CAIRO: A new report by the World Bank Group has compared conditions for foreign direct investment (FDI) across 87 different countries, publishing the results in “Investing Across Borders 2010.”
Released on July 7, the report finds that “overly restrictive and obsolete laws are an impediment to foreign direct investment and their poor implementation creates additional costs to investment.”
The aim of the report is to provide companies and governments around the world with a range of indicators comparing how easy it is for foreign companies to access markets and set up subsidiaries in countries around the world.
The new initiative is the start of an ongoing project which will provide potential foreign investors with reliable information. It is also hoped that the project will identify good regional and global practices which can act as models for governments seeking to improve their business environments.
Since the economic downturn of 2008/09, during which there was a significant reduction in international trade and investment, companies are now more concerned with political and financial risks when making investment decisions, says the report’s foreword.
In 2007, global FDI peaked at $1.9 trillion, the report says, but the economic crisis slashed that figure by 40 percent in 2009. FDI in developing economies fell 35 percent in 2009, compared with 41 percent in high-income economies.
“FDI will likely recover in the near future. Most indicators signal that FDI will be higher in 2010 than in 2009,” the report adds.
The report aims to help companies make informed investment decisions in this new risk-conscious climate, as they seek more predictable and stable business environments.
Investing in Egypt
The report focuses on four areas affecting the conditions relevant to FDI: investing across sectors, starting a foreign business, accessing industrial land and arbitrating commercial disputes. As the report itself acknowledges, this leaves out some important factors in FDI decisions, such as corruption levels, macroeconomic conditions, political stability, security or infrastructure.
Egypt, according to the findings of the report, has favorable conditions overall for FDI. It fares well in comparisons with the MENA region average (where the other countries covered by the report are Morocco, Tunisia, Saudi Arabia and Yemen) and with the global average.
In certain sectors in Egypt there are restrictions on foreign ownership, reflecting a trend across the MENA region, which lags other regions in the restrictions it imposes, the report finds. There are overt statutory restrictions in Egypt on the foreign ownership of publishers of daily newspapers, for example. In air transportation and construction, foreign ownership is restricted to a minority stake.
“The government of Egypt is keen on attracting foreign direct investment to Egypt, keeping that context in mind it will become clear that there [are] no unjustified restrictions on ownership,” said a representative of the Egyptian General Authority for Investment (GAFI) to Daily News Egypt.
Speaking about restrictions on the airline industry, GAFI said in a statement to Daily News Egypt, “restricting domestic flights to local carriers is a global trend.”
As for restrictions on ownership of newspaper publishers, “this has to do with the cultural uniqueness of Egypt; there are socioeconomic and cultural considerations that have to be accounted for when printing and when addressing the public that are very unique to Egypt. Hence in order to respect the local culture and the sovereignty of the state foreigners have been denied ownership,” GAFI said.
In addition to such regulations, government monopolies in Egypt, though not constituting overt restrictions, create difficulties for FDI in those sectors, the report notes.
According to other measures, Egypt’s attractiveness to foreign investors is high. The average time it takes to set up a foreign-owned business or subsidiary in Egypt is eight days. This compares with 166 days in Brazil, 99 in China, 86 in Indonesia, and 21 in Saudi Arabia.
As for access to industrial land in Egypt, the report states, “The process of leasing private land is more efficient than in most other countries.” The report team was not able to establish how long it takes on average to lease public land.
Concerning the arbitration of commercial disputes, the report found that Egypt ranks above the MENA average in the strength of its laws, the ease of its arbitral process, and the extent of judicial assistance available. Egypt is also close to the global average in each of these areas.
This favorable view of Egyptian conditions for FDI was reflected in the real experiences of foreign companies operating here, according to the GAFI representative.
“Since January 2006, 5,208 companies have expanded their investments in Egypt. The total value of the growth in investment is almost £260 billion,” said GAFI.
However, FDI in Egypt has reduced markedly during the global economic difficulties. Net FDI inflows have gone from $13.2 billion in financial year 2007/08 to $4.3 billion in the first three quarters of 2009/10, according to Central Bank of Egypt figures.
“The skill level of the workforce is one worry investors have expressed in Egypt,” GAFI told Daily News Egypt. The problem is twofold: “One side is the lack of training and skillfulness some workers have. And the other problem is that after the investor offers the workers some technical education and training they leave the facility and go work elsewhere for higher prices.”
Corruption is also a widespread problem, which the government has acknowledged in its setting up of One-Stop Shops in the governorates to try to reduce the opportunities for corruption.
Corruption and workforce skill levels are two of the areas not covered by the report.