The UN Conference on Trade and Development (UNCTAD) recently released its World Investment Report 2021: Investing in Sustainable Recovery, which showed a dramatic drop in foreign direct investment (FDI) to Egypt last year, tumbling 35.1 per cent to record $5.9 billion, down from $8.5 billion in 2019. The decline in FDI to Egypt in 2020 was on par with the drastic 35 per cent global drop as a result of the Covid-19 pandemic, but represented a sharper fall than that in both North Africa and the African continent as a whole, where inflows contracted by 25 per cent and 15.6 per cent, respectively. But while FDI to Egypt took a heavy blow as a result of the Covid-19 crisis, the country remains by far the largest recipient of foreign investment in Africa. Receiving $5.9 billion in FDI in 2020, the country's investment inflows are equivalent to 14.5 per cent of the whole amount invested in the region that year, according to the Arab Investment and Export Credit Guarantee Corporation's Investment Climate 2020 Report. More importantly, the outlook is also positive for either a strong rebound, or a full recovery to pre-pandemic levels of investment in 2022, according to analysts who spoke to Al-Ahram Weekly. Mohamed Abu Basha, chief economist at investment bank EFG Hermes, said that despite Egypt's not seeing European-style lockdowns during the pandemic, its impact had nevertheless been "destructive" for the country's economy. "Covid-19 interrupted the beginning of the recovery," he said, referring to an uptick in investment in 2019 as the country began to emerge from its first round of economic reforms. But Abu Basha described the outlook for the near-term as positive. "I think we should expect to see FDI picking up decently over the next fiscal year," he said, adding that he expected to see inflows back to pre-pandemic rates "probably towards the latter half of the coming [2021-22] fiscal year". Mona Bedeir, a senior economist at Prime Holding, agreed that while the pandemic had halted the FDI rebound seen in 2019, there was still reason for optimism. "Now we see the economy on a stronger footing," she said, adding that "we expect FDI back to the pre-Covid-19 level, or even to exceed pre-Covid-19 levels," with a forecast of $8 billion in inflows in the 2022 calendar year. Similarly, Allen Sandeep, director of research at Naeem Brokerage, told the Weekly that "overall, we expect total net FDI to come in at about $7.5-8 billion in the 2022 fiscal year (versus our estimate of $7 billion in 2021), which is around two to 2.5 per cent of GDP." The analysts' optimism matches that of Planning Minister Hala Al-Said, who in a May statement predicted FDI into Egypt to reach $7 billion in 2021-22. Abu Basha noted that the pandemic-induced price collapse in oil and gas — key sectors that account for as much as three quarters of FDI inflows, according to Santander Trade — had led to a serious slowdown in production last year, particularly in gas. However, he added that a rebound in prices indicated that the hydrocarbons sector appeared to be over the worst of the crisis. "Now, with where oil prices are, I guess you should start to see a very good recovery [in FDI]," he said. Although the oil-and-gas sector will continue to be the main recipient of FDI in the short term, all three analysts expected to see more diversification in the investment landscape in the years to come, with increased interest in non-oil sectors. Mergers and acquisitions may play an important role, according to Sandeep, who added that "we expect some build-up in non-oil FDI in the 2022 fiscal year, especially on the mergers and acquisitions side, as we see significant interest from strategic foreign investors (including from the Gulf Cooperation Council countries), who view the current situation as an opportunity to buy at reasonable valuations." Abu Basha, meanwhile, noted that big exploration projects, including the 2015 discovery of the Zohr Gas Field, had "skewed the investment weight towards hydrocarbons," but that "this will start to reach a more stable level" as the recovery progresses. Bedeir agreed that "this is one of the main obstacles for FDIs… that they are really concentrated in oil and gas — mainly gas," adding that the next phase of economic reforms would have an impact in attracting investors to a wider range of fields. Both Bedeir and Sandeep pointed to manufacturing, healthcare, and communications and IT as sectors to watch, while Sandeep also flagged financial services and downstream energy distribution for increased investor interest. Communications in particular, said Bedeir, was one of Egypt's fastest-growing sectors, with projections for a double-digit growth rate driven by government efforts towards financial inclusion and activity in fintech, consumer finance, and start-ups, all of which "support our view that the sector will attract more foreign investors". She also noted the potential for new investment in renewable energies, water treatment, education, and state infrastructure projects, particularly the New Administrative Capital, which she said had "opened the door for more investors to participate in upgrading infrastructure in Egypt". And while the pandemic has had a dramatic negative effect on FDI globally, it has also offered Egypt an opportunity to prove itself as a stable environment for investment, even in the face of serious challenges. "The economy showed resilience in the face of the pandemic," Bedeir concluded. The writer is a freelance journalist. *A version of this article appears in print in the 8 July, 2021 edition of Al-Ahram Weekly
