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Direct investment in Egypt slumps in first quarter 2011

Outflow of nearly $2 billion led to a net decline, in sharp contrast to strong inflows at the end of 2010, according to Egypt's central bank

Ahram Online, Thursday 28 Jul 2011
FDI
Average quarterly investment inflow starting from Q2 2008 to Q1 2011. (Source: Central Bank of Egypt, July monthly bulletin)
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Foreign direct investment (FDI) in Egypt fell 124 per cent in the first quarter of 2011 against the final quarter of the previous year, according to the latest figures released by the Central Bank of Egypt (CBE).

A total of US$1.97 billion flowed out of Egypt during 1Q2011, resulting in negative net FDI of $163 million (net outflow), in sharp contrast to positive net FDI of $656 million (net inflow) for the fourth quarter of 2010.
 
The main explanation for the decline is Egypt's widespread political upheaval during the first quarter of 2011 when a popular uprising led to the ouster of longtime President Hosni Mubarak. 
 
The security situation in major Egyptian cities saw a sharp deterioration over the following months as police, withdrawn from the streets on 28 January, made only a tentative return to their previous duties. 
 
The slump in FDI for 1Q2011 is even starker when compared to the first quarter of 2010 when the net inflow of FDI reached $1.7 billion.
 
On Tuesday, the head of the United Nations Conference on Trade and Development (UNCTAD), economic affairs officer, Guoyong Liang, was optimistic about Egypt's ability to lure foreign investments.
 
“[Problems] can be overcome easily because most of the people think change is in the right direction. For people who love peace and democracy, Tahrir Square represents a symbol of these values. Put the rule of law and efficient institutions in place and you have what is needed," said Liang at the Cairo launch of UNCTAD's World Investment Report 2011.
 
During 1Q2011, total inflow to Egypt reached $1.8 billion; $1.14 billion came from the European Union, $379m from Arab countries and $167m from the United States.
 
Inflow during the last two years averaged $2.8 billion per quarter, much of it from the EU which invested $1.6 billion, followed by the US with an average quarterly inflow of $445 million. 
 
Arab countries invested an average of $332 million per quarter; other countries around $355m over the same period.
 
In 2010, Egypt saw its FDI inflow drop 5 per cent to $6.380 billion but maintained its place as Africa's second largest recipient of investment, receiving 12 per cent of the continent's total, according to UNCTAD. 
 
UNCTAD's World Investment Report 2011 also shed light on non-equity modes (NEM) of international investment as a way of integrating developing countries into the global economy, beyond traditional FDI and trade.
 
NEM methods include contract manufacturing, services outsourcing, contract farming, franchising, licensing and management.
 
UNCTAD said NEMs can yield significant development benefits as they currently employ an estimated 14–16 million workers in developing countries where their activities can represent up to 15 per cent of GDP.
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