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“FDI in Egypt during 5 years”

Presented by Dr. Amany Asfour President Egyptian Business Women Association(EBWA) Business & Professional Women – Egypt (BPW-Egypt) African Association for Women Empowerment (AFRAWE). Mediterranean Congress of Business & Professional Women Representative of Civil Society for North Africa in the African Union.

Introduction:
The Africa and Middle East region historically has attracted low levels of FDI. Africa’s share of global inflows fell from 2.3% in 2001 to 1.7% in 2002 and, although the countries of the Middle East may attract substantial investment into the oil and gas sector, FDI flows into the most diversified economy in the region. The Middle East and North African (MENA) region as whole (excluding Israel) is only responsible for 0.9% of global flows of FDI. Egypt has a well-diversified economy, with no single sector contributing more than 21% of GDP. Its well-

integrated structure ensures sustained growth in a diversified environment where sectors such as manufacturing, energy, agriculture, tourism and services interact to create economies of scale. This generates a balanced distribution of the nation’s income, employment and export revenues, and multiplies the opportunities for investment and growth. Such a solid economic base reduces vulnerability to external shocks and enables Egypt to attract foreign investments in a variety of fields (Fig ).

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in addition to bilateral debt forgiveness/debt service relief from the Paris Club. This comprehensive program. included: financial sector reforms. designed to achieve macroeconomic stability in the wake of partial reforms implemented in the early 1980s and debt rescheduling in 1987. exchange rate standardization. interest rate liberalization. the government launched an Economic Reform and Structural Adjustment Program (ERSAP) supported by a Standby Arrangement with the International Monetary Fund and a Structural Adjustment Loan from the World Bank. The overarching goal was to 3 . reduction in subsidies and price controls.Figure ( ): Composition of GDP 2002/2003 An Era of Reform: In the early 1990s. foreign trade liberalization. and public sector reform.

A number of sectors and industries benefit from the government’s generous incentives and guarantees. such as zero tax over the lifetime of a project. skilled and competitively priced workforce. decentralized economy receptive to foreign direct investment and private-sector participation. and a well-developed infrastructure. textiles. These include: well-established and accessible ports on both the Mediterranean and Red Sea. Opportunities also abound in manufacturing. with its natural resources. geographical location. through extending the exemptions stipulated in the law of Investment Guarantees and 4 . food processing. high technology sectors. political and social stability. advanced infrastructure and opportunities for combining trade and investment strategies.create an open. Main Policies and Actions: The government continued to enhance the investment climate in Egypt. market-oriented. a favourable business environment with strong support from the government for the private sector. Egypt is an increasingly attractive choice as a location for transnational corporations. mining and services. the availability of highly trained and skilled labour at competitive wage rates. an efficient banking system and a dynamic and growing stock market. Egypt offers many advantages to investors.

advanced infrastructure and in the opportunities for combining trade and investment strategies in Egypt. As a result of the new philosophy adopted by the government to respond to the private sector and achieve economic growth needs new activities have been added to benefit from the incentives and guarantees granted by Investment Law 8 of 1997 such as: • Transportation to and from the new communities and remote areas. to cover the expansions in investment projects as well as the activities exercised under the BOT system. UNCTAD reports that Egypt was one of the two recipient countries for FDI in Africa. given the country's major advantages in availability of natural resources skilled and competitively priced work force. The choice of Egypt as a location for TNC activity is increasingly attractive. In 1999. Egypt is well placed to attract additional foreign investment given the success of its stabilization program and the strength of its economic recovery. geographical location. Its share was 29%.Incentives. FDI is the major source of capital flows to developing countries. • Services in the new communities and remote areas 5 . Egypt's record in attracting FDI has been very positive over the past decades.

8 66.564 2002/2003 388.5 69.667 2000/01 332.578 1999/00 315.5 66.5 65.0 6 .060 Source (table 3 –a) p. Volume of FDI to Egypt: Direct Investment in Egypt (net) In Millions of US Dollars 1997/98 Direct Investment in Egypt (net) 1998/99 1999/00 2000/01 2001/2002 2002/2003 1104 711 1656 - 509 428 701 Source (table 21) p. 30 Monthly Economic Digest Total GDP: In Millions of Egyptian Pounds 1997/98 Total GDP 266.544 2001/2002 354. • Development of industrial parks. 5 - Monthly Economic Digest Gross Investments: Value 1997/98 1998/99 1999/00 2000/01 2001/2002 2002/2003 Total Investments 61.2 71.758 1998/99 282.• Integrated tourism development.

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An important goal of the reform program was to shift the 10 . Egypt has implemented an economic and structural reform adjustment program. Legal Environment: Recent Economic Legislation: During the past decade.Environment for attracting FDI: 1.

