What is behind the great exit of foreign investments from Egypt?

Abdullah Hamed-Cairo

The Central Bank of Egypt (CBE) released a few days ago foreign direct investment (FDI) in the last fiscal year of $ 7.749 billion, the highest figure in this field in the last seven fiscal years.

The figure for the fiscal year 2018/2019, which ended last June, said that this figure is more than the same period last year by about $ 2.305 billion, as it was $ 5.444 billion in the previous fiscal year.

Analysts linked the political measures witnessed in Egypt during this period to the exodus of foreign investments with such intensity, and came out, in their opinion, for fear that these measures will lead to unrest such as following political developments at the end of the era of former President Hosni Mubarak when the tightening of the political field leading to the revolution of 25 January January 2011.

With the large exit of investments, the biggest increase in foreign debt, which was recorded at the end of June last year was 108.6 billion dollars, compared with 106.2 billion at the end of September, according to the official website of the Central.

The monthly statistical bulletin issued by the Central Bank revealed that the outstanding balance of external debt rose to about $ 108.7 billion by the end of June, an increase of about 16.1 billion, an average of 17.3% compared to the end of June 2018.

Investor concerns
The former president of the press syndicate, economist Mamdouh El Wali, monitored the maximum escalation in the exit of investments during the second quarter of this year, which amounted to $ 2.156 billion, the period during which the referendum on the amendment of the constitution, compared with 1.220 billion in the same quarter last year.

He attributed - in his talk to Al Jazeera Net - that the great exit to make sure some foreign companies that the country is on a period of instability as a result of the closure of any doors to democratic change for many years, and then headed out to other places more stable.

Al-Wali, who previously held the chairmanship of the board of directors of Al-Ahram newspaper in Cairo, recalled what had happened after the 2010 parliamentary elections, during which the dissolved National Party had a sweeping majority without a significant share of the opposition.There were several foreign companies rushed out of the country and proved their expectations of the January Revolution.

The economist affirms that political and security stability is linked to the continuation of foreign investment in any country, expressing his expectations that the second half of this year will witness the continuation of the phenomenon of foreign direct investment exit as a result of the atmosphere that led to the demonstrations of September 20 and the subsequent arrests, and confusion by The ruling authority in dealing with them to the extent of postponing the match Al Ahli and Zamalek for fear of exploiting the demonstrators as an opportunity to go out on the streets.

He pointed to other reasons for the exit of investments, most notably the continuation of many constraints in the investment environment, and the army's economic activity at the expense of the private sector, and the decline in purchasing power of the majority of citizens, which reduced sales and led to a state of stagnation in the markets, along with bureaucracy and corruption, and high interest in bank financing The cost of products, which weakens their competitiveness both in the local and overseas markets.

He concluded his remarks to Al Jazeera Net denying the validity of the arguments of officials that the investments are hot money, pointing out that direct investment mainly means projects, but hot money from treasury bills belong to portfolio investment or so-called indirect foreign investments, and these also include bonds, has achieved a positive number $ 4.2 billion due to the sale of foreign bonds in the last fiscal year by about $ 5 billion.

Reports
Although the report of the United Nations Conference on Trade and Development (UNCTAD) pointed to the decline of foreign direct investment globally by 13% in 2018, with investment flows falling from $ 1.5 trillion in the previous year to 1.3 trillion, but the same report confirms that the continent of Africa - which lies Egypt's foreign direct investment in Africa reached $ 46 billion in 2018, an increase of 11% over the previous year.

The reports of investment banking companies - such as Prime Investment Bank and Shuaa Investment Bank - agreed to explain the decline in FDI for the second year in a row, with "global trade tensions that usually limit capital movements as the global economy grows and trade protectionism grows."

Prime Investment Bank's report attributed the reasons for the decline in FDI in Egypt to the existence of "long-term structural imbalances that hinder investment", including the continuation of the current environment with high interest rates, and the low global ranking of the business environment.

The report cited the oil and gas sector as a key destination for FDI inflows that need more than just an improvement in interest rates.

The CBE cut interest rates by 1.5% last August, then 1% in September, bringing the total decline since the beginning of 2018 to 5.5%, approaching the return of interest rates to pre-floating levels of the pound (local currency).

Prime's report called for additional structural reforms that address chronic constraints to investment, including efforts to improve the business environment, labor market flexibility and anti-corruption.

Shuaa Investment Bank report revealed that among the reasons for the decline in foreign direct investment, highlights the "local conditions related to the successive rise in the cost of energy, and ongoing tax adjustments," which would affect foreign investments, especially in sectors other than mining and natural gas, which has received relatively large flows due to discoveries New.

According to the World Bank's Ease of Doing Business Index, Egypt ranks 120th out of 190 countries in the index and has fallen to 94th out of 140 countries on the World Economic Forum's Global Competitiveness Index.

In an effort to stem the bleeding out, the government last week announced a package of measures to encourage continued investment, including cutting gas prices for a range of industries, including iron and steel, cement, aluminum and ceramics, to support and encourage them and reduce costs.