Al-Ahram Weekly On-line 16 - 22 November 2000 Issue No.508
Published in Cairo by AL-AHRAM established in 1875

	Egypt Region International Economy Opinion Culture Focus Travel Living Sports Profile People Time Out Chronicles Cartoons Letters

The violence could have a say

By Niveen Wahish

"It's too early to tell" is the typical answer given by observers of the economic scene when asked whether the current clashes sweeping the occupied Palestinian territories will prevent business ventures from knocking on Egypt's doors.

Even before the Al-Aqsa Intifada began Edmund Fitzgerald, an economy professor at Vanderbilt University in the US city of Nashville, told the Weekly that part of the reason why investments may not be flowing into Egypt as expected is that Egypt is often associated with the Palestinian-Israeli conflict in a region which, in turn, is viewed as a hotbed of unrest. Although Egyptians might beg to differ as to whether the connection is correct, Fitzgerald, nevertheless, says it shows how investors who have no prior experience in Middle East markets are thinking.

Conversely, investors who are familiar with the region do not feel threatened by the ongoing violence. Taher Gargour, Middle East North Africa research coordinator for the Hong Kong Shanghai Banking Corporation (HSBC), says the unrest is less likely to have an impact on Egypt than, for example, on Israel which has been directly affected, especially in tourism. However, Gargour added that what could have an impact on Egypt are internal elements such as the recently announced boycott because, as he put it, "that type of wide and public support (against joint venture investments) can create some uncertainty." He was referring to the popular boycott of some US franchise products like MacDonalds and Kentucky Fried Chicken.

An important factor for any investor is the local market, adds Gargour, and if there is a boycott, then an investor would be unwilling to risk plunging into uncharted waters.

Nonetheless, according to Gargour, any company that is preparing to invest in Egypt or in the Middle East in general "will have done its homework." He explained that although the stock market was a bit shaky after the unrest began -- stock markets can rise or fall on the strength of rumours -- once investors saw it would probably have no direct bearing, things went back to normal.

Raef Tomum, financial analyst at Nile Rating, echoed the same sentiments, saying that although it was natural for investors to pack up and leave an unstable region, as far the activities of his company in Egypt are concerned, this has not happened. "Unless things take a turn for the worse," Tomum adds, "what is happening will become the status quo and business will go on as usual."

One source who declined to be named suggested that instability in the region is not so much a factor in frightening off investors as might local competition policies in the Egyptian market. "Egypt is an attractive investment destination but the economy is not without challenges," Frank Wisner, former US ambassador to Egypt, told the Weekly prior to the unrest. "Answers must be found to issues such as red tape, compliance with intellectual property rights, quick and effective dispute settlements and a resolution of the exchange rate problem to ensure that investors, once they decide to get their money out of Egypt, can do so without any problem," said Wisner, vice chairman of external affairs of the American International Group, a US-based international insurance and financial services organisation. "Otherwise, investors' appetite would be mitigated." Needed as well, he added, was an active stock market rather than a market where only a fraction of the companies listed are actually traded.

Although Egypt's attractiveness as an investment haven will receive a boost once local competition issues are resolved, the issue of image plays a crucial role. A survey conducted by the United Nations Conference on Trade and Development (UNCTAD), and the International Chamber of Commerce of 296 of the world's largest transnational corporations at the beginning of the year pointed to a severe image problem for Africa in which Egypt is classified. The survey said more than half the respondents stated that the actual business environment is better than the continent's image would suggest.

Nonetheless, the World Investment Report, where the survey's findings are cited, was optimistic about the prospects of Foreign Direct Investment (FDI) in Egypt within the broader framework of the continent.

The survey suggests that the increase in FDI inflows into Africa in recent years might be sustained in the future. Egypt came in second after South Africa as the most attractive countries for FDI in Africa. In general, countries with a relatively high level of development or large domestic markets dominated the list of the most attractive countries.

Moreover, the report again listed Egypt as second after South Africa, followed by Morocco, as the countries which were expected to make the most progress in creating a business-friendly environment in the next three to four years.

The growth and size of local markets and access to regional markets followed profitability as important factors for FDI attraction. According to the World Invest Report, "recent FDI inflows to Africa have been growing faster than at the beginning of the 1990s, a result, among other things, of the efforts of many African governments to create a more business-friendly environment." Within that context Egypt was among the few African countries which attracted sizeable FDI's in recent years. "North Africa, led by Egypt, attracted a slightly higher share of FDI flows during 1997-1998 than in previous years. In 1999 the share rose to 29 per cent (of total FDI inflow to Africa)."

"In 1999 the numbers attracted by Angola and Egypt were quite impressive," the report said. In Egypt, this was attributed mainly to deregulation and privatisation.

---

Related stories:
See Intifada in focus 26 Oct. - 1 Nov. 2000
Intifada special 19 - 25 October 2000
Palestine pages 12 - 18 October 2000

© Copyright Al-Ahram Weekly. All rights reserved

	weeklyweb@ahram.org.eg