Cautious optimism ruled the day at the second annual Egypt Invest forum. Wael Gamal reports Egypt's investment crunch hasn't changed much since the first Egypt Invest forum took place a year ago. The only major climatic change is the fact that a new government -- with a neo- liberal vanguard -- is now in place. At last week's second round of Egypt Invest, it was that factor that stood out as the only new asset that might help to promote new investments. Foreign investment has been at the heart of the state's economic strategy for the last decade; consecutive governments, however, have failed to activate this crucial economic and developmental leverage. The problem intensified with the dramatic decline in global foreign direct investment (FDI) inflows since 2000. They were down by 41 per cent in 2001, and continued falling in 2002 by another fifth, reaching only $651 million, or just half the peak of 2000. Today, FDI inflows to Egypt, estimated at around $400 million, lag behind regionally as well. David Dyas, vice- president and managing director of Xerox, which founded its business in Egypt in 1978, explained why. "What does an international business look for? Growth potential, size of Gross Domestic Product (GDP), maturity of the market, stability and availability of the local currency, education dynamics, IT literacy, fair taxation, the cost of labour, and a responsive, fast moving government. Based on these criteria, Egypt comes after the UAE, Bahrain, Oman, Kuwait and Turkey," he said. This dynamic is also clear when comparing transaction costs in Egypt to the region, as well as emerging economies in general. "You need 20 per cent more money to start a business in Egypt," said Joseph Ryan, USAID-Egypt's associate mission director for policy and private sector. "The cost of exit is also very high. The higher this cost, the higher the economic risk. Egyptian risk levels are three fold Organisation for Economic Cooperation and Development (OECD) countries' levels, and double the average risk levels in the region. This hurts mobile transnational investments the most." Mohamed Mansour, who heads the Egypt- US Business Council, says local businessmen blame policy- making. "There are many reasons why investments are so low. We didn't move fast and bold enough compared to neighbouring countries. There is no clear vision of where to go, and we were not able to organise positive participation from the private sector and civil society." Mansour also blames "the absence of proper people for the job". Mansour's investments have been on hold for three years. As he thinks about revitalising them, however, there is optimism. "With the new government, the level of confidence is growing, and we expect major changes, especially with the return of trust in the people who are in charge. As a businessman, I feel confident and optimistic," he said. But trust must translate into action for the problematic situation to be resolved. The behaviour of local investors is a crucial factor in attracting foreign investments. Currently, the ratio of investment to GDP is very low. After reaching a peak of 34 per cent in 1988, it followed a general downward trend to slump to 16.4 per cent in 2003. This was mostly due to the fact that when a sharp reduction in public investment took place, the private sector didn't step in to replace it. The World Bank estimates that the ratio of investment to GDP has to increase to at least 25 per cent in order to reach a seven per cent growth target. "This situation needs more than changing faces," said OECD Deputy Secretary-General Richard Hecklinger. "The biggest challenge is not identifying what's to be done, which is already acknowledged by international and local institutions and businesses. It is important what the government is doing now. The challenge is how to implement the policy change." Investment Minister Mahmoud Mohieddin was heavily feted after presenting the forum with a general outline of what the new government intends to do. "We need to double the size of FDI, which is about $400 million, and this is not enough. Other measures have to be taken to reach the levels Egypt deserves." The government has already begun restructuring the General Authority for Investment and Free Zones (GAFI) -- the organiser of the Egypt Invest forum -- to assume a promotional and fast taxes dispute settlements role while centralising investment services. Reactivating the privatisation of an attractive portfolio of publicly owned companies, and more deregulation of public services in transport, health and education are also amongst the measures that the government hopes will help revive investors' interest in Egypt. Mohieddin also listed new measures to boost transparency, including a monthly monetary policy statement, and the publishing of public companies' general assemblies' minutes. Is all this enough? In Americana Chairman Moataz El-Alfi's view, "the new cabinet is young and aggressive. Mohieddin sold four companies in three months, while the previous government didn't do anything. Still," he said, "we should be cautious."
