Sunday,22 October, 2017
Current issue | Issue 1223, (27 November - 3 December 2014)
Sunday,22 October, 2017
Issue 1223, (27 November - 3 December 2014)

Ahram Weekly

Working against the clock

Busy promoting March’s economic summit as a life jacket for the Egyptian economy, the government is up to its ears in reforms it needs to complete ahead of the event. Niveen Wahish and Sherine Abdel-Razek report

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Al-Ahram Weekly

Saudi, Emirati and US investors have flocked to Cairo for business conferences in the past two weeks. Met with open arms by a government desperate to attract foreign investment, participating businessmen used the opportunity to express their support, in the most general terms, for the Egyptian economy, and to press for legislative reforms which they say are necessary to create a better investment climate.

In the wake of the January 2011 Revolution a series of court cases annulled privatisation and land sale contracts earlier agreed with Saudi and Emirati businessmen. Yet long before such high profile litigation foreign investors had often complained of the red tape, the need for multiple licenses from different authorities, and the lack of bankruptcy laws.

The government says it will resolve these issues before the opening of a major investor conference that seeks to place Egypt on the global investment map. The conference is scheduled for March.

Some long standing cases have already been settled. This week UAE-based Al-Futtaim Group finalised asettlement with Egypt’s New Urban Communities Authority (NUCA). It agreed to pay NUCA an additional LE217.9 million for land purchased from the pre-revolution government.

Ahmed Darwish, secretary general of the Saudi Egyptian Business Association (SEBA), told Al-Ahram Weekly that out of 35 investment disputes with Saudi companies, 28 have already been settled.

Arab businessmen meeting with President Abdel-Fattah Al-Sisi on Saturday said they received personal assurance that soon all outstanding disputes will be settled.

Darwish, who sits on the board of several Saudi-Egyptian joint ventures, complains that doing business in Egypt remains a Byzantine process. It is hugely difficult to secure a license to start up a business and exiting the market is almost impossible.

In this year’s World Bank Doing Business Report, out of the 189 economies tracked to assess bureaucratic barriers to investment Egypt ranked 112.

Ashraf Salman, minister of investment, is well aware of the problems. He told a prime time TV show on Sunday that investors now have to deal with 78 authorities, including ministries, governorates and local municipalities, before securing a license. He promised that either modifications to the existing law, or a new law, will be issued by February at the latest. The aim is to establish a single point of contact for investors.

During the March 2015 economic summit Egypt is hoping to secure a good portion of the $10-12 billion of investments it urgently needs. The government and the private sector plan to offer some 20 projects for investment in sectors including petrochemicals, constructions and sanitation.

Anis Aclimandos, president of the American Chamber in Cairo, believes that if properly managed the conference could prove a turning point. He told Al-Ahram Weekly that though there is political will to support investors the investment environment is far from positive. By the time of the conference he says the government must be in a position to talk about “what it has achieved, not about its intentions”.

Jason Tuvey, Middle East economist at Capital Economics, believes the conference will be an important venue for the government to outline its vision for the future of the economy.

“It would be good to see the authorities set out a clear road map for reform in areas like the business environment, the energy sector and public finances,” he says.

The feasibility of projects to be offered during the two-day gathering is already being examined by Lazard, a leading financial advisory and asset management firm. The projects were handed over to Egyptian investment banks earlier this week for due diligence.

“Something the March conference must do is present the different projects as attractive investment models. Decision makers will be attending and they need to see integrated business models with all their questions about procedures and initial costs answered,” says Darwish.

He warns that “this business model should not come with extra financial burdens” — a reference to government plans to charge interested investors the fees of the investment banks it has recruited to present the projects.

In the last four years foreign direct investments have plummeted, as have tourism receipts, contributing to a weaker pound and sluggish growth.

Signs of slight improvement have started to appear. Foreign direct investments (FDIs) jumped to $4.1billion in fiscal year 2013/14 compared to $ 3.8 billion last year. Tourism receipts are increasing by 193 per cent in September compared to the same month of 2013.

Initial indicators of GDP, announced by the Ministry of Planning, show a GDP growth rate rise of 1.1 per cent in the first quarter of 2014/2015.

The sectors contributing to GDP growth this quarter, according to Prime Securities, were manufacturing industries (excluding oil refining), construction, the Suez Canal and tourism.

Prime expects the growth rate for fiscal year 2014/15 to reach 3.9 per cent.

With a population of 90 million Egypt should be a magnet to investors.

“We all know Egypt has tremendous business potential, not only because of the size of the local market but also because of its human resource potential,” said US Acting Deputy Chief of Mission David Ranz at this week’s inauguration of Abbvie Egypt, a biopharmaceutical company.

“There is enormous investor interest in the Egyptian economy,” said Aclimandos, but “they need reassurances against retroactive actions, they want to easily enter and exit the market and they want [easy profit] repatriation.”

Darwish adds that to successfully attract investors the government has to accelerate the pace of reform. “Ambitious plans are announced every day by the government but we have yet to see real deals being concluded.”

He notes that while the government has announced it will offer four million feddans of land for reclamation, and members of SEBA have applied for 200,000, no further steps have been taken.

Many economists and businessmen believe attracting investment and boosting the economy is not just about economic legislation but requires a stable, inclusive political environment with a representative parliament. But Salman argues parliamentary elections need not be complete ahead of the conference. Investors and international institutions, he says, will be satisfied to see the process in place; they do not have to see the completion of the actual elections.

In the meantime Aclimandos believes “it is better to go slow and make sure parliament is representative and inclusive.”

Efforts to attract investments continue ahead of the conference. This week President Abdel-Fattah Al-Sisi embarked on a European tour including Italy and France. In both countries he was scheduled to meet with potential investors, businessmen and representatives of tourist companies.

Tuvey told the Weekly that while he expected investors from the US and Europe to make up the majority of those interested in Egypt, businessmen from the Gulf were also showing plenty of interest.

An IMF team finished this week an assessment of the country’s economy within the framework of article IV regular annual consultations. It is hoped the team’s report, which will analyse reforms currently being undertaken and the challenges that lie ahead, will be ready ahead of the economic summit in March.

“Foreign investors have already taken heart from the government’s early efforts at reform and some form of rubber-stamping of Egypt’s reform package by the IMF will send a strong signal to international investors,” says Tuvey.

“The country has enormous potential. Not only is it a large market in its own right but it is also on the doorstep of Europe. If the government puts the right policies in place Egypt could transform itself into a manufacturing hub over the coming decade.”

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