Egypt’s mid-March investment conference made a splash beyond the government’s expectations. It revealed an international change of heart – the attendance of global government and business leaders, as well as regional and international banks and development organisations, reflected the revival of interest in investing in Egypt.
The Egypt The Future forum’s energetic beat was set at its opening session with announcements of US$4 billion in financial support from each of the UAE, Saudi Arabia and Kuwait. Oman added $500 million. These initial announcements kicked off the conference with a positive spin for the economy’s outlook. By the end of the forum, Egypt had secured $60 billion in investments and financing.
After months of painstaking efforts to stabilise the country, the conference’s success represents a leap forward. It affirmed that the government has taken concrete steps to restore internal stability, and made progress on economic reform – both precursors to a steady recovery in investment. The signal to global capital holders has been that it is time to take a second look at Egypt’s market, or else miss the boat.
Things have come a long way since the middle of 2013. European Union “expressions of concern” about the unorthodox manner in which political change was taking place in Egypt (the military had removed Mohamed Morsi from power after massive country-wide protests) gave way to re-expanding cooperation. Egypt’s commercial trade with the EU, its largest trading partner and investor, is rebounding.
Eight European countries including Germany, France and the UK participated in the conference. Most notably, the forum uncovered a breakthrough improvement in Egyptian-German rapport. Siemens secured the lion’s share of investments in Egypt’s electricity sector. The German chancellor, Angela Merkel, topped this with an invitation to the Egyptian president, Abdel Fattah El Sisi, to visit Germany; economic issues will be an integral part of the visit’s agenda.
Egypt’s economic relations with the world’s second- and fifth-largest economies are also upbeat. China and Egypt are deepening cooperation in infrastructural development and commercial exchange. Russia plans to weigh in with a free-trade agreement and investments in energy, as well as military cooperation.
No magic wand could have instantly turned the economy around after the severe disruptions it experienced since 2011. An ambitious economic vision, firm policy reforms and favourable external factors have yielded incremental improvements in fundamental economic signals that Egypt can build upon.
By July last year, the government was ready to start a bold five-year plan to phase out energy subsidies that claim 13 per cent of its spending. Increases in electricity and public transport prices supported additional revenue generation for the two cash-strapped sectors, whose services are fundamental to a healthy investment and development environment.
In September, the government launched the Suez Canal expansion project, the initial stage in a broad development plan for the canal’s zone. It is designed to turn the area into an international logistical and commercial hub and tourist centre. This project is expected to contribute to economic growth and employment well beyond its 5-year implementation phase. Securing its $8.5bn in funding locally has allowed the government to avoid additional external borrowing.
The drop in hydrocarbon prices over the past year is helping contain inflation, moderating pressure on Egypt’s currency and improving investment incentives. It is supporting the energy subsidy elimination plan and relaxing food price concerns. All this could accelerate reducing the fiscal deficit. The trade deficit, too, could narrow somewhat, helped further by the central bank’s recent currency devaluations that boost export competitiveness.
The government has also issued a revised investment law that simplifies business start-up processes, separates criminal and administrative liabilities, and encourages investment in underdeveloped localities, among other incentives. This instrument capped months of economic adjustments to increase investments in Egypt. Its location, resources and large market continue to underpin these efforts.
Amal Kandeel is an economist and director of Pioneers International, a services company specialising in the Middle East