1 - 7 March 2001
Issue No.523
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Al-Ahram Weekly On-line 1 - 7 March 2001 Issue No.523 |
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A double dividend
Do we really want foreign investment in Egypt? The answer seems obvious, in theory at least. Foreign investment is vital to economic growth and development. Yet, in practice there appears to be some resistance to the idea, for how else can we account for the fact that the level of direct foreign investment in Egypt is so abysmally low?
Egypt has one of the lowest per capita savings rates in the world. According to World Bank figures, it stood at 14 per cent in 1999. The global average for the same year was 23 per cent while, more significantly, that of countries with income levels comparable to Egypt stood at 30 per cent. Egypt's low rate effectively sets a very low ceiling on the investments that can be financed domestically. According to the Egyptian Ministry of Economy and Foreign Trade, the ratio of domestic investment to GDP stood at only 19.8 per cent for 1999/2000.
How, then, can we stimulate domestic investment? Any improvement in our domestic savings profile will require the brakes being put on our recent, unbridled consumerism. If Egypt is to achieve the kind of development to which we all pay lip service, then the government, the wealthy -- and to a lesser extent the middle classes -- must begin to exercise restraint in their consumption patterns. We must work to foster a savings culture, and use the means at our disposal to curb the excessive spending on luxuries and imports that saps so much of our income. Simultaneously, Egyptian banks should develop more attractive savings schemes and currency policy should be shaped in such a way as to boost domestic savings.
While it is possible to finance investment with foreign loans, such a course carries with it the risk of dangerously increasing Egypt's foreign debt and could ultimately bode ill for the overall economy.
Another alternative is to attract foreign investment in areas that further our development goals, whether directly through the establishment of manufacturing or service enterprises, or indirectly through the purchase of shares and bonds that pump capital into private and public sector companies. The great advantage of direct investment is that it stimulates the transfer of technology and managerial and marketing expertise into Egypt.
Of course, the foreign entrepreneurs and companies that bring capital, technology and know-how to developing countries require an appropriate investment climate. Such a climate is fostered by a number of factors. Among these is a welcoming and politically secure and stable social environment, a condition that all would agree Egypt meets.
In addition, foreign investors look for a legal framework conducive to protecting their rights and interests. In this regard, too, Egypt is well placed, having brought its investment laws into line with an array of international agreements and protocols, most brokered under the auspices of GATT. Of related concern to investors is a minimum of paperwork and in this regard, too, Egypt has done much to eliminate unnecessary red tape.
Another prerequisite for an attractive investment climate is the existence of a large local market that, firstly, demonstrates a commitment to product and service quality standards to ensure fair competition and, secondly, is deregulated enough to ensure that entrepreneurs have easy access to raw and intermediary materials whether produced domestically or abroad. This local base must also offer diverse and extensive marketing opportunities. There is no doubt that Egypt, with its enormous domestic market, along with its membership in the WTO, the Greater Arab Free Trade Zone and COMESA, and its forthcoming partnership with the EU, is very well poised in this domain, a fact that enhances its attraction for foreign investors.
Simultaneously, Egypt offers potential investors a huge, skilled, highly productive and relatively inexpensive work force, though considerable room for improving the capacities and competitiveness of Egyptian labour through education, training programmes and technological development does of course remain.
Investors are also lured by tax incentives. Yet, while such incentives have certainly been made available, Egypt believes that a secure and resilient investment climate is better ensured by adhering to a tax structure that ensures equal opportunity, shares the tax burden equitably, and, consequently, sustains the confidence of all.
Yet, although Egypt meets and even surpasses many of the criteria by which the investment climate can be assessed, it still faces an uphill struggle in securing a share of foreign investment commensurate with its potential. According to the General Investment Organisation, the total amount of Arab capital invested in companies established following the implementation of the Arab and Foreign Capital Investment Law up to mid 2000 reached no more than $3.5 billion, while cumulative foreign investment in Egypt during that period reached only $3.7 billion, ie just 8.5 per cent of the foreign investment that poured into China in 1998 alone, and only just over half of the amount of foreign investment in Thailand for that year. These are very thin wedges of the overall Arab and foreign investment pie, and they give us no cause to pat ourselves on the back simply because direct foreign investment in Egypt is greater than in any other Arab country. The Arab countries, after all, remain, as a whole, marginal in this domain.
What they do tell us is that in Egypt we must push ourselves even harder towards attracting the foreign investment that is so vital to economic development, technological advancement, developing our labour force and enhancing our managerial and marketing capacities. Foreign investors are not in the business of bailing out other countries' economies, though they are keen to participate in existing processes of economic growth. One major sign that the existing prognosis for the domestic economy is positive would be to see levels of domestic savings and investment rise. This would certainly help put foreign investment in its proper perspective.
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