A visitor taking a walk in central Cairo will find a chaotic melee of contradictions. Burka-clad women sit with their Coca-Cola-sipping children at KFC, men selling pirated DVDs from China kneel for prayers, Jay-Z songs from car radios mingle with the call to prayer sounding from a nearby mosque. Maseratis share crowded roads with donkey carts, and high-rise hotels and banks stand parallel with vendors selling everything from car parts to chickens.
Yet the juxtapositions go beyond the cultural and visual. Recent months have seen the country of 87 million rocked by terrorist attacks on Egypt’s Sinai Peninsula, as well as in the capital. However, at the end of 2014, Egypt was identified by greenfield investment monitor fDi Markets as being the most improved global destination for foreign investment. The country’s image on the international stage is simultaneously one of turmoil and of very high potential. The business world, it seems, has invested in the latter.
Civil unrest following former long-time president Hosni Mubarak’s ousting and a military takeover of the succeeding Muslim Brotherhood government two years later sapped investor confidence and crippled the tourism industry, which accounted for roughly 12% of Egypt’s GDP. Both then and now, Egyptians point to high unemployment, which hovers around the 13% mark, and a suffering economy as the country’s primary ailments. The new government, voted into power in 2014, is now on the charge to turn things around.
The current regime, led by former army general Abdel Fattah al-Sisi following the overthrow of the democratically elected Muslim Brotherhood leader Mohamed Morsi in July 2013, has launched several medium-term fiscal reforms in the past year to accelerate economic development. It aims to achieve 4% economic growth in 2015 and a 7% average over the next 10 years.
Reforms, which have been praised by the IMF managing director Christine Lagarde as “very impressive”, include subsidy and public sector wage cuts, moves to expand the tax base, a reduction of red tape for starting businesses and increased incentives for foreign investors. And results are already evident: in October, rating agency Moody’s raised Egypt’s credit outlook from 'negative' to 'stable', and multinational companies are flocking to the country to invest in a variety of sectors from real estate and energy to financial services and consumer goods.
Egypt Economic Development Conference
In March, Egypt’s leaders held the first Egypt Economic Development Conference at the tourist resort of Sharm el-Sheikh on the Red Sea coast. The event welcomed more than 2000 guests including state leaders, ministers and heads of multinational companies from 112 countries, including US secretary of state John Kerry, Ms Lagarde and World Bank managing director Sri Mulyani Indrawati.
Chaired by Mr Sisi, the conference was a bid to project an image of the Arab world’s most populous country as a hub for investment opportunities and growth potential. And it seems that these efforts have been successful. The country’s minister of investment, Ashraf Salman, has reported that during the conference, Egypt secured $36bn in investment deals and memorandums of understanding (MoUs), as well as $18.6bn for engineering, construction and procurement projects, and $5.2bn in loans.
Project opportunities at the conference included, among others, developing technology parks, new industrial cities for small businesses, water desalination plants, logistics centres for grain storage, a new administrative capital, setting up marinas, and enhancing the country’s oil refining capacity. “Egypt will be built with your support,” Mr Sisi told attendees as he thanked the international community.
A prominent feature of in many Egyptian cities is the number of construction projects under way. Many remain unfinished, the concrete skeletons along the highways serving as evidence of the economic turmoil the country has suffered. But real estate investment, credited as bringing the biggest boost to Egypt’s FDI landscape in the past year, has seen the highest capital investment of any sector in the country, with a total of $71.5bn over the past decade, according to greenfield investment monitor fDi Markets. And 2014 saw 16 property and infrastructure projects launched alone – more than the four preceding years combined. Firms based in the United Arab Emirates are the top investors in Egypt’s real estate sector, with Arabtec Holding and Majid al Futtaim Group heading the list with more than a dozen building projects planned across the country, including shopping malls, neighbourhood centres and cinemas.
Egypt’s ministry of housing, Mostafa Madbouli, announced real estate investment agreements worth $12.7bn at the conference. And the most exciting of the future projects announced was the plan for a new administrative capital city half way between Cairo and the Suez Canal. The plan comes in response to the capital being oversaturated and the need for more space and housing for urban dwellers – as of 2014, 96% of Egyptians lived on only 4% of Egyptian land.
Headed by the UAE’s Capital City Partners, the estimated price tag for the new city – planned to have 21 residential districts, 663 hospitals and clinics, 1250 mosques and churches, and 1.1 million homes – stands at $45bn. The timeline is ambitious – developers are claiming completion within five to seven years. The still-unnamed city has been subject to substantial scepticism, however, as observers note the difficulty of relocating lower income communities, moving government ministries, and meeting infrastructure and water demands.
