Egypt investment prospects are still unclear: UN body

Foreign investment in Egypt has fallen a long way from its 2006 peak, but while the fundamentals may be in place for a recovery the global economic picture adds uncertainty

The long-term outlook for foreign direct investment in Egypt is promising but political instability is likely to affect recovery in the short run, according to a spokesman for the United Nations Conference for Trade And Development (UNCTAD).
Speaking to press on Tuesday at the Diplomatic Institute near Cairo's Tahrir Square, UNCTAD's economic affairs officer, Guoyong Liang, said there are grounds for cautious optimism.
“[Problems] can be overcome easily because most of the people think change is in the right direction. For people who love peace and democracy, Tahrir Square represent a symbol of these value. Put the rule of law and efficient institutions in place and you have what is needed," said Liang.
“Foreigners didn't hear about 'liberation square' before the revolution so there is a psychological block, but prospects remain positive because the bases are there, like the large labour and good geographical position."
Liang was speaking at the launch of UNCTAD's World Investment Report 2011.
For Egypt -- as for the rest of the world -- political instability isn't the only fear. The increasing likelihood of a renewed global economic crisis could also trigger a decline in FDI flows.
In 2010, Egypt saw FDI inflow drop 5 per cent to US$6.380bn but maintained its place as Africa's second largest recipient of investment, receiving 12 per cent of the continent's total, according to the UNCTAD.
But Egypt is a long way from the glory days of 2006, when it attracted more than a fifth of FDI flowing into the continent.
This success was largely due to investments in oil and gas facilities which were later redirected into manufacturing and the services sector, according to Liang.
"Egypt's ranking within the continent remained high, but its share of the total FDI flowing into the continent dropped in the last few last years," he said.
FDI inflows witnessed a partial wordlwide recovery in 2010 following the worst of the worldwide crisis.
The UNCTAD notes that global FDI has not yet recovered to its pre-crisis level, but is gaining momentum.
“Worldwide Foreign Direct Investment flows rose moderately to $1.24 trillion in 2010, but were still 15 per cent below their pre-crisis average," says its report. By contrast, global inflows were $1.97 trillion in 2007, 37 per cent higher than in 2010.
UNCTAD estimates that FDI will return to its pre-crisis average of between $1.4 and $1.6 trillion sometime this year before approaching its 2007 peak in 2013.
These figures stand in contrast to global industrial output and trade, which are already back to their pre-crisis levels.
But the shadow of a possible crisis can have a drastic affect on these optimistic predictions, says the UCTAD report.
"The post-crisis business environment is still beset by uncertainties. Risk factors such as the unpredictability of global economic governance, a possible widespread sovereign debt crisis, and fiscal and financial sector imbalances in some developed countries, as well as rising
inflation and signs of overheating in major emerging market economies, may yet derail the FDI recovery," it reads.
There was grounds for cheer too in the new that, for the first time, the developing world attracted more than half of global FDI inflow.
Inequality, however, persists. "The bad news is that FDI flows to developing countries were not equal. The poorest countries all witnessed a downwards turn," said Liang.
With doubts surrounding the health of global economy from one side and political instability from the other, the jury's out on which will have the stronger impact on FDI inflows to Egypt and North Africa next year.
This year's report had a special focus on Non-Equity Modes (NEM), a field of international production which has shown substantial growth over the last decade.
This kind of investment includes contract manufacturing, outsourcing services, franchising, licensing and management contracts.
"Cross-border NEM activity worldwide is estimated to have generated over $2 trillion of sales in 2009. They are growing more rapidly than the industries in which they operate," said Liang.
He adds that policymakers need to look beyond traditional equity, trade and direct investment to avenues like Non-Equity Modes as a means to integrate developing countries into the global economy.