CAIRO: Foreign direct investment (FDI) inflows to Egypt are expected to drop by over 40 percent this fiscal year, according to Chairman of Egypt’s General Authority for Investment (GAFI) Osama Saleh.
FDI, a key revenue source for the economy, was forecast to come in at $7 billion for the current fiscal year, but Saleh said that has been cut to around $4 billion after nationwide protests starting Jan. 25 led to the ousting of former president Hosni Mubarak.
In a note, investment bank Beltone Financial said that as political events unfolded, they cut their FDI forecast for the fiscal year to around $4.5 billion, and lowered it again recently to $3.5 billion.
“The balance of payment data was released for the first half of fiscal year 2010/11, signaling a drop in FDI inflows by 14 percent year on year to reach $2.2 billion during this period,” said Beltone Financial.
Speaking at “Partners in Development,” organized by GAFI, the seminar brought together representatives of the private sector from both countries to discuss increasing Kuwaiti-Egyptian cooperation.
During the conference, he explained that Egypt would step up efforts to attract Gulf investments to the country.
Beltone said tapping Gulf countries’ investments has been a common theme, one also used by the finance ministry, which is eyeing GCC sovereign wealth funds to finance Egypt’s expenditure and debt.
“Kuwait is the biggest GCC investor in Egypt and it has previously announced that it will continue its investments in Egypt, as it believes in Egypt’s strong economic fundamentals,” they said.
Magdy Sobhy, deputy director of Al-Ahram Center for Strategic Studies, said over-reliance on Gulf investments in the coming period may not be the best option.
According to Sobhy, in the short run, getting Arab investors to regain confidence and invest will be very difficult since there are security concerns and inherent problems specific to Gulf investments, particularly from the Kuwait and the UAE, mostly related to land and real estate deals, causing Arab investors to remain skeptical.
Indeed, Rachid Al-Hamed, Kuwait’s ambassador who attended the conference, hinted at anxiety by Kuwaiti investors, proposing a committee be formed to address any legal or financial issues that may arise between businesses from the two countries.
Sobhy commented that before the recent events, the business climate in Egypt was rife of corruption and bureaucracy. For him, the better approach in the short run would be to look for support from these countries in the forms of funds and loans, and not FDI.
He added that these forms of support would be eventually be replaced by investments when the country has a new government that creates a better business environment heralding a renaissance of investment domestically regionally and worldwide.
Reuters reported that the Kuwait Investment Authority (KIA), the Gulf state’s sovereign fund, will set up a company with $1 billion in capital to invest in Egypt’s stock market, a local newspaper said on Thursday, citing the head of the chamber of commerce.
"The head of the Kuwaiti delegation visiting Cairo revealed a decision by Kuwait Investment Authority to establish a company with capital of $1 billion to invest in the Egyptian stock market," Kuwaiti daily Al-Rai quoted Ali Al-Ghanim as saying.
Officials at KIA were not immediately available for comment.
Kuwaiti investments in Egypt account for about $15 billion.
Egypt’s benchmark index plunged for two days when the stock exchange reopened on March 23 after a suspension of almost eight weeks due to the political turmoil, but rebounded by more than 10 percent the following week.
The index was hit on Monday after the central bank announced net foreign reserves had dropped to $30.1 billion at end-March, their lowest since October 2007, from $33.3 billion in February. –Additional reporting by Reuters
