The violent incidents that have taken place in the streets of Egypt's cities over recent weeks following the dispersal of the two sit-ins carried out by supporters of ousted former president Mohamed Morsi are being seen as another blow to Egypt's appeal to foreign investors. The influx of foreign direct investment (FDI) has been declining since the 25 January 25 Revolution that ousted former president Hosni Mubarak to hover at around $1 billion in both 2011 and 2012, compared to its peak of $13.2 billion in 2007/2008. The growing political instability and the accompanying violence in the streets have pushed investors to pull out of the country, and the International Monetary Fund (IMF) has reported the value of investment outflows from Egypt in 2012 at $3.9 billion. In 2013, FDI outflows from Egypt started to slow down, however. According to the Central Bank of Egypt, outflows came in at $1.085 billion in the third quarter of fiscal year 2012/2013, compared to $2.27 billion during the previous quarter. However, this came as the inflows of FDI registered a whopping 417 per cent increase in the same quarter (from January 2013 to March 2013) to reach $1.07 billion, compared to the $193 million in the second quarter of the same year. The European Union topped the list of the FDI's origins despite a 26.7 per cent decline in value to reach $954.9 million. Coming second was investment from the US, which totalled $445.5 million during the same period, compared to the $555.7 million in the previous quarter. Meanwhile, investments from the Arab countries jumped during the same period from $311 million to $601 million thanks to a 500 per cent increase in investment from Qatar, a main regional ally of the Muslim Brotherhood. However, the lack of security following the crackdown on Morsi supporters last month, following skirmishes across Egypt and the imposition of a curfew, have nevertheless stirred concerns about the future of investment in Egypt despite these encouraging signs. The last couple of weeks have seen many foreign companies either halting their activities in Egypt or even considering leaving the country altogether. Apache, the US oil and gas producer, said it would sell a 33 per cent stake in its Egypt oil and gas business for $3.1 billion to the state-owned Chinese oil giant Sinopec, reducing its exposure in Egypt amid the political unrest. Meanwhile, the agents of car makers General Motors and Suzuki have said that due to the political instability they are considering discontinuing their operations in Egypt. Other companies have preferred to wait and see the turn of events. “Taking the decision to quit the market at the moment is not an easy one for foreign companies,” said Heba Nassar, a professor of economics at Cairo University. For large, well-established firms that have been operating in the market for years and have their own local factories it is not an easy decision to shut down operations, and it was likely that they would prefer to follow the situation carefully instead, she said. However, portfolio investors eyeing stock market bargains were more likely to exit the market. According to a recent Egyptian stock market report, however, foreigners have been net buyers on most days over the past month. Minister of Industry and Foreign Trade Mounir Fakhri Abdel-Nour denied that some foreign companies had decided to close their operations in Egypt, explaining that some firms had been obliged to shut down for a few days due to security concerns though the ministry did not have official information on these shut-downs. Abdel-Nour told the media last week that spreading rumours of shut-downs was aimed at disturbing the investment climate in Egypt and that it would threaten the economy. He said that the government intended to guard the country's position as a leading investment destination in Africa and the Middle East. According to a report issued by the advisory services company Ernst & Young in April, Egypt ranks as Africa's second-most attractive investment destination after South Africa, despite the political instability following the ouster of Mubarak in 2011. Abdel-Nour said that the large number of new factories that had been established in the country expressed the interest of local and foreign investors in investing in Egypt in order to gain benefits from the competitive advantages it offered, including location, cheap labour and commercial agreements with the most important countries worldwide. The Industrial Development Authority issued 1,686 licenses for foreign commercial operations in the country, of which 1,277 were for new factories and 409 were as expansions for already established facilities, from July 2012 to June 2013, with total investments of LE60 billion. For many experts, the current political instability will have an only temporarily negative impact on FDI, and Egypt will remain attractive to foreign investors. “Egypt is a large market that enjoys high investment opportunities in different sectors such as information technology, real estate and cars,” Nassar said. However, the international community's reaction to the situation in Egypt, particularly on the part of the EU and the US, might affect the reputation of investment in Egypt, she said. It was for this reason that diplomatic initiatives were important to help prevent decisions that could be imposed as economic penalties on the country. Nassar said that the decision taken by Denmark, for example, to halt its economic assistance to Egypt was a serious one not because of the value of the aid, which was minimal, but due to the way foreign investors might see Egypt as a result. But businessmen remain generally confident that the political turbulence will not permanently affect their operations. “It cannot be denied that the current political instability has led some investors to halt their operations in Egypt, but this will be just for a short while,” said Adel Gazareen, former chairman of the Al-Nasr Automotive Manufacturing Company. As long as the political conditions continue to improve and investors feel secure, investment from different countries in Europe and the Far East will continue to be directed towards Egypt, which remains an attractive market, Gazareen said. “In order to foster investment, the economy laws should be reconsidered to include more incentives for both local and foreign investors,” he said, adding that the application of the road map announced by the interim government would be an important prerequisite to boosting investment inflows into Egypt.