Egypt’s political forces await foreign investment with bated breath. The assumption that such investment will kick-start the economy, however, is built on myth and lies
Almost all political forces are waiting for it: the Muslim Brotherhood, ElBaradie, Amr Moussa. All economic plans seek it and are built on it.
In fact, politics itself is tailored for the sake of foreign investment: reconciling with figures from the former regime to boost the confidence of foreign investors; mega projects and plans for the Suez Canal to attract them to invest their money with us; and a quick draft law to issue Islamic bonds (sukuk), as a step on the road to receiving $200 billion as promised by President Morsi’s campaign.
Meanwhile, foreign policy is primarily drawn up according to its immediate effect on the subsequent flow.
Al-Ahram newspaper reported on its front page on Saturday that the government had just finished drafting proposals for constitutional amendments, in which 15 ministries collaborated. These include, according to the newspaper, “a proposal to eliminate Article 29 of the constitution that states that nationalisation would only occur for the sake of public good, by law, and in return for fair compensation.”
The justification for this deletion is that the article could make investors nervous, especially foreigners, that some projects in Egypt could be nationalised.
Should we honestly rely so much on foreign investment? Does it possess magical powers that will achieve the economic revival the Egyptian revolution and the people need? The truth is this assumption is built on legends, lies and corrupted priorities.
A very Egyptian Nigerian experience
At the beginning of March, Reuters news agency published a story about steadily growing direct foreign investment in Nigeria because of an economic growth rate that had reached seven percent. This rate was predicted for the next four years, along with one of the lowest rates of debt by international standards.
The IMF predicts a rise in foreign investment, which indicates Nigeria’s credit rating will improve and the cost of lending will drop, while the country’s foreign currency reserves will peak to their highest level in four years. Meanwhile, share prices have risen by 18 percent since the beginning of the year.
But it is noteworthy these investments are focused on the oil sector and do not extend to job creating sectors. The Reuters story noted the correlation between the rise in foreign investment and the rise in extreme poverty rates, not the opposite. Some 60.9 percent of citizens (out of a population of 100 million) cannot afford basic needs for food, clothing and shelter, in comparison to 54.7 percent in 2004.
Meanwhile, the official rate of unemployment, at 23 percent, multiplied among youth. Thus, foreign investment and the flow of money from abroad do not necessarily or automatically produce development, employment or social justice.
We witnessed a similar development in Egypt in the past, when development rates of 7 percent under Nazif’s government coincided with a peak in foreign investment that one year reached a net value of more than $13 billion. But this coincided with serious shortcomings in operations and did not always affect the rate of investment. It rose slightly, then quickly retreated.
According to a report published by the board of trustees of the Investment Institution in 2008, the foreign investment crowded and undercut public and local investments, instead of complementing them.
There are many other measures, if we want development: do these investments create new production assets, or take over existing ones? If the latter, do they develop them and transfer new know-how to local sectors and cadres, or just penetrate the market for the sake of a share in it?
If the former, do the new assets create new job opportunities or are they capital intensive, where a job opportunity costs millions of pounds, as in the case of the cement and steel sectors?
And if all the answers were positive, are they part of an industrial strategy outlined according to a socially and politically fair democratic development vision? Or are they according to the interests and whims of investor companies and states?
And would foreign investment only flow if the interests and whims of investors are served? In fact, the experience of emerging markets and economies clearly indicates large flows of investment do not produce development, but rather where there is already emerging development.
In that case, attentive governments decide what is good and what is not, rather than considering whichever our politicians deem needed.
Investments that quickly exit at the first sign of trouble are linked to the policies of world powers, and coordinate with them on the political stage and in hegemony. Foreign investments, even their positive output, change from being a positive impact on the balance of payments when money flows once or a few times, to a negative impact later when profits are transferred abroad year after year.
This puts pressure on the local currency and the balance of payments (as seen in the Malaysian experience, or what forced Algeria to exercise a rule that half the profits must be re-invested locally).
We have the example of foreign investment in Egyptian cement: it essentially took control of existing industrial assets, while new investments barely employ hundreds of workers. Reserves revived when investments arrived for the first time, but if we look at the impact on the financial flow – after benefiting from subsidised gas, local demand, cheap labour and government restructuring of companies before privatising them – we find these investments exported capital in hard currency to the headquarters of these companies in Rome, Paris, Athens and Mexico City.
Meanwhile, the local price of cement was tainted with monopoly practices and was ruled against in court before the revolution.
The debate on foreign investment in Egypt is built on two lies: first, billions are waiting as long as we pave the way and reassure investors with all our might. There is no other way except this, even before we adopt industrial policies or development vision.
And these two cannot be accomplished without foreign investment (of course after asserting the state should not invest and cannot nationalise, although this is what Obama did with General Motors and thus saved it by nationalising it even if private domestic investments were too scared or fell short).
This lie is built on the belief that we have a missing share in the cake of world foreign investments, but the figures of the UN Conference on Trade and Development (UNCTAD) contradict this. Direct foreign investment around the world dropped by 18 percent in 2012, to rates lower than a decade ago for developed countries.
Meanwhile, there is strong competition for what is left between emerging economies in Asia and Latin America. It is noteworthy that the top recipients of investment are the countries that also export it.
This lie, which is propagated as a magic formula for investments, is linked to another lie that claims foreign investment in Egypt stopped because of the revolution, and thus we must do all we can to recover them.
The truth is, according to figures from the Central Bank of Egypt, in 2011/12, some $11.5 billion in foreign investment entered Egypt in addition to $2.2 billion in the first quarter of this fiscal year. At the same time, however, around $9.6 billion in investment fled the country (including Egyptians selling their investment assets to smuggle their wealth out of the country or transfer it to other countries without supervision).
This caused net foreign investment to drop to only $1.9 billion. While during the first quarter of this fiscal year, the net reached only $108 million after some $2.1 billion left. This means there is money coming in and money going out.
Foreign investments are not a magic wand and not the way to development or social justice, since they are usually linked to policies of opening up the market, privatisation, the withdrawal of the state, a drop in operations and public services. These are tried and failed policies – and not only because those who applied them were corrupt – so it’s time to move on.
In the play Mirage by the great Syrian writer Saadallah Wanoos, the emigrant Abboud returns to his village and builds tourist resorts and supermarkets. He buys land at ten times their price and makes a great impact on the village and converts it into a giant market, with extensive trade, mega-tourism projects, giving it a large space on the official media map.
Meanwhile, the people’s psyches change and the play ends with Abboud fleeing abroad after selling his projects for a large sum to several government officials.
Mariam Al-Zarqaa, who lives in a rural hut, predicts everything, and near the end – when all her predictions seem to be coming true – Mariam describes the new condition in a conversation with the village intellectual: ‘An irresistible temptation will loom over the village; I see trees stripped of their green, charred.’
She reminisces of days gone by, but her interlocutor reminds her that these were days of abject poverty: ‘Neither does this deserve cheering nor do those deserve reminiscing,’ he says. ‘If we had awareness and will, we would find the right path.’
The path exists and is possible to find.