Egypt’s Quiet Economic Revolution

Newspaper Title: the WallStreet Journal

Newspaper Number:

Friday - 6 March 2015

Investors are flooding back to Egypt, the Arab world’s most populous country, drawn by the government’s economic, legislative and regulatory reforms that together amount to a quiet revolution.

The country is currently developing massive infrastructure projects, such as the expansion of the Suez Canal, designed to double daily capacity in the strategic waterway, and the launch of an associated industrial and logistics hub that will encourage growth in the wider Canal zone. Supported by investment, tax and subsidy reform—creating an environment for the growth of small- and medium-size enterprises—these projects have been instrumental in attracting foreign direct investment.

Through broad-based development supported by strong foreign investment, Egypt can avoid the development traps that have held the region back. This new economic revival can help improve standards of living and provide a model for inclusive, sustainable growth in the Middle East and North Africa.

What is happening today in Egypt is quite different from the typical economic development models of the past. Emerging-market growth is often driven by the extraction of primary resources such as oil or by making low-cost products for developed markets. Both models have their pitfalls. Oil-based growth often crowds out other industries and precludes the development of indigenous expertise. Export-driven growth without the development of a domestic consumer market creates a dependence on the economic cycles of export markets. This is the situation in China today.

The Egyptian government is aiming for a middle path that maximizes Egypt’s natural resources and encourages export industries while retaining and building on the country’s robust consumer market.

Foreign investors are beginning to recognize this diversity and placing their money behind this multi-industry model. In December,BP announced plans to invest $12 billion in Egypt over the next five years, doubling gas supply for the domestic market. Yet this isn’t a classic emerging-market tale of foreign investment in the extractive industries, creating an economy skewed towards a single export.

In January, Nestlé announced plans to invest $138 million to create a manufacturing base for new products in its nutrition and health businesses. That same month, Kellogg’s acquired a majority stake in Cairo-based Bisco Misr, a brand-name domestic baking company. Industry insiders think this move signals Kellogg’s plans to grow its North African snack business, joining a raft of consumer-goods firms investing in Egypt over the past year, including Coca-Cola, PepsiCo and Saudi Arabia’s Almarai.

All the basics for sound economic development are in place, starting with a population of almost 90 million people, half of whom are between the ages of 15 and 44. Egypt enjoys a unique strategic location, linking Africa to Asia and—thanks to the Suez Canal, which will soon allow for two-way traffic—is within easy reach of world markets in Europe and the Far East. Our country has multiple free-trade agreements, with the European Union, the Gulf Cooperation Council and African nations.

Much of our infrastructure has been in place for decades, but Egypt suffered severely from the double blow of a global economic downturn and local political instability. Foreign direct investment in Egypt plummeted to a mere $2.2 billion in fiscal 2010-11 from a high of $13 billion in 2007-08. But in 2013-14, FDI bounced back to more than $4 billion.

This recovery is thanks in part to the restoration of political stability and the transition to a new constitutional settlement. Parliamentary elections are forthcoming. But political stability alone isn’t enough to explain the resurgence of confidence. Stability without growth—growth that touches all levels of society—has hamstrung the Arab world for much of the postwar period.

The new surge in FDI represents an international appreciation that this Egyptian government is committed to making the country a business-friendly environment. Egypt is implementing a reform program designed to stabilize the country fiscally, promote growth through regulatory reform and encourage domestic and international investment. At the heart of this effort is a range of reforms that will make it easier to do business in Egypt.

Next week, the Egypt Economic Development Conference in Sharm El Sheikh will showcase this new economic momentum, communicating Egypt’s growth story and confirming that the country is on a new track.

There are still many economic challenges to overcome but, backed by an inflow of foreign capital, momentum is beginning to build. With persistence and investor-friendly reforms we are confident that Egypt can resume its place as one of the important economies in the Middle East and an example to the region.