Egypt targets $10 bn in FDI in 2015-2016: Minister

Ahram Online, Sunday 22 Jun 2014

New investment minister vows to cut business red tape "by next week", supports recently-proposed tax on stock market

Minister Ashraf Salman
Minister Ashraf Salman (Photo: Al-Ahram)

Egypt is aiming to attract $10 billion of foreign direct investment (FDI) by next year, Egypt's new minister for investment announced on Saturday.

"My minimum target is $14 billion within three years and by next year $10 billion, and it's possible as there are many reforms and legislations that have been undertaken in the past months, besides the roadmap, which is the most important because political stability reduces risk," minister Ashraf Salman said in his first televised interview on Egyptian private satellite channel CBC.

A new cabinet was sworn in last week after the election of President Abdel-Fattah El-Sisi, former defence minister and military strongman, which is expected to set the economy back on track after the popular uprising which led to the ouster of his predecessor Mohamed Morsi last June.

FDI levels reached $4.4 billion in the first nine months of the current fiscal year, the minister added.

FDI to Egypt, which had reached $13.2 billion in 2008, has been hit hard by the political turmoil following the January 2011 revolution which toppled long-time autocrat Hosni Mubarak.

The minister explained that part of the drop reflected the reticence of foreign companies, who contribute over half of FDI, due to the cash-strapped government falling behind on its payments to foreign oil firms in recent years.

As of the end of last March, Egypt owes $5.7 billion in arrears to foreign oil companies, even after its government paid $1.5 billion at the end of last year, with then-petroleum minister Sherif Ismail vowing in late April that an additional $1 billion would be paid within two months.

FDI for the current fiscal year can be increased to $6 billion if the firms can be persuaded to restore their investments to normal levels, said Salman.

The minister spoke about the importance of bumping up Egypt's ease of doing business ranking to attract foreign investors back into the country.
Egypt ranked 128th out of 189 countries in overall ease of doing business by the World Bank in 2014.

The minister vowed to simplify several business activities by next week, without resorting to legislation but through a process which will cut the red tape surrounding establishing a business.

The government is also drafting a unified investment law, said Salman, as well as working on legal amendments submitted by the head of Egypt's financial regulator and regulations regarding leasing, bonds and insolvency.

Incentives for investment will be tied to factors such as job-creation and geographical region to guide funds towards underdeveloped parts of the country, said the minister.

"Upper Egypt is at the top of the priorities list when it comes to the geographical distribution of investments," said Salman.

Domestic investment, which currently stands at LE220-240 billion, is targeted to reach LE260 billion within a year, added the minister.

Salman also affirmed that the renationalisation of privatised Egyptian companies – in accordance with a spate of rulings issued by Egyptian courts in recent years – could be reversed by resorting to a newly-issued law preventing third parties from legally challenging contracts between private parties and the government.

"There are legal ways, now that this [law] has been issued, to revise this in some way, and our lawyers are on the case," Salman told host Lamis El-Hadidy.

Over the last three years, under the previous investment law, Egyptian courts have issued over 11 rulings invalidating privatisation deals made under the Mubarak regime, including textile and cement companies, in some cases after rejecting appeals made by the state itself against their re-nationalisation.

When asked about Egypt's plans for the forms and uses of foreign financial aid expected in the upcoming year, the minister presented a variety of options.

Earlier this month, Saudi Arabia's King Abdullah called for a donor's conference following El-Sisi's election to "help Egypt overcome its economic crisis."

The oil-rich kingdom – along with Gulf neighbours Kuwait and the United Arab Emirates – has showered Egypt with billions of dollars of aid since Morsi's ouster last July.

"Some of it will go directly to the government" to finance expenditures of vital commodities such as fuel, said Salman.

Other Gulf aid will go towards redressing the balance of payments, funding for development projects through the state and "business-to-business" aid, which will be given to the private sector either through partnerships with Egyptian businessmen or with the Egyptian government, or to platforms such as private investment funds, he said.

Salman stressed the importance of reviving Egypt's bond market by integrating it into the Egyptian exchange so as to widen participation.

The minister proposed a number of tools for financing infrastructure and development projects, the use of build-operate-transfer (BOT) agreements and public-private partnerships (PPP).

The minister defended a controversial, recently-proposed and pending capital gains tax (CGT) of 10 percent on Egypt's stock market, calling it "entirely fair", and stressing that it had been discussed with market representatives.

"The stock market has gained 22 percent so far this year," Salman pointed out.

The CGT will reduce that to 21 percent, he said, adding that the effect of the tax on the market had already happened when the bourse dropped when the tax was announced late in May.

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