveness are useful but in the end they are a way of comparing very dissimilar economies with each other by removing the differences — and investors choose one country over another precisely because of the differences.
Investors (financial or direct) invest in projects, companies or in financial products (shares, bonds, funds, deals). They do not invest in countries. Every investment needs a vehicle — a physical, legal and financial structure through which that investment can operate. Whether it is international or domestic makes no difference — a structure must exist for each and every investment.
A country is the place in which the investment happens — it is the background environment to the investment vehicle and will alter the risk and opportunity perceptions of the investors and financiers in involved with the project. Investors are not looking for competitive countries — they are looking for competitive investments. That is to say; they are looking for an investment with a high risk-adjusted rate of return.
Investors in Egypt first look at the fundamentals driving the return on their investment — demographic change, economic growth, market development, lack of competing investments and more. If those, in principle at least, are available they will consider the investment environment as relates to their deal.
They will ask: Do the regulations allow them to invest and, equally importantly, do the regulations allow them to exit their investment when the time is right? Is the investment structure compliant with their own internal and international legal frameworks? Is it easy to make the investment or will the structure have to be built and tested before it can used?
Countries who dominate the competitiveness rankings (like Singapore & Hong Kong) are great locations to do business — but not great locations for all types of business or investment. Nothing can replace Egypt’s population, its geography and its history — it offers a unique combination which is of great interests to certain types of investors — but not others. Certain sectors are competitive, certain deals within those sectors are competitive and the balance of policy and promotion should be geared towards them because that is where things can be made to happen.
At the same time the investment pipeline should be built by expanding the number of sectors which are competitive based not on geography, resources or incentives — but on people. In the long-run the only sustainable competitive advantage is you.
We’ll be coming back to these themes over the summer and in the lead up to the Euromoney Egypt Conference in September.
Richard Banks is Middle East Director for Euromoney Conferences. This commentary is published by Daily News Egypt in collaboration with Euromoney Conferences.
