FDI in Egypt During 5 Years

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FDI in Egypt during 5 years

Presented by

Dr. Amany Asfour

President

Egyptian Business Women Association(EBWA)

Business & Professional Women Egypt

(BPW-Egypt)

African Association for Women Empowerment

(AFRAWE).Mediterranean Congress of Business &

Professional Women

Representative of Civil Society for North Africa

in the African Union.

Introduction:

The Africa and Middle East region historically has

attracted low levels of FDI. Africas share of global

inflows fell from 2.3% in 2001 to 1.7% in 2002 and,

although the countries of the Middle East may attract

substantial investment into the oil and gas sector, FDI

flows into the most diversified economy in the region. The

Middle East and North African (MENA) region as whole

(excluding Israel) is only responsible for 0.9% of global

flows of FDI.

Egypt has a well-diversified economy, with no single

sector contributing more than 21% of GDP. Its well-


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integrated structure ensures sustained growth in a

diversified environment where sectors such as

manufacturing, energy, agriculture, tourism and services

interact to create economies of scale. This generates a

balanced distribution of the nations income, employment

and export revenues, and multiplies the opportunities for

investment and growth. Such a solid economic base

reduces vulnerability to external shocks and enables Egypt

to attract foreign investments in a variety o f fields (Fig ).

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Figure ( ): Composition of GDP 2002/2003

An Era of Reform:

In the early 1990s, the government launched an

Economic Reform and Structural Adjustment Program

(ERSAP) supported by a Standby Arrangement with the

International Monetary Fund and a Structural Adjustment

Loan from the World Bank, in addition to bilateral debt

forgiveness/debt service relief from the Paris Club. This

comprehensive program, designed to achieve

macroeconomic stability in the wake of part ial reforms

implemented in the early 1980s and debt rescheduling in

1987, included: financial sector reforms, interest rate

liberalization, reduction in subsidies and price controls,

exchange rate standardization, foreign trade liberalization,

and public sector reform. The overarching goal was to

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create an open, market-oriented, decentralized economy

receptive to foreign direct investment and private-sector

participation.

Egypt is an increasingly attractive choice as a

location for transnational corporations, with its natural

resources, skilled and competitively priced workforce,

geographical location, advanced infrastructure and

opportunities for combining trade and investment

strategies. Opportunities also abound in manufacturing,

high technology sectors, food processing, textiles, mining

and services.

A number of sectors and industries benefit from the

governments generous incentives and guarantees, such as

zero tax over the lifetime of a project.

Egypt offers many advantages to investors. These include:

well-established and accessible ports on both the

Mediterranean and Red Sea; the availability of highly

trained and skilled labour at competitive wage rates; an

efficient banking system and a dynamic and growing stock

market; political and social stability; a favourable business

environment with strong support from the government for

the private sector; and a well-developed infrastructure.

Main Policies and Actions:

The government continued to enhance the investment

climate in Egypt, through extending the exemptions

stipulated in the law of Investment Guarantees and

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Incentives, to cover the expansions in investment projects

as well as the activities exercised under the BOT system.

Egypt's record in attracting FDI has been very

positive over the past decades.

FDI is the major source of capital flows to developing

countries. Egypt is well placed to attract additional foreign

investment given the success of its stabilization program

and the strength of its economic recovery. In 1999,

UNCTAD reports that Egypt was one of the two recipient

countries for FDI in Africa. Its share was 29%.

The choice of Egypt as a location for TNC activity is

increasingly attractive, given the country's major

advantages in availability of natural resources skilled and

competitively priced work force, geographical location,

advanced infrastructure and in the opportunities for

combining trade and investment strategies in Egypt.

As a result of the new philosophy adopted by the

government to respond to the private sector and achieve

economic growth needs new activi ties have been added to

benefit from the incentives and guarantees granted by

Investment Law 8 of 1997 such as:

Transportation to and from the new communities

and remote areas.

Services in the new communities and remote

areas

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Integrated tourism development.

Development of industrial parks.

Volume of FDI to Egypt:Direct Investment in Egypt (net)

In Millions of US Dollars

1997/98 1998/99 1999/00 2000/01 2001/2002 2002/2003

Direct

Investment

in Egypt

(net)

1104 711 1656 509 428 701

Source (table 21) p. 30 - Monthly Economic Digest

Total GDP:In Millions of Egyptian Pounds

1997/98 1998/99 1999/00 2000/01 2001/2002 2002/2003

Total

GDP266,758 282,578 315,667 332,544 354,564 388,060

Source (table 3 a) p. 5 - Monthly Economic Digest

Gross Investments:Value

1997/98 1998/99 1999/00 2000/01 2001/2002 2002/2003

Total Investments 61.8 66.5 66.5 65.5 69.2 71.0

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Environment for attracting FDI:

1. Legal Environment:

Recent Economic Legislation:

During the past decade, Egypt has implemented an

economic and structural reform adjustment program. An

important goal of the reform program was to shift the

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economy towards a market-oriented economy policy. This

required dramatic legislative changes to enable the

economy to meet the challenges of the new global economy

in which Egypt has become an active participan t. The

needed legislative changes were implemented gradually in

order to preserve the stability of the market and the

economy as a whole.

