A lot remains to be done before the Arab region gets its fair share of FDI, writes Sherine Nasr After two days of extensive discussions, the distinguished delegates who met in Cairo earlier this week did not uncover any new problems hindering a smoother Foreign Direct Investment (FDI) flow into the region. Nor did they propose creative solutions to solve existing problems. Participants were economists and high ranking officials from 19 Arab and foreign countries who gathered at the first Cairo Investment Forum, which was held under the patronage of President Hosni Mubarak. "In theory, and in all the relevant experiences from many countries, investment is at the heart of the economic growth and development process," said Michael Spence, former dean of the Stanford Business School and holder of the Nobel Memorial Prize in Economic Sciences. Yet, the typical problems in the region have all been defined long ago; bureaucracy, corruption, difficult access to land and finance, the absence of rapid economic dispute resolution mechanisms and the unavailability of skilled labour, to name but a few. Despite the fact that Egypt, in addition to some other Arab countries, has managed to attract unprecedented FDI flows in 2006, it has been noted that, generally speaking, the Arab region's share of the global FDI is still somewhat lacking. "In 2005, FDI flowing into the region was estimated at $37 billion, which represents not more than four per cent of the total FDI influxes globally. This meagre volume of FDI does not, by any means, match the calibre of this region," said Abdel-Rahman Taha, general director of the Islamic Corporation for the Insurance of Investments and Export Credit, an affiliate of the Islamic Development Bank. Notably, 80 per cent of these FDI flows were shared by only six out of 18 Arab countries, that is, Egypt, Saudi Arabia, Morocco, Lebanon and Sudan. "One main reason behind a modest FDI flows is the high risk perception that has overshadowed the region," said Taha who added that the role of insuring business against geopolitical risks should be enhanced effectively. Nevertheless, many Arab governments, including Egypt, have committed themselves to introducing some drastic reform measures to the financial system, and the efforts have started to bear fruit. At a speech, delivered by Prime Minister Ahmed Nazif, on behalf of President Mubarak, the president underlined that the economic reform programme, adopted by the government in the past few years, has yielded some tangible results. "Growth rates have jumped from 5.7 per cent to 6.9 per cent in two years. FDI increased to $6 billion compared to $2 billion in 2004. Net international reserves increased to $26 billion from $14 billion for the same period. Exports have increased by 34 per cent this year and the privatisation proceeds for 2005- 2006 exceeded LE15 billion. These monies have been directed to upgrading infrastructure projects in roads, harbours, transportation services and sanitary drainage," said President Mubarak. He added that next year, the government will introduce a number of laws to regulate real estate taxes, insurance, construction and economic dispute settlements. These will all be major steps towards a more investment-friendly climate in Egypt. "There is no doubt that these measures have helped improve Egypt's economic performance a great deal," commented Mustafa Nabli, the chief economist and sector director of the Economic Management of the Middle East and North Africa at the World Bank (WB). Nabli underlined that although Egypt was ranked 175th in a WB Doing Business Report for 2007. "The report registered enormous improvement in the perception of doing business in the country in areas related to tax and customs administration and regulations, legal disputes and access to lands."" Nabli added that all these measures have contributed to a high growth rate and a greater influx of FDI into the country. According to Nabli, this theory has been supported by two business surveys that were conducted by the WB in 2004 and 2006 where 750 different firms operating in Egypt were questioned twice about the environment in which they have been operating. "Most of these companies have underlined some very positive changes that were not there before." In another UNCTAD (United Nations Conference on Trade and Development) report measuring a country's ability to attract FDI, Egypt jumped from position number 126 in 2003 to rank at 66th in 2005. "But rank is not that important. More important is that there are lots of opportunities to improve the situation," said Michael Essex, director of the Middle East and North Africa Department at the International Finance Corporation (IFC), Egypt. Essex noted that during this year, FDI reached its highest ever global level and is at its highest level in developing countries. "Egypt is leading the region as the second largest country to attract FDI, following South Africa," said Essex, adding that Cairo has been the hub from where IFC is managing 18 other countries. At present, the IFC is involved in a major project with the General Authority for Investment and Free Zones (GAFI) to reduce time and procedures required to start up business. "It is expected that start up business procedures will be reduced by half once this project is completed," said Essex. While Egypt, along with a number of other Arab countries, have been doing well in the FDI front, trade among the Arab countries has been an issue of extensive debate. According to Salah El-Shamsi, chairman of the Trade and Industry Chamber in Abu Dhabi, trade between the Arab region and the international market is estimated at $400 billion while trade between Arab countries is at $40 billion. "The volume of trade is somewhat meagre despite the fact that some real opportunities do exist in the region," commented El-Shamsi adding that these opportunities still lack in active mechanisms to get things going. In an attempt to enhance intra-regional trade and provide for smoother capital movement into the region, Egypt introduced a pioneering initiative through the issuing of the "Arab Investor ID Card", the holder of which will be able to move and deal freely within any Egyptian authority and get the same treatment as Egyptian investors and businessmen. "The ID does not replace a visa. Arab investors will still have to obtain their visas. Yet, the ID will facilitate dealing with official authorities including tax and customs administrations, the airport, GAFI, the courts and any other economic or investment-related department in the country," said Mahmoud Mohieldin, minister of investment. A similar procedure was adopted earlier by Saudi Arabia that last year issued 260,000 visas to businessmen. "The fact remains; we are moving fast, but not fast enough. Improvements have been made, but they are not good enough. Every day we are late, there is a lost chance," said Youssef Boutros Ghali, minister of finance and social insurance.
