Foreign investment in Egypt dated from the nineteenth century. Relatively large amounts were invested in the 1890s, with investment peaking in 1907. Between 1903 and 1907, for example, the cumulative private direct investment may have amounted to £E8.6 million. The two world wars and the depression interrupted the process, and little foreign direct investment occurred during the nationalist economic phase under Nasser. Whatever investments took place then were essentially in the oil sector. In 1974 they amounted to as little as US$87 million.
The picture changed in the following years, in part as a result of a new policy, embodied in Law Number 43 (of 1974) for Arab and Foreign Capital Investment and Free Zones. The law sought to provide incentives to investors in many sectors, including industry, land reclamation, tourism, and banking. It offered concessions on imports, profit transfers, and taxation, as well as guarantees against nationalization, to which foreign investors were particularly sensitive because of the sweeping nationalization that occurred under Nasser. The law gave priority to projects that promised to generate foreign exchange and had advanced technology components. A special body, the General Authority for Investment and Free Zones, was founded to supervise foreign investment.
Both Arab governments and private investors responded quickly. They initiated separate joint venture projects with Egypt, both in the military and civilian, especially banking, sectors. Arab and other foreign business concerns were located in the free zones near Alexandria, Cairo, Port Said, and Suez. Arab investments, however, declined severely after the 1979 Camp David Accords. Foreign investment continued to go mainly into oil production and exploration. By 1981 net foreign direct investment was estimated at about US$1.7 billion, a ten-fold nominal increase from the US$0.17 billion of 1970.
The picture stayed basically the same in the 1980s. Oil and banking absorbed the bulk of investments. In the late 1980s, however, tourism attracted a number of foreign investment groups, and in 1989 a few major joint venture projects were under way with foreign firms, including a digital telephone exchange plant with Siemens, West Germany, a tire factory with Pielli, Italy, and a baby-food processing plant with Nestlé, Switzerland. According to some estimates, the average annual foreign direct investment amounted to about US$255 million between 1981 and 1988; according to others, it was considerably higher. The difference in estimates resulted from frequent lack of distinction in Egyptian official statistics between Egyptian and Arab investment.
As of early 1990, no action had resulted from parliamentary debate on a draft investment law that would synthesize and amend all previous laws. The new draft law also proposed modifications in profit transfers, making them use the highest exchange rate on the date of transfer. The draft law gave companies flexibility in distributing their capital between external and domestic sources and left it to the discretion of the prime minister to rule in specific situations. It also exempted foreign investors from administered prices and the setting of profit margins; the cabinet would have the right to intervene in special cases. In the view of some observers and business people, the new law of itself was insufficient to attract investments; a more significant factor would be the easing of bureaucratic hurdles.
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