First Published: 2017-02-26

Investors wary of Egypt return despite reforms
Wooing foreign investors will take time despite Egypt's commitment to reforms prescribed by IMF.
Middle East Online

Closed shops at popular market Khan el-Khalili

CAIRO - Egypt is pursuing a raft of reforms to try to revive an economy weakened by years of turmoil, but analysts say that wooing foreign investors will take time.

Since the 2011 uprising, the Arab world's most populous nation has suffered a slump in key tourism revenues, slowing economic growth and investment, double-digit inflation and falling foreign currency reserves.

In November the International Monetary Fund approved a $12 billion loan for Egypt after the government committed to reforms including floating the Egyptian pound, which subsequently plunged against the US dollar.

The authorities also pledged a new investment law with tax incentives, a "one-stop-shop" to simplify investment procedures and a new bankruptcy law.

"Egypt's economic recovery will come with a lag, until the government follows through on reform policies with a successful implementation," said Hany Farahat, a senior economist at the Egyptian investment bank CI Capital.

The authorities have also introduced a value-added tax and cut fuel subsidies, moves the IMF said were required to fix government finances and boost investor confidence.

"Everyone is expecting 2017 to be a difficult year," said Walid Allam, the chief financial officer in Egypt for Swiss elevator manufacturer Schindler.

"But we expect that starting in 2018 there will be a bit of a revival," he said. "We are talking about a state, not a company that would take a decision and profit from it after a week or two."

Foreign direct investment in Egypt has fallen from a peak of $13.2 billion in the fiscal year ending in June 2008, to $6.8 billion in the year ending in June 2016.

The tourism sector in particular is reeling from years of upheaval and a series of jihadist attacks including the 2015 bombing of a Russian airliner carrying holidaymakers home from the popular Red Sea resort of Sharm el-Sheikh.

Even before the tumultuous 2011 uprising that ousted longtime president Hosni Mubarak, Egypt's economy was suffering from decades of structural problems and delayed reforms, said Ahmed Abdelnaby, a strategist at Mubasher Financial Services.

Investors will need time to see the government's commitment to reforms if the business climate is overhauled, he said.

- Obstacles remain -

One of the challenges for Egypt is to diversify its sources of foreign currency, said political economist Amr Adly, nonresident scholar at the Carnegie Middle East Center.

This is particularly important as the main sources now -- workers' remittances, crude oil exports, the Suez Canal and tourism -- "proved to be very volatile and cannot be depended on," said Adly.

A key part of the government's efforts should be directed to improve the business climate and reduce bureaucracy for small and medium enterprises and not just foreign investors, he said.

This would help boost local industries including agriculture and manufacturing, he said.

Potential investors are keen to see additional structural reforms before committing to long-term investments, said Esraa Ahmed, an economist with Mubasher.

She thinks that more than half of the problems facing investors still need to be resolved.

"Investors have always suffered obstacles in procedures, corruption, and bureaucracy. Reforming these issues will take some time," she added.

The former chairman of the General Authority for Investment, Ziad Bahaa-Eldin, said that fixing "genuine barriers" to investment would have a bigger impact than a new investment law.

These include "the state's unclear economic and social vision, its competition with the private sector in all fields, the spread of corruption, and clogged, slow courts, as well as security and political conditions," he wrote in an article for the Ahram Online news website.

Despite the remaining challenges, there are signs that investors are responding positively to the reforms.

In January, Egypt sold $4 billion of dollar-denominated bonds on international markets, almost double its initial target.

"Every time I attend a discussion one can sense that officials are aware of everything they should be doing," said an official at a multinational company.

 

Lebanon FM will not attend Arab League Iran summit

US-Russia rift threatens fragile prospects for Syria peace

Lebanon's Hariri arrives in Paris

Syria troops, allies retake most of Albu Kamal from IS

Football club a symbol for Swedish-Kurdish cohesion

Netanyahu faces new questioning over corruption case

EU cuts funding to Turkey in 2018 budget

Egypt opens Gaza border for first time since unity deal

'Caliphate' in tatters but IS still a threat

Saudi Arabia recalls ambassador to Berlin over Gabriel Lebanon comments

Russia again vetoes renewal of Syria gas attacks probe

UN weighs bid to save Syria gas attacks probe

IS attack kills 26 displaced people in Syria

Saudi FM says Lebanon 'held hostage by Hezbollah'

Egypt to open Rafah crossing for 3 days

Turkish troops pulled from NATO drill amid new tensions

Six children among civilians killed in shelling of Eastern Ghouta

US official calls on Sudan to stop 'church demolitions'

Hariri set to leave Saudi Arabia for France

Fears of bombs, IS cells still haunt Mosul

Iraq retakes Rawa, last town held by IS

Riyadh striking deals with people detained in anti-graft purge

Iran criticises French Mideast policy

Russia again blocks UN resolution on Syria action

Israel military chief says ready to cooperate with Saudi Arabia

Egypt confirms death of wanted jihadist

UK denies link between citizen detained in Iran and £400m debt

Qatar sets temporary minimum wage for migrant workers

Top US official begins Sudan trip

Hamas says Israeli assassins in Tunisia used Bosnian passports

Syria army enters last IS-held town

France worried by Iran's 'hegemonic' intentions

Russia, Turkey, Iran to hold Syria summit

Saudi FM rejects accusations Hariri in Saudi Arabia against his will

Lebanon’s president awaits Hariri return before next move

Iran pushing for Hamas-Hezbollah reconciliation

French PM in Rabat to boost trade, cooperation

Ankara bans German gay film festival

Lebanon PM to travel to Paris

Libyan fighter jets strike IS camp south of Sirte

Russia, US headed for UN showdown over Syria gas attacks probe

Palestinians wait as Egypt keeps border closed

UN fails to push Saudi coalition to lift Yemen blockade

Erdogan pledges military support for Qatar on Doha visit

France pursues tough line on Iran missile programme