Egypt may exceed its US$10 billion target for foreign direct investment this year as the weaker pound reduces the cost of doing business in North Africa’s largest economy and a new investment law comes into force, the investment minister said.
Sahar Nasr said she had been approached by investors from the UAE - including the Emaar Properties chairman Mohamed Alabbar and Al Ghurair Group - and Saudi Arabia, Singapore, China about potential investments. The pipeline for the fiscal year that began July 1 includes oil and gas, real estate, tourism and logistics investments, she said in an interview in Cairo on Monday. Nasr said it was too early to comment on the size of the potential deals.
The Egyptian pound has halved in value against the US dollar since the central bank removed most currency controls in November, helping to end a foreign currency shortage and secure a $12bn loan from the IMF. The government also embarked on a structural reform programme that includes subsidy cuts and new taxes to control its ballooning budget deficit.
“With the devaluation, the cost of labour - blue or white collar - is lower than elsewhere,” Ms Nasr said, adding that even with recent reductions in fuel subsidies, the cost of energy in Egypt remains less than in neighbouring countries or other emerging economies. “Egypt sure has an edge.”
Egypt received about $8.7bn in foreign direct investment in the fiscal year ended June 30, Ms Nasr said, an increase from $6.9bn a year earlier but below its $10bn target. US investors have also expressed an interest in doing deals, while companies that are already in Egypt, including Mars and General Electric, are planning to expand, she said.
The president Abdel-Fattah El Sisi ratified a new investment law this year aimed at cutting red tape, giving what Ms Nasr called a “significant signal from the highest political level that, yes, Egypt is open for business”.
Although the weaker currency has boosted investor confidence and attracted inflows, it has also helped drive inflation above 30 per cent, pressuring Egypt’s 93 million people, half of whom live near the poverty line - and confronting Mr El Sisi’s government with a major challenge.
The central bank has responded to rising inflation by increasing its benchmark interest rate by 7 percentage points since November, prompting some companies and economists to warn that the increased cost of borrowing could deter investment and depress growth. Some economists have also cautioned that higher interest rates are unlikely to curb rising prices in a country with a large informal economy and where much of the population is unbanked.
High interest rates have not proven to be a major hurdle for investment, Ms Nasr said, with companies more focused on currency issues and bureaucracy.
“Despite the complaints about bureaucracy, they’re still investing. We are also working full force to cut red tape,” she said. “In the oil and gas sector, currency convertibility was an issue, and now with the problem of the arrears being addressed, they are picking up investment at a faster rate.”
She also said the World Bank’s board will consider the third $1bn loan tranche for Egypt in December.
* Bloomberg