Goals of Law No. 83/2002 for Special

Economic Zones:

In its efforts to attract national and foreign direct

investments to Egypt, the government has drafted and

passed the special economic zones law in 2002. The law

provides for the establishment of special economic zones

that have the ability to compete with their analogs all over

the world.

2. Administrative Environment:

In the new economic areas, the license could be

approved in 15 days because of the one stop shop.

GAFI:

GAFI is Egypt's "One Stop Shop" for investment,

easing the way for investors worldwide to take advantage

of the opportunities of this promising emerging market...

Investment opportunities exist in various sectors

throughout the Egyptian economy, with emphasis on export

oriented ones among many others.

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GAFI is the primary governmental authority

concerned with regulating and facilitating investment, and

stands ready to assist investors. Services GAFI can provide

range from company registration to site location to partner

identification to contracts and licenses acquisition. GAFI's

services are provided at no cost to the investor.

3. Services Environment:

The importance of the presence of service companies

on an international standards and the presence of well

developed infrastructure.

Business Environment:

Streamlining investment procedures, dismantling

bureaucratic obstacles and literalizing the business

environment: these are priorities for the Egyptian

government in is bid to foster an attractive climate for

local and foreign investors alike.

Since the inauguration of the economic reform

program in 1991, the government has taken measures in the

economic, legal, monetary, financial and institutional

spheres to encourage private-sector participation and boost

investment levels. As a result, the economic policy and

business environment now offer investors a plethora of

attractive incentives and opportunities: duty-free zones and

industrial cities benefiting from the most advanced

infrastructure, a stable economy, liberal conditions for

trade, a freely convertible currency with full rights to

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affect all transfers abroad... These developments, as any

observer of the current Egyptian scene can confirm, have

attracted an increasingly number of multinational

corporations.

Legal and economic reforms have eased or removed

price restrictions to accommodate the business

environment further. To boost investment in all sectors of

the economy, offices have been established across the

country, streamlining bureaucratic procedures

considerably.

In April 2002, a presidential decree made the General

Authority for Investment (GAFI) responsible for

establishing an Investment Service Pool (ISP) adopting the

"One-Stop Shop" approach. Representations of relevant

authorities and agencies at ISP are to minimize the cost,

effort and time required of investors who seek to establish

new businesses in Egypt. Three branches of the One-Stop-

Shop are to be established in Alexandria, Ismailia and

Assuit Governorates, followed by other additional outlets.

ISP provides IT facilities to cater for investors needs either

in the form of data collection, comparative stud ies, and

analytical reports regarding investment fields in Egypt.

Drawing on Egypt's skilled, inexpensive human

resource pool, investors today have a unique opportunity to

capture a domestic market of 70 million, not to mention a

sizable portion of the lucrative regional market. Egypt's

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geographic location provides investors with a strategic

platform for virtually effortless entry to the Middle

Eastern, African, European, American, and Asian markets.

In addition, Egypt has signed a number of bilateral

and multilateral agreements to protect investments. It is a

party to the International Convention for the Settlement of

Investment Disputes, and has also entered an investment

guarantee agreement that insures against political risk for

US private investments in Egypt (Overseas Private

Investment Corporation). Egypt has also signed several

treaties for the Encouragement and Reciprocal Protection

of Investment. Agreements with Egypt's major-trading

partners also protect against double taxation.

The Egyptian business environment, which offers

investors so many incentives, has fostered the creation of

several companies under the Investment Law (8/1997). The

table below illustrates capital growth and the proliferation

of registered companies according to economic sector, and

demonstrates that industrial activities attract most

investment in-land or in free zones. Total capital

additions/expansions hit LE9.9 billion in 1999 and LE6.6

billion in 2001. At the end of June 2003, the total

cumulative number of companies registered at GAFI

amounted to 13,788, of which 11,682 registered in-land

and 772 in free zones; total issued capital was recorded at

LE154 billion, creating 1,152 million job opportunities.

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As for companies registered in accordance to the

Companies Law (159/1981), the cumulative number at the

end of June 2003 amounted to 16,354, with a total capital

of LE33.6 billion. Below, the reader wil l found a detailed

discussion of the business environment, including the

benefits of investing in Egypt, corporate guidelines,

foreign investments, an overview of the privatization

program, and finally mega projects, free zones and

industrial cities.

INVESTMENT ADVANTAGES

Merely creating a business-friendly environment is

too passive a stance to promote the growth objectives of

Egypt's citizens, however, and so further steps have been

taken to attract investment and support business. These

consist of specific incentives ranging from tax holidays to

exemptions from certain laws.

