Foreign Direct investment policies Essay

Recently Egypt has made some impressive reforms in reforming its foreign direct investment policies but there are still some significant barriers. Currently the FDI stands at 12. 2 Billion up from one billion in 2001. Barriers to entry have been eased for foreign investors; the country has dedicated a ministry to propel the number of foreign investors. Egypt streamlined its tax system with a reduction in corporate income tax rate from between thirty two percent and forty percent to a uniform of twenty percent. In manufacturing, foreign investment has been fully liberalized other than in industries related to defense activities. Foreign equity is allowed to participate in privately owned communication and financial services up to one hundred percent. It has become cheaper and quicker for foreigners to register new companies (Ikram et al 1980) In some sectors such as transport, electricity and construction, foreign investment is restricted. For example in construction foreign companies have to set up a joint venture, in which the equity of foreigner is only limited to forty nine percent. Economic Structure and performance The economy of Egypt is undergoing a steady growth in the last quarter of 2008. Egypt’s annual growth domestic product had risen from 7. 3 in 2006 to 8. 6 in 2008. The rate of inflation has also dropped from 18. 3% in 2003 to 3. 21% in 2008. However with the current economic downturn inflation rate in Egypt stand at 10. 87%. With the economic reforms that the government has undertaken, private sector commands over eighty percent of Egypt’s economy. As economic reforms take root, the annual growth domestic percent is likely to accelerate. It has been predicted that it will hit 13. 5 % by 2010. Economist agrees that the economic climate that currently exists in Egypt is the best one for investing. The Egyptian economy as it is now is able to create more opportunity for domestic growth of wealth and also has enormous potential over long term because of the following reasons: strong economic growth of 8. 6% in 2007, incentives and reforms given to foreign investors, low cost of living and availability of cheap labor. Since 2001, Egypt consumer price index, has registered a significant growth from 12. 68% in 2004 to 3. 6% a fact that is attributed to the rise in the value of the Egyptian Pound. The current account of Egypt has also grown from a deficit of 1. 8% of the annual gross domestic product to an estimated 6. 1% in 2007. (CIAO/EIU Partnership 2008) With the high population in Egypt, the county has a wider market of both skilled labor and unskilled labor. The ministry of education has always ensured that the courses offered in both private and public learning institutions are at par with the requirements in the job market. With the assistance of IMF and World, Egypt has embarked on a program that will see the private sector takes a big role in the county. Egyptian government entrenched Law 203, which was to speed privatization of the public sector. Currently the degree of privatization in Egypt is high (72 percent). By 2007, the government had privatized over eighty percent of the 314 public enterprises which it had earmarked for privatization. The ministry of public enterprise in Egypt predicts that by 2010, all the public enterprises that were earmarked for privatization will have been privatized. With privatization of these public enterprises, the benefits accrued to the Egypt economy is an additional savings to the country. The total gain which has so far been realized by privatization is that GDP has grown by 2. 8 %. With the growth in GDP, the country’s infrastructure has also noticed some improvement, because most of the savings that the government is making as a result of privatization is currently being used for development (Sayed et al 2007 pp12-29) The Egyptian’s road network is somehow underdeveloped. It is currently being serviced by a network of over sixty eighty thousand kilometers of both secondary and primary roads. Despite modernizations of roads in Egypt in mid 1980s, most of them are either under construction or are in poor condition. The level of congestion of automobiles has continued to rise due to the increase in the number of licensed automobiles. According to a report released by EIU (2006) country profile, Egypt reported the highest incidences of automobile fatalities in the entire world: it was 44. 8 deaths per one hundred thousand kilometers. In terms of energy Egypt has adequate supply of electricity from Egyptian Electricity Authority which produces over fifteen thousand megawatts of power. Plans are already underway for EAA to increase its power production by more than two thousands five hundred by 2010. Power consumption has reported a constant growth of 6. 1% per year. Telecommunication services are cheaper and modern. According to reports by EIU country profile for 2006/2007, Egypt had more than seven million lines. The lines are increasing at a rate of one million per year. The country has seventy nine internet providers (Economic intelligence unit country profile) Natural and Cultural factors Egypt has a diverse cultural mix which is good for investors. 80 percent of the Egyptian population is Muslims, while Christians and Hindu makes up the remaining percentage. The country observes religious practices like during the holy month of Ramadhan the country is always in a prayer mood. Egypt also has an average temperature of between 13 and 29 degree centigrade. For entry to Egypt, Visa is usually required. EU and U. S nationalities that are traveling or want to invest in Dahab, Taba, Sharm EL Shik and Hurghada are given a free visa stamp upon arriving at the airport Social and political stability Egypt is a democratic country with many political parties. The country has a semi presidential system, where power has been split between the prime minister and the president. In 2005, Egypt changed its constitution to allow for more presidential candidates to take part in the elections. The county also has a good political temperature that is favorable for investors. The country was the first Arab country to embraces political relationship with Israel. It also plays in mediating conflict between different countries in the Middle East. The political life in Egypt is good for investors. Hence U. S businessmen who are currently doing their business there or who want to start doing their business should do so. Recommendation and Conclusion From the analysis carried, the writer of this paper is of the opinion that Egypt is a good country for any American companies who are thinking of investing there or who have already invested there to continue. The writer is of the opinion that Egypt has an attractive and stable market for property investors. The country has an emerging property market in tourist destinations and it is also offering a return that is excellent on property investment. Despite the fact that foreign equity in construction industry is standing at forty nine percent Americans companies should ventures into it because of the high rate of return that this industry commands in Egypt. Reference: Abd al –Salam, Abou Khaf M & Abu Qahf (2005) Foreign direct investment in developing countries, a comprehensive analysis of the determinants, policies, organization & impacts a case study of Egypt. Buckley P (2003) the changing global context of Egypt international Trade CIAO/EIU Partnership (2007) Economic structure of Egypt retrieved from www. ciaonet. org on March 26 2009 Egypt trade summary PDF retrieved from www. ustr. gov/assets/Document_Library on March, 26 2009 Economic intelligence unit country profile 2006/2007 report retrieved from www. eiu. com/index. asp March, 26 2009 Galal A & Lawrence (1998) An Egypt US free trade Brookings Institution Press pp 23 -56 Ikram K & World Bank (1980) Egypt, Economic management during transition period – A mission report sent to Egypt by the World Bank pp 12 -42 Kaudhar- Luis F (2006) Investing in Construction Industry in Egypt Alexandra University Press pp 9 – 30 Marks S & Ken K 2001 a comparative study of foreign direct investment in Egypt Published by USAID pp 9 -14 Olarreaga M & Madani D (2002) Politically Optimal Tariffs- an application of Egypt pp 6 – 29 Sayed S, Idarat A. & Dawliyah (2007) international business in Egypt & Middle East Jordan Publisher 12 -65 Weigel D, Wagle D & Gregory W (1997) foreign direct investment World Bank Publications pp 1 -22