Egypt should keep up pace of reform to attract more investment, says OECD


11/07/2007 - Egypt has made impressive progress in reforming its investment policies in recent years but significant barriers to both foreign and domestic businesses remain. Easing these restrictions would attract more investment, increase competition and benefit the economy as a whole, according to a new OECD report.

The Investment Policy Review of Egypt 2007 says foreign direct investment inflows increased twelve-fold between 2001 and 2006. They reached USD 9 billion in the first three quarters of its 2007 fiscal year, up from just over USD 0.5 billion in 2001. This compares with USD 6.1 billion for the whole of 2006.

The ambitious reform programme started in 2004 has helped spread the benefits of foreign direct investment (FDI) more widely across the economy. In 2004, two-thirds of all FDI was in the oil and gas industry but by 2006 that same share flowed into the manufacturing and services sectors, with oil accounting for just a third.

Barriers to entry have been eased for both domestic and foreign investors, customs procedures streamlined and a dedicated ministry set up in 2004 to promote and manage investment. The tax system in particular has been streamlined, with a reduction in the corporate income tax rate from between 32% and 40% to a uniform 20% and the elimination of approximately 3000 different types of exemptions.

Foreign investment in manufacturing has been fully liberalised, with the exception of defence-related industries. Foreign equity participation in financial services and privately-owned telecommunications services is permitted up to 100%. Registering property has become much quicker and cheaper, with costs capped and the setting-up of a “one-stop-shop” that has cut the average time from 193 days to just one week.

But foreign investment is restricted in several sectors, notably construction, electricity, and transport. In the construction industry, for example, foreign investors must set up joint-venture companies in which foreign equity is limited to 49%. Removing these restrictions would increase competition and benefit consumers and business, says the report.

Some sectors also impose limits on the number of foreign workers a firm can employ and on the services they can offer. For example, only Egyptian nationals can represent clients before a court. Although a foreign law firm can set up an office in Egypt to serve its international clients, it could not represent a client in a court of law. Such restrictions should be reviewed, the report says.

Based on this review of Egypt’s investment policies, the OECD invited Egypt to adhere to the OECD Declaration on International Investment and Multinational Enterprises. It is the first Arab and first African country to join. During this process, Egypt agreed to review the restrictions on investors identified in the report, notably several that no longer serve their original intended public policy objectives, such as certain limits in the tourism sector as well as the discriminatory treatment of foreign investors in construction, courier services and commercial agents in relation to exports.

OECD Investment Policy Review of Egypt is available to journalists from the OECD’s Media Division (tel.+ 33 1 45 24 97 00).

For further information, journalists are invited to contact Michael Gestrin, Investment Division (tel. 33 1 45 24 76 24).


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