The Suez Canal Axis Development project is currently under way to establish the Suez region’s role as a global hub for logistics and industrial services. Led by international consultancy Dar Al-Handasah, the project will involve adding a new direction to the canal’s navigational channel to make ship and container movement more efficient. Refurbished roads, highways and six new tunnels are also being worked upon. Ultimately planned to include three major economic zones and six seaports stretching over three governorates, the project’s estimated cost is $15bn.
One of Egypt’s most important sources of income, the Suez Canal has generated more than $50bn in revenue since its nationalisation in 1956. Estimates predict that canal income will reach about $13bn annually by 2023.
Political turmoil or not, as the Middle East’s largest market, Egypt will always have mouths to feed – a fact not lost on some of the world’s biggest food production companies. Swiss food giant Nestlé, which employs 6000 people in Egypt, invested $131m in the country in the three years following the 2011 revolution. It recently announced a further investment of $138m in manufacturing, new products and the nutrition and health industries.
“I believe it was important to really show that we engage more with consumers during difficult moments rather than walk away from the country. And that’s exactly what we did, we decided to engage more in terms of our brand, in terms of the community, and in terms of investment,” says Suresh Narayanan, chief executive of Nestlé for the north-east Africa region.
And the investment has paid off for Nestlé. “Egypt has been a good story for us, we’ve enjoyed good growth,” says Mr Narayanan. He adds that Nestlé further contributes to the country through company-sponsored nutrition education, women’s empowerment, safety training and water conservation programmes.
US-based confectioner Mars, whose global sales exceeded $33bn in 2013, recently announced an $83m expansion of its Cairo facility. When finished, the project will mark more than $200m total investment in Egypt by the company, which provides 300 direct and 1500 indirect Egyptian jobs. “We recruit and develop local talent through our in-house programmes and the Mars Academy,” says Ahmed Seddik, Mars general manager for north Africa and the Levant.
US-based Kellogg’s recently announced its acquisition of 86% in Bisco Misr, one of Egypt’s biggest baked goods brands, for $123m. PepsiCo, Coca‑Cola and Saudi Arabia's Almarai have similarly announced investments and acquisitions of hundreds of millions of dollars in Egypt.
As Africa’s largest producer of oil not belonging to OPEC, and the region’s second largest producer of natural gas, Egypt relies on hydrocarbons to drive its economy. Recent years have proved challenging, as fiscal imbalances led the country to fall behind on payments to multinational companies, delaying development. No exploration agreements were signed between 2010 and 2013 due to political instability. As calm began to return in 2014, government efforts resumed to reform security, sustainability and governance of the hydrocarbons sector, and to encourage private sector investment.
Energy deals understandably dominated the conference, with BP announcing a $12bn investment in Egypt following what chief executive Bob Dudley described as the “cutting of red tape” in recent months. “The flexibility, the attitude from many partners and government has been outstanding,” he told the press.
British Gas also plans to invest $4bn in Egypt over the next two years. Orascom Construction will build a $2.5bn coal-fired power station on the Red Sea jointly with UAE-based International Petroleum Investment Company. Egypt also signed MoUs with Saudi Arabia’s ACWA Power International and UAE’s Masdar to construct a number of coal, wind and solar plants totalling $9.4bn in investment.
Meanwhile, Egypt’s recently issued electricity law, which liberalises electricity transmission and production, has been widely praised and labelled a 'milestone' by investors.
“There are two key prerequisites for the success of these investment projects,” says Karim Aly, principal with Strategy&, a management consultancy with more than two decades of experience in the Middle East. “One is the overhaul of the enabling infrastructure to improve the flow of goods and people throughout Egypt and reduce operating costs. The second is the strong progress of institutional and regulatory reforms required to improve the business climate in Egypt and attract local and foreign investors.”
The government is moving actively on the reform front, with its revised investment law, which will come into effect in mid-2015. New amendments to the law include substantial efforts to improve the country's business climate through incentives, guarantees and the removal of obstacles. Incentives include cutting sales tax from 10% to 5% and setting customs duties on production equipment at 2%. Additional non-tax incentives are offered in sectors such as agriculture, energy and transportation. A much-anticipated guarantee also protects corporate executives from criminal prosecution for legal infringements committed by their companies.
The amendments also authorise a one-stop shop for investors – the General Authority for Investment and Free Zones (GAFI) – where companies can in theory acquire all required licences and approvals to start a business in the country. There is also a new system for allocation of state land, zoning and pricing.
