CAIRO, July 4 (Reuters) - Foreign direct investment (FDI) in Egypt’s non-oil economy fell in the first three months of 2019 to its lowest for at least five years, underscoring the struggle to kindle confidence as a rigorous IMF programme draws to a close.
Non-oil FDI slid to around $400 million during the quarter, from $950 million in the previous quarter and $720 million in the first quarter of 2018, according to Reuters calculations using central bank figures.
Economists say a lack of consumer demand after nearly three years of austerity measures, high interest rates and the expansion of state-owned companies into the economy have dampened investor appetite, as has a dearth of privatisations.
Among issues the country needs to address are governance, bureaucracy and the competitive playing field in the real economy, said Farouk Soussa, Middle East economist at Goldman Sachs.
“The government’s success with macro-stabilisation policies has been effective in reinvigorating portfolio inflows,” he said. “But to attract longer-term foreign capital and drive deeper, broad-based growth, greater efforts will be required on the structural reform front.”
Egypt has had some success in boosting foreign investment in the oil and gas sector in recent years, especially after the discovery in 2015 of the Zohr field, the largest in the Mediterranean. Inflows of dollars from tourism and Egyptians working abroad have also risen.
FDI in the energy sector edged up to $1.4 billion from $1.3 billion in January-March 2019 compared to the same period the previous year, the central bank said on Thursday.
But economists say domestic demand remains low after the government imposed a 14% value-added tax, raised energy prices and devalued the currency by half as part of a three-year IMF programme agreed in November 2016.
Egypt is counting on new private-sector investment in the non-oil sector to spur the economy and create jobs for its rapidly expanding population of nearly 100 million.
“In my view, it should take 5-10 years. That’s what happened in India in the early 1990s when we floated the rupee,” said Allen Sandeep, head of research at Egypt-based Naeem Brokerage. (Additional reporting by Yousef Saba; Editing by Andrew Cawthorne)