Business monthly March 05   EDITOR'S NOTE COVER STORY EXECUTIVE LIFE VIEWPOINT IN PERSON SUBSCRIPTION FORM IN BRIEF MARKET WATCH ADVERTISING RATES IN DEPTH CORPORATE CLINIC Search Business Monthly | Back Issues

EDITOR'S NOTE

INVESTOR APPEAL

The last eight months have proven that the economic challenges facing Egypt are real, but not insurmountable. The reform-minded government has taken on three of the biggest obstacles to private enterprise, namely the customs regime, exchange rate and taxation system. Tariff cuts and a new interbank market have decreased input costs and almost eliminated the dollar shortage, while a draft tax code currently being debated in the parliament could substantially improve the tax system.

It’s a good start, but Egypt still faces hard challenges ahead. The government must work hard to reduce bureaucracy, improve export quality and enforce WTO compliance. These are significant reforms that cannot be accomplished overnight.

Investors, however, don’t think in the short-term. Multinationals take a stake in a country’s long-term development, which is why industry giants such as Microsoft, Heineken and Apache Oil have invested heavily in the Egyptian market. They see Egypt moving forward. Their investments are based not on where the country is now, but where it will be in five, 10 or even 20 years.

With a population of 70 million, Egypt is an attractive market for consumer goods companies. But a large consumer base isn’t everything. Investors weigh a country’s political risk, capital market performance, labor quality and infrastructure. Egypt leads other emerging markets in some of these fields, yet its FDI inflow – just $407.2 million in FY 2003-04 – remains low by comparison. Analysts write it off as a result of external factors such as regional instability, but I think it’s safe to say many of the problems are homegrown.

If anything, Egypt needs to diversify its FDI inflow. The bulk of foreign investment is limited to just one sector, petroleum. A significant portion of the remainder has come through mergers and acquisitions, such as Heineken’s buyout of Al-Ahram Beverages in 2002 and Kraft’s acquisition of Family Nutrition the following year. Foreign companies bought into Egypt’s industry as the government unbundled its domestic conglomerates.

Ultimately, the goal is to encourage not just FDI, but new capital investment in factories and equipment. By streamlining investment procedures, modernizing industries and expanding foreign trade, the government is sending a message that it’s ready for investment. The hope now is that investors are listening.

CAM McGRATH

Submit your comment

Top