Issue No. 610
Opinion
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31 Oct. - 6 Nov. 2002 Issue No. 610 Opinion |
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| Published in Cairo by AL-AHRAM established in 1875 | Recommend this page | ||
Correcting misconceptions
The investment climate in Egypt is better than ever, writes Ibrahim Nafie. But this needs to be better publicised
Why is it that Arab investments do not come home to the Arab world? This perennial question has become particularly urgent in light of the current vulnerability of Arab assets abroad post-11 September. It has also become more puzzling, since investment opportunities in the Arab world now offer ample room for profit while simultaneously boosting Arab economic growth and fortifying the Arab world in its dealings with others.
If Arab assets abroad were reinvested soundly in the Arab world we could engineer a vibrant economic resurgence within a matter of decades. This is not a mere pipe-dream. China provides an excellent illustration of the impact foreign investment can have on a developing economy. Within only two decades foreign investments, most of which originated from Chinese citizens abroad, spurred a qualitative shift in the rate of growth and development that even the architects of the Chinese economic open door policy of the late 1970s had never imagined possible.
From the implementation of that policy in 1978 until now China has retained its position as one of the fastest growing economies in the world. The leap in its volume of export trade was astounding -- from only $2 billion in 1980 to more than $259 billion last year. More importantly, whereas in 1980 approximately 80 per cent of Chinese exports were accounted for by primary materials, that ratio has dropped to below 10 per cent, with products from processing industries now forming 90 per cent of total exports. Naturally, such progress was the product of immense dedication and effort, but the Chinese example demonstrates that it is possible to vitalise an economy in a relatively short time if resources and investments are channelled wisely.
Before proceeding further, however, I should stress that I do not advocate withdrawing all investments from abroad or abandoning investments outside the Arab world altogether. Not only is that impossible, it would be utter folly. There remain many opportunities to realise solid, secure returns from investment in certain sectors of some economies abroad and it would be foolhardy to pass them up.
To illustrate, in the wake of the financial crisis that rocked Southeast Asia in the late 1990s, some Arab countries heavily invested in the energy sectors, notably in the oil refinery business, of those countries. It was a golden opportunity. The devaluation of currency in those countries and the drop in share prices in their industries rendered investment cheaper and the prospects of profit higher than ever before. Moreover, it was a move that brought the Arabs an element of control over the forward linkages related to Arab oil production. As the Arabs are the major suppliers of oil to Asia, investment in refinery and petrochemical projects in those countries helps ensure a stable market for this vital primary resource.
A second reason for maintaining some investment abroad is to retain a position of influence with major international corporations, particularly those that offer opportunities for specialised administrative and technical training as well as opportunities for the transfer of technology and expertise through joint enterprises established in the Arab world. This applies in particular to the IT industries, investment in which generates important economic and technical spinoffs while at the same time helping the Arab world to catch up and remain in touch with the rapid developments in this vital area of the global economy.
Keeping this in mind, if Arab assets abroad are, as some analysts have put it, in hock to the will of Western governments, why not redirect some of these assets back home? In this regard, it is important to distinguish between investments that give impetus to productive capacities and forms of capital utilisation that target only profit, without taking into account the need to boost Arab productive sectors. And it is in light of such general distinctions that we must examine the state of Arab assets abroad.
It is a general rule in economic theory that the more developed an economy the fewer the prospects of high and rapid returns on investment. Conversely, developing economies offer greater opportunities for profit, which explains why direct foreign investment in the productive sectors of many Asian countries has been, and to this day remains, so high. However, another important factor that has drawn investment to those countries is that they furnish other essential conditions, which, in conjunction with the profitability factor, combine to create an attractive investment climate.
That such an investment climate is absent in the Arab world has been frequently cited as the major reason why Arab assets have not returned to their region of origin. In this regard, during my recent tour of the Gulf to launch the Arab World edition of Al-Ahram, I asked many officials and businessmen why Arabs are reluctant to invest in Arab economies, and the Egyptian economy in particular. Interestingly, the immediate response of many of the people I spoke with was that they had indeed withdrawn, or were contemplating withdrawing, some of their assets from Western markets. However, almost in the same breath, they said that Egypt lacked a healthy investment climate. They explained that when they did try to invest in Egypt they were welcomed warmly by senior officials but they encountered so many hurdles and obstacles at lower bureaucratic levels that many had vowed never to embark on a second venture. They also mentioned the difficulties they encountered when trying to transfer their earnings abroad.
Out of the conviction that attracting foreign investment, and Arab investment in particular, is a vital key to stimulating our economic growth rate and generating millions of jobs, I relayed the opinions I encountered in the Gulf to Prime Minister Atef Ebeid. The prime minister stated unequivocally that there were no restrictions impeding the freedom to transfer capital gains from money invested in Egypt abroad, whether such gains were realised on investment or capital assets. With regard to the investment climate, he said that the many changes that have taken place in Egypt over recent years have not been sufficiently publicised. Now, Egyptian and Arab investors are fully equal in rights and privileges. In addition, considerable progress has been made on the question of real estate ownership. Now, Arab citizens can hold legal title to real estate in urban areas up to a certain limit and in desert areas without limit. He added that more than 4,000 citizens from the UAE own land designated for reclamation upon which they have built private residences and that most Arab ambassadors now own land and homes in Egypt.
The prime minister further indicated that a ministerial committee has been established to resolve many of the problems and disputes investors encounter, speedily, amicably and before they have to resort to the lengthy process of litigation. The regulations governing this committee provide that its decisions are binding, upon ratification by the cabinet, and that any dispute between an investor and a government agency or body must be resolved within four weeks. Over the past three months, out of the 60 cases that have been brought before this committee, 53 were ruled in favour of the investor.
Finally, the prime minister related some major success stories regarding Arab investment in Egypt. Among those he mentioned were the experimental farms founded by Al-Walid Bin Talal on 100,000 feddans of land he purchased in Toshka and the Suez Gulf fertiliser project, funded with Arab money, which pays out annual dividends to the tune of 11 per cent on the dollar (this when interest rates on dollar are tangible evidence of the many opportunities available to Arab capital to earn higher returns on their investments in Egypt than abroad, on the condition, of course, that prospective ventures are carefully planned and executed). In addition, the government and the law offer full guarantees for investments and the transfer of profits abroad without restriction, thus providing a higher degree of security for investments than is available in the West.
In short, complaints about the investment climate in Egypt may have had some validity in the past, but the ongoing efforts of the government have eliminated most sources of concern and are focusing on eliminating the rest. Meanwhile, the Egyptian economy is still trying to tempt serious Arab investors. Should this be successful, the profits such investments accrue will act as the best advertisement for our improved investment climate.
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