Direct Foreign Investment
Foreign investment in Egypt dated from the nineteenth century.
Relatively large amounts were invested in the 1890s, with
investment peaking in 1907. Between 1903 and 1907, for example, the
cumulative private direct investment may have amounted to £E8.6
million. The two world wars and the depression interrupted the
process, and little foreign direct investment occurred during the
nationalist economic phase under Nasser. Whatever investments took
place then were essentially in the oil sector. In 1974 they
amounted to as little as US$87 million.
The picture changed in the following years, in part as a result
of a new policy, embodied in Law Number 43 (of 1974) for Arab and
Foreign Capital Investment and Free Zones. The law sought to
provide incentives to investors in many sectors, including
industry, land reclamation, tourism, and banking. It offered
concessions on imports, profit transfers, and taxation, as well as
guarantees against nationalization, to which foreign investors were
particularly sensitive because of the sweeping nationalization that
occurred under Nasser. The law gave priority to projects that
promised to generate foreign exchange and had advanced technology
components. A special body, the General Authority for Investment
and Free Zones, was founded to supervise foreign investment.
Both Arab governments and private investors responded quickly.
They initiated separate joint venture projects with Egypt, both in
the military and civilian, especially banking, sectors. Arab and
other foreign business concerns were located in the free zones near
Alexandria, Cairo, Port Said, and Suez. Arab investments, however,
declined severely after the 1979 Camp David Accords. Foreign
investment continued to go mainly into oil production and
exploration. By 1981 net foreign direct investment was estimated at
about US$1.7 billion, a ten-fold nominal increase from the US$0.17
billion of 1970.
The picture stayed basically the same in the 1980s. Oil and
banking absorbed the bulk of investments. In the late 1980s,
however, tourism attracted a number of foreign investment groups,
and in 1989 a few major joint venture projects were under way with
foreign firms, including a digital telephone exchange plant with
Siemens, West Germany, a tire factory with Pielli, Italy, and a
baby-food processing plant with Nestlé, Switzerland. According to
some estimates, the average annual foreign direct investment
amounted to about US$255 million between 1981 and 1988; according
to others, it was considerably higher. The difference in estimates
resulted from frequent lack of distinction in Egyptian official
statistics between Egyptian and Arab investment.
As of early 1990, no action had resulted from parliamentary
debate on a draft investment law that would synthesize and amend
all previous laws. The new draft law also proposed modifications in
profit transfers, making them use the highest exchange rate on the
date of transfer. The draft law gave companies flexibility in
distributing their capital between external and domestic sources
and left it to the discretion of the prime minister to rule in
specific situations. It also exempted foreign investors from
administered prices and the setting of profit margins; the cabinet
would have the right to intervene in special cases. In the view of
some observers and business people, the new law of itself was
insufficient to attract investments; a more significant factor
would be the easing of bureaucratic hurdles.
Data as of December 1990