CAIRO: Over the last several years, a cadre of Cabinet ministers, a barrage of new policy and the strength of free market capitalism have conspired to dramatically increase international investment in Egypt, which topped $13 billion in fiscal year 2007/2008. But for a country that has begun to rely so heavily on foreign investment for continued economic growth, the current global economic slowdown will present an array of challenges - and a few opportunities - going forward. Driven by a set of investment-friendly policies, increase in FDI has been driven primarily by growth in the real estate sector and also by the entrance of new foreign companies and the expansion of operations by existing ones. Sales of existing assets to non-residents as well the petroleum sector have both shown more modest growth. Up until 2003, the numbers for FDI in Egypt remained paltry. Between 2000 and 2003, annual fiscal year FDI languished between $400 million and $700 million. Since the middle of 2003, foreign investment in Egypt has begun to take off. For the fiscal year (which begins in July) 2003/2004, FDI was $2.1 billion. This represented the greatest year-on-year increase in foreign investment of this decade, at 300 percent. In fiscal year 2004/2005, FDI rose to $3.9 billion. Over the fiscal years 2005/2006 and 2006/2007, FDI stood at $6.1 billion and $11.1 billion, respectively. Today, though, given the climate in the global economy, Egypt may be less well suited than it was several years ago to batten down the hatches and ride out the storm. Its dramatic entrance into the world of foreign investment has meant that the country has more closely tied its economic well being to that of other countries around the world. Though the growth of FDI in Egypt has brought growth and opportunity to the country, the global economic crisis may have greater impact on the Egyptian economy than it might otherwise have. "We will be affected by the foreign investment, said Amr El Far, head of retail trading for Egyptian investment bank Naeem. Because so much of FDI tends to be in the form of major infrastructural investment, it may be sometime until the direct impact of the global economic crisis on FDI is felt. But the stock market, which has fallen by almost 50 percent in the last four to five months, may serve as an early barometer. "Over the last three or four months, the Egyptian stock market has been deeply hurt, said El Far. "This effect in the stock market came from the foreign investors, he added. There is no reason to necessarily correlate investors' distaste for short-term investment with their appetite for long-term commitment to a developing country. The flood of foreign money out of the stock market, though, does represent the traditional crisis-era protectionist mindset. A hopeful sign that Egypt may be spared the worst of the economic crisis, however, is that much of its FDI comes directly from the Gulf. Gulf states have made a grand entrance into the Egyptian economy, taking a leading role in the energy sector, as well as in real estate and telecommunications. With international oil prices robust, though off their summer highs, Gulf states might be less likely than other investors to dramatically change their foreign investment strategies. On the contrary, if the global economic crisis continues to depress prices around the world, a variety of infrastructural purchases might suddenly seem more appealing to states awash in oil wealth. With every challenge comes an opportunity, and these economic challenges have proven no exception. With so many investors withdrawing from the global markets, Egypt is in a position to rebrand itself so that when the troubles subside, and investors sitting on their wealth begin looking for a place to park their money, Egypt is an appealing spot for investors. Reham ElDesoki, economist at Egyptian investment bank Beltone Financial, argues that the dramatic rise in FDI is "not in response to the marketing effort [by the government] as much as it is to the opportunities created by the government in the different sectors of the economy, she said. And going forward, she said, "I think addressing the investment environment in the non-traditional sectors is a good way of insuring FDI keeps flows to Egypt after the turmoil subsides. She noted industries like transportation, healthcare, renewable energy and food processing as possibilities. "Reforming these sectors over the next year would insure that investment continues to flow to the non-traditional sectors, and [that] the group of non-traditional sectors expands over time to include more activities, as investors see the outcome of investing in non-traditional sectors, she added. Though FDI will likely see its high rate of growth somewhat curbed by the global economic troubles, signs indicate that the country may be spared the worst of the storm and may emerge in a stronger position.
