Fdi in Egypt

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Foreign Direct Investment
As a problem facing Egypt

November 2010

Economic Development

Prof Dr Ihab Nadim

German University in Cairo


The Government of Egypt has played a key role in terms of improving the outlook for Egyptian foreign investment since July 2004. A positive response to reform investment procedures has been achieved and reflected in the increase in the number of newly established companies as well as expansions of companies already in operation. Moreover, instigating and sustaining high levels of growth and employment creation.

The net FDI inflows have increased from USD 509.4 million in 2000/01, to reach USD 13.2 billion in 2007/08, USD 8.1 billion in 2008/09 and USD 6.8 billion during 2009/10. Figure below shows the increase of FDI inflows during 2004/05 - 2009/10.

Source: Central Bank of Egypt

According to the World Investment Report published in 2010 by the United Nations Conference on Trade and Development (UNCTAD); Egypt has become the largest market for foreign direct Investment (FDI) in North Africa and the second after South Africa in the African continent. However, the indicators of attracting foreign investments during 2010 showed a significant decline in these investments affected by the global financial crisis and its consequences. In which it forces further plans for the government to attract investments in the coming period.

Statement of Issue

Foreign direct investment means; funds transferred from abroad, in type or in cash or both, with main aim of establishing firms and energizing\generating profits. The transfer of profits and income generated in return for know-how, technology and resources provided by the same are the host country usually guarantees for these investments

FDI inflow is not restricted to equity only, it takes many other forms including, but not limited to, equipment, technology, know-how and skill. Direct investment takes various forms, i.e. joint ventures, the most common in developing countries, and wholly owned foreign investment.

Experts in international organizations believe that FDI schemes are the most convenient for developing countries; provided by that the countries hosting foreign investments must furnish a friendly legislative and economic environment.

Most of the developing countries gave FDI the green light as an alternative for external borrowing to avoid the restrictions imposed. Furthermore, Courting foreign direct investments became a wide field for competition between both developed and developing countries due to tendencies, by most countries, to adopt free market economies to realize reform and economic development.

Now it is worth to discuss that investment decision depends on two main points: First: The motives of the donor country for investment. In addition to, the competitive edge of relevant projects besides the need to find access for new markets. Second: points of attraction of investments in hosting countries are embodied in economic development, market size, administrative, economic and political stability, hard and soft infrastructure, transparency, and finally legislations and laws concerning investment and the incentives embodied in the same.

The importance of FDI to Egypt
The importance of Foreign Direct Investments to Egypt is stemmed from: 1. The decline in domestic saving rates.
2. The need for external financing as an alternative for loans, grants, aids, that are diminishing, from countries and international organizations. The need also aroused to provide more job opportunities for the unemployed population. 3. FDI is the main engine in the export process, since capital inflow is always associated with transferring management skills and state-of-the-art technology. This aspect will increase productivity in turn; support the competitive edges for the current industry and help in establishing new industries that will...
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