Foreign investment crucial if Egypt is to enjoy an economic renaissance
When the term “reconciliation” is mentioned in Egypt, the first thing that comes to mind is rapprochement with the Muslim Brotherhood. Those who pose this suggestion are subjected to sharp attacks from many parties. But what about a reconciliation that is not political, but economic? That is, reconciling the government with the private sector, whose relations with the state are still tense, even if each side claims the opposite.
The state in Egypt must recognize there is no prospect of a genuine economic renaissance without direct and strong foreign investments, which would contribute to the creation of a state of economic mobility that increases growth rates and reduces inflation and unemployment. These seem to have been absent due to the political circumstances of the country over the past seven years, and because of some economic and legal policies that have caused a kind of intimidation of foreign investors, who want to invest their money in a safe manner without any obstacles.
Many of the makers of these pitfalls may have missed — despite good intentions — the idea that foreign investors would not favor an environment that hinders Egyptian investors. Why would foreign investors come while their Egyptian counterparts suffer?
Therefore, the state must face the important fact that there are still impurities in the relationship — a lack of clarity of vision, or a state of apprehension — which are often ignited between the state and the private sector. What is required at this stage is a reconciliation among all parties, without maximizing the private sector or diminishing the state, because the two parties are complementary members of the fabric of society.
What is needed is a solution that I fully believe in, which is the rule of law and the imposition of a legal investment climate, in which logic and fairness are guaranteed and where relations are regulated so as to ensure the fairness of competition and the prevention of monopolies. There should also be clear reciprocal obligations between all parties; commitments by the state through facilitating laws and regulations, and commitments from the private sector to ensure it meets legal, tax, customs and social obligations.
Thus, a state of general psychological calm in society may be created and bridges of mutual trust may be built.
Solving this problem at its root would not be possible without driving investment, and this would not be powerful enough without foreign direct investment.
There are certainly many positive changes that confirm Egypt is steadily moving toward a new beginning of comprehensive economic development. But the question is can the state alone succeed? Are its economic assets sufficient for the creation of the desired economic growth? The categorical answer is “no.” This cannot be achieved without pumping direct foreign investment into the body of the economy. Understanding and believing in this is the prelude to action.
Egyptian officials are proud of the success of the economic reform program, with the country’s growth forecast rising to 5.4 percent in the first quarter of this year, according to the Ministry of Planning. Unemployment fell to 10.6 percent during the same period, according to the Central Agency for Mobilization and Statistics. Inflation also fell to 12.9 percent in April after peaking in July 2017 at 34.2 percent.
However, despite the apparent improvement in macroeconomic indicators, a dilemma remains in the increasing cost of living. Solving this problem at its root would not be possible without driving investment, and this would not be powerful enough without foreign direct investment.
It is widely accepted that foreign direct investment is better in developing countries than borrowing, as it helps bridge the gap between savings and investment, especially under the unfair conditions of foreign loans. It also reduces foreign aid to developing countries.
The Central Bank of Egypt announced at the end of last year a rise in the volume of net foreign direct investment during the fiscal year 2016/2017, reaching $7.9 billion, up from $6.9 billion. However, it is important to note that most foreign direct investments are still mainly limited to the field of gas and oil and, despite the importance of these investments, there is a need for diversification.
Egypt’s economic policy-makers should develop a structure of incentives for foreign companies to invest in the country and employ more local workers.
Indicators of stability are among the most important elements that influence the decisions of foreign investors. This stability is represented in inflation, so economic policy-makers must target inflation and maintain exchange rate stability.
Infrastructure also has an impact on attracting investments. Hence, it is important to pave dilapidated roads, establish new roads, build new bridges and develop telecommunications services.
Another crucial element in attracting foreign investment is legal and legislative reforms. There have been important steps taken in this field, but they have been ambiguous in parts.
Economically, there is no chance of pumping real blood into the exhausted body of the state except by following clear legal rules for all parties to the production process — workers, management and investors. Recently we have noticed a situation in which a number of investors, Egyptians as well as Arabs and foreigners, have fled the Egyptian market. This is because of the unwelcoming climate that has plagued the atmosphere, including baseless legal cases. The best way now is to restore stability to the investment climate.
The climate in which the private sector operates remains one of the most critical and stimulating factors for attracting foreign direct investment.
- Abdellatif El-Menawy is a critically acclaimed multimedia journalist, writer and columnist who has covered war zones and conflicts worldwide. Twitter: @ALMenawy