Bureaucratic obstacles to market entry/exit and

business operations have been eliminated over the past few

years. Licensing for local and international investment is

automatic and open to private business, and no minimum

local content conditions obtain.

Incentives Available for Investing inEgypt

To create a friendly business environment is a

paramount objective on the Government's. Many steps have

been taken to attract investment and support business.

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Indirect Incentives:

Investments in Egypt are defined and guaran teed in

the following international treaties, agreements, and laws:

Encouragement and Reciprocal Protection of

Investment

Agreements against Double Taxation

Direct Incentives:

The government has passed several laws and decrees

that encourage production and foreign direct investment,

by affirming all existing incentives, maximizing them and

streamlining the means by which they are granted:

Guarantees and incentives provided under Law No.8

/1997.

Investment Priority Areas under Law No. 8/1997.

Additional Investment Priority Areas under Prime,

Ministerial Decree No. 740/2000.

Additional Investment Priority Areas under Prime

Ministerial Decree issued in 2001/2002.

Guarantees and incentives providedunder Law No.8 / 1997

A project may be wholly owned by foreigners.

Guarantees against nationalization and expropriation

of the project. Any seizure of the asset of a project is

to be effected only through a court judgment.

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Output of the project is not subject to price control.

Projects are allowed to repatriate their capital and

profits.

The majority of the board of directors may be non-

Egyptian.

Egyptian staff employees can be hired freely.

Foreign experts' salaries are exempt from income tax

if their stay in Egypt is less than one year.

There is an exemption from rules on workers'

participation in management.

Tax Holidays and Other Exemptions:

A project is exempt from corporate tax fo r five

years starting the first financial year following the

commencement of the company's activities or

production activities.

A five-year exemption on income and distributed

profits commences from the first financial year

following the start of business activity.

A twenty-year exemption on income and profits

commences on the first fiscal year following the start

of business activity in the Kharga, Baris and Farafra

oases; and the East Owaynat and Toshka regions.

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Projects established in new urban communities,

industrial parks and remote areas enjoy a tax ho liday

of ten years.

Land reclamation projects enjoy a tax holiday of

ten years.

The project is allowed to import equipment and

machinery, spare parts and vehicles without the need

to be registered on the importation registry. Similarly,

it may export its products without being registered on

the exportation registry.

Projects are subject to a flat rate of only 5% as

custom duties on equipment and machinery imported

by the project.

Project contracts are exempt from stamp duties,

registration and notarization fees for three years

effective from the date of registration in the

Commercial Registry.

Fields of Investment: Activities in the

areas stated in Article No.1 of theInvestment Guarantees and IncentivesLaw

Reclamation and cultivation of barren and/or

desert land.

Animal, poultry and fish production.

Manufacturing and mining.

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Hotels, motels, hotel apartments, villages and

tourist transportation.

Refrigerated transportation of goods,refrigerators for the purposes of storing crops,

manufactured products and food stuffs and container

stations.

Air transportation and directly related services.

Overseas maritime transport.

Petroleum services in support of drilling,

exploration as well as gas transport and delivery.

Housing complexes for the purposes of full,

unfurnished leasing for non-commercial uses.

Infrastructure operations including potable

water, sewage, electricity, roads, communications and

under multiple story garages.

Hospitals, medical and therapeutic centers that

offer 10% of their capacities free of charge.

Financial leasing.

Venture capital.

Production of computer programs and systems.

Development of new zones.

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Establishment, operation and management of

under-ground multiple storey garages on the basis of

B.O.T system.

Obstacles Facing FDI:

1. Stability of foreign exchange market:

To follow monetary and fiscal policies leading to

stability in the foreign exchange market, so stability in the

exchange rate which is a prime concern for any foreign

investor.

2. Long list of Administrativeprocedures:

To have the license, sometimes it might take 1-1.5

years to get approval from different ministries and

authorities which is a loss o f time and money for the

investor.

New Strategies for Promotion of FDI:

1. Convection and partnership of local investment in

small and medium industries with FDI to transfer

technology and promote export Markets for small and

medium projects productive of goods or services.

2. Hi-Tech industrialization under regional

specialization and integration.

3. Aggressive privatization to create a competitive

market of Hi-Tech and quality.

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4. Availability of market studies, information, training

programs, etc..

Unconditioned exemption of corporatetaxes:

If profit of organization was not subjected to

corporate tax in the host country, it i s subjected to income

tax of the country of origin of capital leading to loss of

income to host country budget while it is an exporting

income of budget to country of origin (rich country). So,poor countries supports to achieve development and

employments are losing for the sake of state budget of

exporting country.

There is a need for economic legislation fo r:

Consumer protection law:

To avoid any commercial fraud and to guarantee the

criteria of products according to international standards

and measures and in order to attract the fo reign investor in

a competitive market guaranteeing transparency.

Antitrust and competition law:

This will prevent monopoly and opens the market for

competition and gives a chance for the invo lvement of

private sector in all fields.

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Documents

FDI in Egypt During 5 Years