With Egypt’s economic conference barely a week away, anticipation about the opportunities it will unveil is high in the country as well as among foreign business communities.
Those familiar with Egypt know that the scope for investing there is immense because expansions and improvements are needed in every economic sector.
That is why the outcome of the conference on March 13 to 15, will be pivotal for the economy’s growth and stability over the next five to six years – a critical recovery phase long overdue after the dramatic deterioration experienced since 2011.
The results of this forum will have a wide-ranging resonance and, therefore, implications for regional and international peace and security as well.
Anchoring economic stability in the country of 84 million people, with almost 30 per cent youth unemployment and high international market exposure, is imperative for Egypt to address its economic, social and security challenges.
This in turn would enable it to maintain its much-needed constructive role in the acutely volatile geopolitical environment casting a shadow over the Middle East.
The dust from the 2011 revolutionary storm in Egypt and its destabilising aftermath has not yet settled completely. These turbulent events coincided with the hard-hitting repercussions of the global financial crash and economic recession that caused a worldwide slump in foreign direct investment (FDI).
With the recent softening of hydrocarbon prices, the onus is shifting, perhaps sooner than expected, more towards an internally-driven economic recovery than one leveraged by external transfers. That may well be a blessing in disguise.
Steady improvements have already been observed in Egypt’s economic prospects with a robust reform agenda being pursued by the government. This increasingly positive outlook has been confirmed in recently released assessments by Moody’s and the IMF.
Indeed, behind the dust veil that has clouded its economic future for three years, Egypt remains promising for investment. Since the president Abdel Fattah El Sisi’s debut at the 2014 UN General Assembly and his announcement of rigorous economic and investment plans and reforms, large business missions from Russia, Britain, the US, Italy and the GCC have visited Egypt for early-bird explorations of what the new political environment may offer.
Not long ago, in 2010, Egypt had come to be regarded as “a rising star” as it joined for the first time the ranks of the top 25 emerging market destinations for FDI, according to AT Kearney’s FDI Confidence Index. During 2004 to 2010, annual economic growth had averaged 5.5 per cent, although this did not translate proportionately into enough jobs for the fast-growing workforce.
Egypt has been off Kearney’s top 25 emerging countries list since 2010. After economic growth had collapsed to less than 1 per cent in 2011, it recovered to only about 2 per cent through 2014. New FDI flows to Egypt were slashed by half, from about $8 billion, between 2008 and 2014.
Nevertheless, several factors that had turned Egypt into an up-and-coming capital destination still exist, such as its hydrocarbon resources, large consumer market, and diligent business environment reforms that even the World Bank commended in its Doing Business report.
Additional legislative business sector reforms are now due for presidential ratification. And despite the revamped minimum wage bill, labour costs are still among the lowest in the region thanks to the current oversupply of job seekers. Recent steps the central bank took to allow further depreciation of the Egyptian currency support efforts to boost trade competitiveness, improving investment incentives.
Egypt is a member of the Greater Arab Free Trade Area and the Common Market for Eastern and Southern Africa, and is on its way to a free trade agreement with Russia.
The government’s plan to capitalise extensively on Egypt’s strategic location through a multi-sector development programme for the Suez Canal Zone is designed to serve as a major catalyst for attracting FDI to fuel a sustained economic expansion.
Ambitious overall annual targets have been set for the next five years: raising economic growth to 6 per cent; reducing inflation to 7 per cent; and shrinking the fiscal deficit and the debt to 8 per cent and 80 to 85 per cent of GDP, respectively.
The government has prepared plans for projects ranging from mega-ventures to microfinance schemes for which studies have been conducted. Their implementation would provide stimulus for investment in the production of supporting goods and services, and in vertical integration projects.
Infrastructural developments are among the government’s top priorities, including in the energy and transportation sectors that are cornerstones for raising productivity and augmenting the capital resource base. They are also major contributors to employment.
The FDI influx that the Egyptian government is striving to attract with its macroeconomic stabilisation policies and investment menu that an expansion in employment, GDP and income no doubt require, also holds risks that could jeopardise the recovery. Most critical is the risk of summoning another phase of non-inclusive economic growth that leaves millions behind.
A repeat of the 1990s’ saga whose consequences came in to full view in 2007-08 would be traumatic this time around.
Today financial and economic coping thresholds, on the individual as well as state levels, are much lower. External factors added to the mix of internal stressors have increased Egypt’s vulnerability to significant regional and international shocks.
Narrow concentration of investment expansion in a few sectors would also sabotage the goals of lower inflation and inclusive economic growth.
Such diversions would have counterproductive consequences for Egypt’s external sector and standing in international finance, whose health is important not only for investor confidence but also for long- term stability.
Regardless of policy specifics, strengthening the rule of law is now indispensable for investment efforts to succeed, broad-based development to be realised, and social justice to be widely felt.
Amal Kandeel is an economist and the director of Pioneers International, a geoeconomic analysis services and business development company specialising in the Middle East and Africa
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