Vast room for improvement remains, as World Bank statistics show it takes more than 60 days to register property in Egypt and over 1000 days to enforce a contract, making business slow and difficult. While GAFI is assigned with streamlining this process, “land acquisition and registration represents a significant hurdle to undertaking investment projects in Egypt… and the process for obtaining construction and operation permits is complex and time consuming”, says Mr Aly.
The one-stop shop has the potential to transform Egypt’s investment environment and competitiveness, but to do so it must have “clear and streamlined business processes, a suitable organisation structure and rigorous governance mechanisms, and needs to be IT-enabled to ensure seamless interactions with other government entities and investors”, says Mr Aly.
The world is watching Egypt with cautious optimism, but the numbers speak for themselves. “As a country, as a location, as people, I have no doubts that Egypt will continue to play an important role in the region,” says Nestlé’s Mr Narayanan. “And I do hope that it will stabilise soon enough and for businesses to follow that hope.”
SIDEBAR 1 Helping hands
Egypt’s biggest investors by far hail from the United Arab Emirates. According to greenfield investment monitor fDi Markets, the UAE accounts for one-sixth of all projects tracked in Egypt since 2010, the creation of 16,745 jobs and a total of $11.04bn invested. The average project size of UAE projects is $368m, about twice the average across all other source countries. Those figures are set to skyrocket with the new series of projects unveiled during the Egypt Economic Development Conference in March.
Majid al Futtaim Group, the UAE’s leading retail firm, announced it will increase its total investments in Egypt to $2.95bn in 2015. The company signed a memorandum of understanding allocating $524m to developing four neighbourhood centres, four shopping malls and a cinema franchise in Cairo’s new residential cities. “The additional projects affirm our strong belief in the vast opportunities available in the Egyptian market,” Majid al Futtaim chief executive Alain Bejjani told the press. The company’s malls in Egypt saw more than 25 million visitors in 2014 alone.
In terms of cities, Dubai generated the highest number of jobs in Egypt and Sharjah claimed the highest total investment, while Qatar’s Doha boasts highest average investment of any city at $1.19bn per project.
The UAE, Kuwait and Saudi Arabia pledged a total of $12bn in aid and investment to Egypt during the opening session of the conference. In the 18 months following the ousting of Egypt’s former president and Muslim Brotherhood leader Mohamed Morsi in 2013, the three oil-rich countries poured $23bn-worth of aid into Egypt. The UAE has provided the majority of that aid, with $14bn. But the Gulf states are not just being good neighbours – they strongly oppose the Muslim Brotherhood and see it as a threat the region, repeatedly expressing their commitment to supporting the stability and prosperity of Egypt under Abdel Fattah al-Sisi’s presidency.
SIDEBAR 2 Bringing tourism back to life
Egypt’s ancient sites and balmy shores attracted 14.7 million tourists in 2010, a figure that dropped to 9.8 million following the 2011 revolution. The numbers barely rebounded in 2014, but Egyptian tourism minister Khaled Ramy is optimistic. “We have a strategic goal of reaching 20 million tourists in 2020, with revenues of $20bn,” he told press during the Egypt Economic Development Conference.
Already, hotel reservations for summer 2015 are up 15% from the same time in 2014. Part of the strategy to hit tourism goals includes plans to build two resorts, one on the Red Sea and the other on the Mediterranean, through nearly $1bn of investment, and the launch of a three-year advertising campaign.
The ministry of tourism unveiled a new tourism development project in coordination with Egypt’s Palm Hills company set to cover 200 hectares in New Cairo at a cost of up to $3bn. A ‘Pharaonic tourist city’ is also on course to be established in October in coordination with an alliance of Arab companies, bringing in a $4bn investment and three international hotels. Egyptian housing minister Mostafa Madboly announced to conference guests that Sixth of October City, 32 kilometres from the capital, “will be the tourist capital of Greater Cairo”.
In December 2014, Egypt completed expansion of Hurghada International Airport, a major tourism hub on the Red Sea coast. The airport’s now doubled capacity cost $335m and allows it to accommodate 13 million passengers annually. In line with tourism goals, Egypt plans to expand the airport to host 75 million passengers annually by 2020.
Security concerns remain high, however, as bombing attacks in Egypt’s northern Sinai Peninsula have spread, more recently hitting civilian targets in urban areas. Meanwhile, Islamic State militants, who have taken hold of large territories in Iraq and Syria, are becoming a growing threat in north Africa, particularly neighbouring Libya. “The idea of trying to secure our country and ensure that this kind of threat does not infiltrate and come into Egypt is definitely of concern for the government and the president,” says Hisham Zazou, Egypt’s former tourism minister.