Developing and transitional economies are capturing a larger share of FDI inflows and Egypt is following suit, writes Sherine Nasr In the early 1990s when Ahmed Zaghloul, now president of AstraZeneca Egypt, first put forward his idea to invest in his mother country, his executives quickly dismissed his suggestion out of hand. "Why go to hell, they told me," said Zaghloul who will inaugurate the multinational pharmaceutical company's first facility in Egypt within the next few weeks. "The $35 million facility will only produce for the local market to begin with. However, it is very likely that we will expand in order to export pharmaceuticals to other neighbouring countries soon," added Zaghloul. Zaghloul was not the only representative of a multinational company to tell of a successful foray into the Egyptian market. In fact, the strong FDI performance in Egypt during this year has improved the status of the Egyptian economy in the World Investment Report 2006 issued last month by the United Nations conference on Trade and Development (UNCTAD). Egypt moved to 66th position in 2005, from 126th in 2003 and 98th position in 2004, according to the FDI Performance Index, which ranks countries by the FDI they receive relative to their economic size. Egypt was ahead of Portugal, New Zealand, Brazil, Tunisia and Turkey. The FDI flowing into the country has registered its highest level yet, estimated at $6.1 billion or 6.49 per cent of the GDP for 2005/2006 compared to $509 million in 2000/2001 or 0.55 per cent of GDP. "And for the first time we are seeing the non-oil sector attracting significant investments representing 70 per cent of the total inflow of FDI into the country," said Minister of Investment Mahmoud Mohielddin on behalf of Prime Minister Ahmed Nazif during the inauguration of the second Regional Conference of the World Association for Investment Promotion Agencies (WAIPA), held early this week. The WAIPA is a consortium of 200 investment promotion agencies in 150 countries. Capacity building is a major role of the association which ultimately aims at helping its member agencies to become more efficient. Mohieldin stated that FDI is expected to increase by roughly 15 to 20 per cent next year. Meanwhile, portfolio investment has turned from negative to positive and the market capitalisation of the listed companies in the Egyptian Stock Exchange increased from 33 per cent of GDP in 2004 to more than 85 per cent in 2006. As a matter of fact, Egypt is not the only developing country to witness a boom in FDI, as has been noted by the UNCTAD's report for 2006. The report showed an increase in FDI in developing countries amounting to $334 billion. "It is a 36 per cent of total world FDI flows and the highest achieved by developing countries ever," said Kai Mammerich, president of WAIPA. Africa attracted an unprecedented $31 billion of FDI in 2005 compared to $17 billion in 2004. "In North Africa, Egypt attracted more FDI than Morocco, Sudan, Algeria and Tunisia. Egypt was second only to South Africa as it attracted 17.5 per cent of the total FDI flowing to the continent during 2005," the report said. "Egypt is on the move and it can play a key role in the region," noted Hammerich who added that very important changes in the economic arena are occurring as a complete redistribution of economic power is taking place. "This trend will continue and within the next 10 years, developing countries are expected to attract at least 50 per cent of the total FDI worldwide." Another major change lies in the fact that developing countries are no longer merely recipients of FDI, indeed, they are conquering many other countries through their own overseas investment. The UNCTAD's report on the outflows of FDI marks Orascom Telecom's purchase of the Italian company Wind Telecommunicazioni via the Egyptian company Weather Investment. "Orascom Telecom is considered to be one of the top 10 companies in the African non-financial sector," the report said. "It is obvious that the drastic reform measures taken by the Egyptian government are starting to bear fruit," commented Anne Miroux, chief of the Investment Issues Analysis Branch, UNCTAD, who added that despite the fact that at least 83 per cent of the FDI stock is mostly coming from Asia, countries like Egypt, Turkey and Jordan are rapidly following suit. The procedures taken by the government to attract more FDI and the improvements introduced into the industrial sector to move towards international standards were highly praised by the UNCTAD report. At the core of the institutional reform measures was the consolidation of the General Authority for Investment and Free Zones (GAFI) which managed in the past two years to introduce a number of vital investor services. These include an Investor Relations Unit to link investors to different departments of GAFI and the other investment-related entities. Investment Service Bureaus now extend GAFI's services to all governorates of Egypt. Moreover, an investment portal was launched in January 2005 to update investors with information, investment opportunities, laws, reports and events. In addition to this, the One Stop Shop in Cairo with branches in three other governorates, has helped to launch companies more easily than ever before. "Companies are now established in three days instead of three months, as it was two years ago," said Ziad Bahaaeddin, chairman of GAFI who added that some 10,000 companies have been launched in the period from July 2005 to June 2006. According to Mohielddin, other significant reform measures have also been taken, including the establishment of a General Authority for Industrial Development, the launching of the first Corporate Governance Code in the Arabic language and the implementation of an antitrust law. "Moreover, tax rates have been drastically cut in half since June 2005, tariff rates were reduced by 38 per cent and tax and customs procedures have been upgraded to guarantee a smooth and transparent tax payment system," said Mohielddin. Nevertheless, some major challenges remain unmet. "We are aware of the fact that good performance should not distract our attention from some serious problems that need long-term solutions," stated Mohielddin who outlined bureaucracy, access to finance, access to land and problems of dispute settlement procedures to be among the top reform priorities identified by the government.