This required dramatic legislative changes to enable the economy to meet the challenges of the new global economy in which Egypt has become an active participant.. the government has drafted and passed the special economic zones law in 2002. Investment opportunities exist in various sectors throughout the Egyptian economy. 83/2002 for Special Economic Zones: In its efforts to attract national and foreign direct investments to Egypt. with emphasis on export oriented ones among many others. 2. Goals of Law No. 11 . The law provides for the establishment of special economic zones that have the ability to compete with their analogs all over the world. Administrative Environment: In the new economic areas.economy towards a market-oriented economy policy. easing the way for investors worldwide to take advantage of the opportunities of this promising emerging market.. The needed legislative changes were implemented gradually in order to preserve the stability of the market and the economy as a whole. GAFI: GAFI is Egypt's "One Stop Shop" for investment. the license could be approved in 15 days because of the one stop shop.

Business Environment: Streamlining investment procedures. a freely convertible currency with full rights to 12 . dismantling bureaucratic obstacles and literalizing the business environment: these are priorities for the Egyptian government in is bid to foster an attractive climate for local and foreign investors alike. legal. GAFI's services are provided at no cost to the investor. Since the inauguration of the economic reform program in 1991. liberal conditions for trade. monetary. the economic policy and business environment now offer investors a plethora of attractive incentives and opportunities: duty-free zones and industrial cities benefiting from the most advanced infrastructure. Services Environment: The importance of the presence of service companies on an international standards and the presence of well developed infrastructure. 3. and stands ready to assist investors. financial and institutional spheres to encourage private-sector participation and boost investment levels.GAFI is the primary governmental authority concerned with regulating and facilitating investment. the government has taken measures in the economic. As a result. Services GAFI can provide range from company registration to site location to partner identification to contracts and licenses acquisition. a stable economy.

inexpensive human resource pool. effort and time required of investors who seek to establish new businesses in Egypt. not to mention a sizable portion of the lucrative regional market. Three branches of the One-StopShop are to be established in Alexandria. Egypt's 13 .. streamlining bureaucratic procedures considerably. have attracted an increasingly number of multinational corporations. a presidential decree made the General Authority for Investment (GAFI) responsible for establishing an Investment Service Pool (ISP) adopting the "One-Stop Shop" approach. Ismailia and Assuit Governorates. To boost investment in all sectors of the economy. and analytical reports regarding investment fields in Egypt. as any observer of the current Egyptian scene can confirm. In April 2002. ISP provides IT facilities to cater for investors needs either in the form of data collection. Drawing on Egypt's skilled. Legal and economic reforms have eased or removed price restrictions to accommodate the business environment further.. offices have been established across the country. investors today have a unique opportunity to capture a domestic market of 70 million.affect all transfers abroad. These developments. Representations of relevant authorities and agencies at ISP are to minimize the cost. followed by other additional outlets. comparative studies.

European.9 billion in 1999 and LE6. creating 1.6 billion in 2001. Total capital additions/expansions hit LE9. and demonstrates that industrial activities attract most investment in-land or in free zones.788. of which 11.geographic location provides investors with a strategic platform for virtually effortless entry to the Middle Eastern. In addition. has fostered the creation of several companies under the Investment Law (8/1997). 14 . American. Egypt has also signed several treaties for the Encouragement and Reciprocal Protection of Investment. Egypt has signed a number of bilateral and multilateral agreements to protect investments. The Egyptian business environment. At the end of June 2003. The table below illustrates capital growth and the proliferation of registered companies according to economic sector. total issued capital was recorded at LE154 billion.152 million job opportunities. and has also entered an investment guarantee agreement that insures against political risk for US private investments in Egypt (Overseas Private Investment Corporation). which offers investors so many incentives. Agreements with Egypt's major-trading partners also protect against double taxation. the total cumulative number of companies registered at GAFI amounted to 13.682 registered in-land and 772 in free zones. African. It is a party to the International Convention for the Settlement of Investment Disputes. and Asian markets.

and finally mega projects. the reader will found a detailed discussion of the business environment. corporate guidelines. including the benefits of investing in Egypt. with a total capital of LE33. and so further steps have been taken to attract investment and support business.6 billion. Many steps have been taken to attract investment and support business. an overview of the privatization program. however. the cumulative number at the end of June 2003 amounted to 16. INVESTMENT ADVANTAGES Merely creating a business-friendly environment is too passive a stance to promote the growth objectives of Egypt's citizens. foreign investments.As for companies registered in accordance to the Companies Law (159/1981). and no minimum local content conditions obtain. Below. Incentives Egypt Available for Investing in To create a friendly business environment is a paramount objective on the Government's. 15 .354. These consist of specific incentives ranging from tax holidays to exemptions from certain laws. free zones and industrial cities. Licensing for local and international investment is automatic and open to private business. Bureaucratic obstacles to market entry/exit and business operations have been eliminated over the past few years.

