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  • Feb 28th, 2017
  • Comments Off on Despite Egypt reforms, investors seen wary of returning
Egypt is pursuing a raft of reforms to try to revive an economy weakened by years of turmoil, but analysts say that wooing foreign investors will take time. Since the 2011 uprising, the Arab world's most populous nation has suffered a slump in key tourism revenues, slowing economic growth and investment, double-digit inflation and falling foreign currency reserves.

In November the International Monetary Fund approved a $12 billion loan for Egypt after the government committed to reforms including floating the Egyptian pound, which subsequently plunged against the US dollar. The authorities also pledged a new investment law with tax incentives, a "one-stop-shop" to simplify investment procedures and a new bankruptcy law.

"Egypt's economic recovery will come with a lag, until the government follows through on reform policies with a successful implementation," said Hany Farahat, a senior economist at the Egyptian investment bank CI Capital. The authorities have also introduced a value-added tax and cut fuel subsidies, moves the IMF said were required to fix government finances and boost investor confidence.

"Everyone is expecting 2017 to be a difficult year," said Walid Allam, the chief financial officer in Egypt for Swiss elevator manufacturer Schindler. "But we expect that starting in 2018 there will be a bit of a revival," he told AFP. "We are talking about a state, not a company that would take a decision and profit from it after a week or two."

Foreign direct investment in Egypt has fallen from a peak of $13.2 billion in the fiscal year ending in June 2008, to $6.8 billion in the year ending in June 2016. The tourism sector in particular is reeling from years of upheaval and a series of jihadist attacks including the 2015 bombing of a Russian airliner carrying holidaymakers home from the popular Red Sea resort of Sharm el-Sheikh.

Even before the tumultuous 2011 uprising that ousted longtime president Hosni Mubarak, Egypt's economy was suffering from decades of structural problems and delayed reforms, said Ahmed Abdelnaby, a strategist at Mubasher Financial Services. Investors will need time to see the government's commitment to reforms if the business climate is overhauled, he said.

One of the challenges for Egypt is to diversify its sources of foreign currency, said political economist Amr Adly, non-resident scholar at the Carnegie Middle East Center. This is particularly important as the main sources now - workers' remittances, crude oil exports, the Suez Canal and tourism - "proved to be very volatile and cannot be depended on," said Adly. A key part of the government's efforts should be directed to improve the business climate and reduce bureaucracy for small and medium enterprises and not just foreign investors, he said.

This would help boost local industries including agriculture and manufacturing, he said. Potential investors are keen to see additional structural reforms before committing to long-term investments, said Esraa Ahmed, an economist with Mubasher.


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