CAIRO: The hope for $10 billion in foreign direct investment, one of Egypt’s most important contributors of foreign currency and source of capital for increased production capacity and job growth, will fail to materialize for fiscal year 2009/2010.
Director at CI Capital Research Mona Mansour told Bloomberg that, “It’s very difficult to reach the government’s target now . unless there is a major deal.
After experiencing a high of $13 billion in fiscal year 2007/2008, the government set $10 billion as the goal. In December Investment Minister Mahmoud Mohieldin described “a good reaction and response to some specific infrastructure projects. He mentioned utilities, medical centers, and roads as areas that are going to be getting us what we re after, from the Asian countries, some infrastructure funds based in Europe and from some of the Gulf countries.
However, with four months remaining and FDI coffers at only $2.6 billion as of December, garnering almost $8 billion would be unlikely, even if global economic growth for the final quarter of the fiscal year jumped considerably.
Simon Kitchen, economist at investment bank EFG Hermes, predicted that FDI levels should look rosier by the end of 2010 and in the mean time Egypt’s positive economic growth is driven by internal demand. He emphasized, however, that should investment fail to materialize, Egypt will suffer.
“What we’re assuming is that investment by the end of 2010 will be rising quite quickly and outpacing economic growth . but without a recovery in investment, this consumption recovery will fizzle.
“Although driven by domestic demand, this [economic growth] is unsustainable because there is very little credit. We need to see employment growth, need to see rising per capita income, and that isn’t sustainable without higher investment, whether foreign or local, Kitchen explained.
He further elucidated that the FDI trickling in has largely gone to petroleum related projects, problematic because “for job creation you need investment in non-oil sectors.
The Central Bank of Egypt released more promising numbers on its balance of payment (BOP) figures. For the first time since the first quarter of 2008/2009, growth in non-hydrocarbon exports reached 20 percent growth on a quarterly basis, registering 0.1 percent above last year. At the same time, hydrocarbon and non-hydrocarbon imports declined year-on-year, at 60 percent and 10 percent.
However, Kitchen warned against inflated optimism.
“To some extent, the low FDI is reflected in the lower than expected imports. Often what happens is if FDI is put into manufacturing, it pays for imports of goods that are then used to build a manufacturing plant . They are not two separate things.
The merchandise trade deficit declined from $7.6 billion in the second quarter of 2008/2009 to $4.7 billion in the second quarter of 2009/2010. The figures were interpreted by Beltone Investment Bank as resulting from a “slight recovery in the appetite for Egyptian exports.
Kitchen remained skeptical that demand for Egyptian exports is on the rise. “In previous quarters, the number was low, thus this figure looks strong. It has shown fairly high volatility, so it’s difficult to say that this is the new trend. Yes, exports beat our estimates for the fourth quarter, and tourism and the Suez Canal did well.
He explained that the combined factors resulted in the surplus in the current account, the first since 2008. The current account is calculated using trade balance combined with net factor income from abroad, or FDI, and net unilateral transfers from abroad, or remittances.
“However, he continued, “remittances were disappointing, at their lowest level since 2007, as a result of continued weakness in both the Gulf and Eurozone. The CBE reported that remittances fell 16.5 percent to $3.46 billion.
Reham ElDesoki, chief economist at Beltone, expressed pessimism for the trade deficit to continue to shrink. She said in a statement that “we expect the merchandise trade deficit to rise slightly to $26.4 billion in fiscal year 2009/2010, from $25.2 billion in fiscal year 2008/2009, assuming slow exports growth and a gradual recovery in imports as economic growth picks up in Egypt.
Consumer goods imports did increase, and will likely continue to rise more quickly than export growth, again widening the trade deficit.