• Investment Priority Areas under Law No. 16 . • Guarantees against nationalization and expropriation of the project. and laws: • Encouragement and Reciprocal Protection of Investment • Agreements against Double Taxation Direct Incentives: The government has passed several laws and decrees that encourage production and foreign direct investment. 8/1997.8 / 1997 provided • A project may be wholly owned by foreigners.8 /1997. • Additional Investment Priority Areas under Prime Ministerial Decree issued in 2001/2002.Indirect Incentives: Investments in Egypt are defined and guaranteed in the following international treaties. agreements. Guarantees and incentives under Law No. maximizing them and streamlining the means by which they are granted: • Guarantees and incentives provided under Law No. • Additional Investment Priority Areas under Prime. 740/2000. by affirming all existing incentives. Any seizure of the asset of a project is to be effected only through a court judgment. Ministerial Decree No.

Baris and Farafra oases. • The majority of the board of directors may be nonEgyptian. • Foreign experts' salaries are exempt from income tax if their stay in Egypt is less than one year. 17 . • Egyptian staff employees can be hired freely. • There is an exemption from rules on workers' participation in management. • Projects are allowed to repatriate their capital and profits. Tax Holidays and Other Exemptions: • A project is exempt from corporate tax for five years starting the first financial year following the commencement of the company's activities or production activities.• Output of the project is not subject to price control. • A twenty-year exemption on income and profits commences on the first fiscal year following the start of business activity in the Kharga. • A five-year exemption on income and distributed profits commences from the first financial year following the start of business activity. and the East Owaynat and Toshka regions.

poultry and fish production. • • Animal. • Project contracts are exempt from stamp duties. • Projects are subject to a flat rate of only 5% as custom duties on equipment and machinery imported by the project. spare parts and vehicles without the need to be registered on the importation registry. it may export its products without being registered on the exportation registry. Similarly. • The project is allowed to import equipment and machinery. Manufacturing and mining. Fields of Investment: Activities in the areas stated in Article No. registration and notarization fees for three years effective from the date of registration in the Commercial Registry. 18 .1 of the Investment Guarantees and Incentives Law • Reclamation and cultivation of barren and/or desert land.• Projects established in new urban communities. • Land reclamation projects enjoy a tax holiday of ten years. industrial parks and remote areas enjoy a tax holiday of ten years.

Venture capital. electricity. • • • • Financial leasing. medical and therapeutic centers that offer 10% of their capacities free of charge. communications and under multiple story garages. Production of computer programs and systems. motels. hotel apartments. sewage. • • • Air transportation and directly related services. Development of new zones. Overseas maritime transport. exploration as well as gas transport and delivery. refrigerators for the purposes of storing crops. villages and tourist transportation.• Hotels. • Hospitals. 19 . manufactured products and food stuffs and container stations. unfurnished leasing for non-commercial uses. • Infrastructure operations including potable water. • Refrigerated transportation of goods. roads. Petroleum services in support of drilling. • Housing complexes for the purposes of full.

Hi-Tech industrialization under regional specialization and integration. Aggressive privatization to create a competitive market of Hi-Tech and quality. sometimes it might take 1-1. 2.5 years to get approval from different ministries and authorities which is a loss of time and money for the investor.T system.O. 20 . so stability in the exchange rate which is a prime concern for any foreign investor. Convection and partnership of local investment in small and medium industries with FDI to transfer technology and promote export Markets for small and medium projects productive of goods or services. Stability of foreign exchange market: To follow monetary and fiscal policies leading to stability in the foreign exchange market. operation and management of under-ground multiple storey garages on the basis of B.• Establishment. Obstacles Facing FDI: 1. 2. New Strategies for Promotion of FDI: 1. Long procedures: list of Administrative To have the license. 3.

Antitrust and competition law: This will prevent monopoly and opens the market for competition and gives a chance for the involvement of private sector in all fields.4. training programs. There is a need for economic legislation for: Consumer protection law: To avoid any commercial fraud and to guarantee the criteria of products according to international standards and measures and in order to attract the foreign investor in a competitive market guaranteeing transparency. Unconditioned exemption of corporate taxes: If profit of organization was not subjected to corporate tax in the host country. 21 . it is subjected to income tax of the country of origin of capital leading to loss of income to host country budget while it is an exporting income of budget to country of origin (rich country).. etc. poor countries supports to achieve development and employments are losing for the sake of state budget of exporting country. Availability of market studies. So. information.

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