Nesma Nowar investigates why Egyptian investors remain wary of Africa Africa is believed to be one of the most attractive and promising developing markets. It is a market with abundant opportunities and potential for highly profitable foreign investment. Thus it is not surprising to see the current struggle among major economic powers over the black continent. Chinese and US corporations are increasingly interested in investing in Africa. They see pockets of great potential in Africa, and they are increasing their African investment thrust day after day . The recent period has witnessed an increase in the flow of Egyptian investments in Africa, especially after Egypt joined the Common Market for East and South Africa (COMESA). Egyptian exports to COMESA states hit $1.6 billion in 2008 in comparison with $159.8 million in 2004. Imports from these states by Egypt reached $1.158 billion in comparison with $155 million in 2004. However, Egypt's investments in Africa continue to be below desired levels. More economic cooperation is needed. In a recent conflict over the Nile Basin, four upriver Nile countries (Ethiopia, Uganda, Tanzania and Rwanda) signed on 14 May a "Framework Agreement" in Entebbe, Uganda that would allow them more liberal management of the Nile waters for irrigation and other developmental projects. Egypt and Sudan refused to sign. It has become obvious that consolidating good economic and commercial relations with Africa is crucial. According to Farag Abdel-Fattah, professor of economics at the Institute of African Research and Studies at Cairo University, the recent conflict over Nile waters has pushed officials to take steps to boost economic relations with African states. "This is one of the diplomatic solutions to solve the conflict," he said, adding that over the coming period there will be intensive efforts to boost economic cooperation with African states. "As a matter of fact, strengthening economic ties with Africa will benefit Egypt on both the economic and political fronts." Indeed, Egypt has chosen to move towards consolidating ties with its African neighbours. In December 2009, Prime Minister Ahmed Nazif's visit to Ethiopia resulted in the establishment of the Egypt-Ethiopia Council of Commerce. In response to his visit, the Egyptian Businessmen's Association (EBA) announced the establishment of the Egyptian-African Company for Investment and Development with a capital of LE100 million. The company aims at the promotion of investment projects in Nile Basin countries and to help the Egyptian private sector enter these markets. Meanwhile, Egyptian banks started turning towards Africa and, as a result, announced the execution of several investment projects in Ethiopia, where the National Bank of Egypt invested in 250,000 acres of agricultural land. Citadel Capital, a leading Egyptian private equity firm in the Middle East and Africa, recently received the prestigious Industry Award that recognises the achievements of outstanding African businesses that are contributing to the economic growth and development of the continent. Citadel Capital is ranked by Private Equity International as the continent's largest private equity firm. Since founding in 2004, the firm has generated $2.5 billion in cash returns for shareholders and co-investors on investments of $650 million. Citadel Capital continues to pursue investment opportunities throughout the continent and owns vast investments in various fields like energy and transportation. Nevertheless, promoting economic relations with Africa is easier said than done. Investing in Africa involves many risks that can drive investors away. According to Basel Roshdy, general manager of Nile Capital, another leading private equity firm, among the main challenges facing investors in Africa is political instability and the risk of fluctuating currencies. "The rates of African currencies are not stable, and can change several times," Roshdy said. Roshdy also cited "difficult exit" conditions from African markets due to unstable situations and underdeveloped stock markets. "There is also the dilemma of money transfer, which is restricted in many African states where investors find difficulty in repatriating their earnings," he said. "Some countries do not allow the outside transfer of money earned, but they allow reinvestment in other projects." Roshdy noted. Except for Egypt, South Africa, Tunisia and Morocco where economic reform policies have been enacted and where the investment climate is more stable, various problems are experienced across the African continent. Roshdy's personal experience is testament. After having established a company in Zimbabwe, operations had to stop as the government withdrew the company's licence for no clear reason. "The government ruined everything, so it didn't work and we had to look for other opportunities in other states like Tunisia and Algeria, but they were not successful as well," Roshdy said. Nonetheless, it appears that things have been getting better during the past few years, especially in countries like Sudan, Nigeria, Kenya and the Ivory Coast. "A notable improvement in the investment climate in these countries can be traced particularly since they have started signing international agreements and getting involved in free trade associations," Roshdy said. According to Roshdy, infrastructure is one of the important sectors to invest in. "Infrastructure is widely lacking in Africa. However, investing in infrastructure is sizable, sophisticated in terms of time, resources and legalities, and it is of a long-term nature," he said. One alternative for Egyptian investors seeking opportunities in Africa, he added, is to partner with prominent "high level local partners". Others plan a quick exit by selling shares to locals after making good profits. "The hit and run strategy can be an effective way for securing a safe exit with the least losses," he said. While Africa is not Europe, it has its own advantages. "The higher the risk, the higher the return," commented Roshdy, who believes in the importance of breaking new ground and taking a risk in order to reap benefit. "Egypt should approach Africa in that way," he said. Are all African states difficult to work in? Absolutely not. Hatem Hussein, marketing studies consultant, refers to COMESA countries as favourable states for investment. "These countries have effective banking systems in a way that facilitates the flow of trade and investment." According to Hussein, the main challenges that face investment in Africa are political. "The corruption of governments and political systems ruins investment," he said. Hussein believes that the private sector can play a significant role in promoting Egyptian investment in Africa. "The private sector should acquire a broader vision of what the African markets need and offer," he said.
