Egypt: Investment Declaration |
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On July 11 Egypt became the first Arab as well as the first African country to sign the Organisation for Economic Cooperation and Development (OECD) Declaration on International Investment and Multinational Enterprises. The declaration, which was signed by the original OECD member states in 1976, has since been joined by outside nations, predominantly from South America and Eastern Europe. Signing it signals a policy commitment to improving the investment climate in the country and encouraging further participation from multinationals in the growth of the economy.
Prior to a signing ceremony in Paris with OECD Secretary-General Angel Gurria, Egyptian Minister for Investment Mahmoud Mohieldin said the invitation to join the declaration represented recognition of recent improvements in the country's investment climate. "This declaration is a way for governments to commit to improving their investment climates, ensuring equal treatment for foreign and domestic investors and encouraging the positive contribution that multinational companies can bring to economic and social progress," said Mohieldin.
A new OECD report on Egypt entitled 'Investment Policy Review of Egypt 2007' due for full release in September highlighted the rapid growth in foreign direct investment (FDI) in the country. According to the report, FDI increased twelve-fold between 2001 and 2006 from $500m to $6.1bn and diversified away from its traditional destination, the oil and gas sector.
Mohieldin told OBG he expected to see "no less than $10 billion" in FDI in 2007. "In 2003, the composition of FDI was mainly dominated by the oil sector with 80%. Last year, [the breakdown of FDI] was 55% in expansion in greenfield projects, 30% in oil and 15% in acquisitions," he said.
The OECD report cited improved business registration procedures, a streamlined Customs policy and tax reform as drivers behind the growth in FDI. The waiting period for property registration has dropped from 193 days to under a week and the ministry of trade and industry is reducing import tariffs across the board. Of particular note was the decision to cap corporate tax at 20% and make the tax system more streamlined by eliminating around 3000 exemptions.
The report was not without its reservations. Existing restrictions on foreign ownership in the fields of construction, electricity and transport run contrary to the principles outlined in the declaration. In particular, it states that adhering countries must treat foreign-controlled businesses no less favourably than local enterprises. However, in the construction industry for example, foreign equity is limited to 49%. The OECD report said, "Removing these restrictions would increase competition and benefit consumers and business." Restrictions that prevent non-Egyptians from representing clients in a court of law were also suggested for review.
Simon Kitchen, an economist with Cairo-based CI Capital HoldingCI Capital Holding
, told OBG he was unsure "whether some of the OECD's recommended reforms - particularly those concerned with legal representation and arbitration - can be addressed by the government in the next few years. Legal changes fall outside the remit of the main reforming ministries, so change may be slow." Despite the shortcomings highlighted by the OECD report, the signing of the declaration is a significant marker for Egypt's progress for attracting FDI. Kitchen said, "The declaration will help to cement some of the improvements made in the investment environment over the past five years. On a political level, it also represents something of a coup for Egypt as the first Arab and African country to sign the declaration."
Looking to the future, Mohieldin said that FDI would continue to diversify, both in its sources and its targeted sectors. He told OBG, "We are still getting FDI from OECD countries, including the US and EU, and more from the Gulf and some countries that were not investing heavily in Egypt in the past such as China, India and Turkey. We also have investments from neighbouring countries in Africa. In terms of sectors it's no longer just oil, but manufacturing, tourism, real estate development and the agricultural sector. One of the things this ministry will always be associated with is the silent revolution which has led to the attraction of FDI."
© Oxford Business Group 2007
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