Development of The Investment Climate in Egypt (9/1/2007)   A. Within the framework of the efforts aiming at upgrading the Egyptian economy and attract more foreign investments as well as opening markets for the Egyptian products abroad and increase tourism and create more job opportunities, in addition to increasing the growth rate and decreasing inflation rate, the Egyptian government has undertaken various measurements in order to improve the investment climate, thus resulting in a significant increase in FDI from 407 million USD in 2003/2004 to 6.1bn USD in 2005/2006, These measurements comprise the following:   1-     The establishment of a new Ministry of Investment and the reorganization of the Investment Authority (GAFI), both of which succeeded in recruiting professionals with significant private sector experience into key positions to be in charge for making the most important and sensitive decisions. Additionally, a board of trustees for GAFI was established including representatives of investment associations, exporters, industrial and commercial federations, and academics. The board looks at investment impediments and possible remedies, and draws action plans and policy measures that would help improving the business climate in Egypt. Moreover, a technical assistance program is being implemented with the Multilateral Investment Guarantee Agency (MIGA) to provide capacity building programs in the area of Investment promotion for GAFI employees. 2-     For the sake of simplifying investment procedures, an 'Investor Relations Unit' at GAFI was launched to link the investor to the different departments of GAFI and other external entities that deal with investment related procedures. On the other hand, affiliated Investment Service Bureaus at various governorates were established in order to extend GAFI’s services to all governorates of Egypt. But above all else GAFI’s establishment of a One Stop Shop in Cairo with branches in three other governorates has been the center of its institutional reform. This allowed company establishment to take today no more than three days instead of three months two years ago. Other services are going to be provided to investors from one single location, and a higher level of transparency to take effect. 3-     Within the framework of promoting investment opportunities, a professional communications company was recruited to carry out a comprehensive program for advertising and marketing for Egypt as an attractive investment destination. Moreover, an investment portal  (URL: www.investment.gov.eg) was installed and launched, with the support of Microsoft, in January 2005, and is regularly fed and updated with the aim of providing information and statistics on investment opportunities, laws, reports and events. The website has also direct links to other portals featuring special investment opportunities and providing online forums on related topics. 4-     However, reforms of the Investment Authority has not been done in isolation from other broader steps taken by the Government, such as reactivation of The Public Asset Management Program by means of a new approach incorporating three main measures:            (i) privatization of state owned assets            (ii) effective restructuring of the remaining public enterprises           (iii) the enhancement of Corporate Governance principles related to the publicly managed  firms. 5-     The Government has also taken measures to deal with the issue of access to finance. The Banking Law was amended, allowing non-bank financial institutions to have access to clients' creditworthiness information, and authorizing the Central Bank of Egypt (CBE) to license and regulate private credit bureaus. 6-     For the purpose of investor protection, Egypt established the Institute of Directors with the aim of strengthening corporate governance practices, providing research and technical advisory services, and promoting awareness on the benefits of corporate governance. In addition, the first  Corporate Governance Code in the Arabic language was issued by the Institute of Directors, in addition to another Code for State owned enterprises, both based on the OECD principles and guidelines. 7-     Regarding the legal reforms, an Antitrust Law was issued setting up a 'Competition Council' with the mandate of ensuring the prohibition of anti-competitive practices and the prevention of abuse of market power to harm competition or contestability in our markets. A new tax law was issued and applied in mid 2005 stating a 50% reduction on both income and corporation taxes rates as well as raising the qualifying income level for each tax band. Additionally, tax and customs procedures have been upgraded and a Model Customs and Tax Center (MCTC) has been established which is a modern tax administration center that gathers the work of three departments (Customs, Sales and Income). This simplifies rules and makes tax payment system more transparent. Tariff rates were reduced by 38%.  The largest cuts took place in primary industrial materials, fuel and crude oil, and spare parts and parts of transportation facilities. Accordingly, weighted average for tariff rates went down from 15% to less than 9% and the number of tariff bands was reduced to 6 lines only (down from 27 lines prior to the enactment of the decree). Export tax has been also eliminated and all administrative fees/ surcharges were removed. The Automation of customs procedures took also part of this reform package. On a similar note, the government is working on the issuance of a law for establishing specialized economic courts that deal with economic dispute settlements that used to take a long time, and until this law is issued the ministry of justice is establishing new specialized economic units that provide rapidity and specialization needed to solve this kind of disputes.   B. The above reforms have borne fruit. FDI reached 6.1 bn USD (or 6.49% of GDP) for the last fiscal year 2005/06, compared to 407 million USD in 2000/2001 (or 0.55% of GDP), thus multiplying FDI flows accompanied by a structural change in FDI towards non-petroleum sector which now attracts 80% of the total FDI inflow . This year, we are expecting this figure will exceed last year’s by roughly 15 – 20%. Meanwhile, portfolio investment has turned from negative to positive and market capitalization of the listed companies in the Egyptian Stock Exchange increased from 33% of GDP in 2004 to more than 85% in 2006. C. It is worth mentioning that the Egyptian government is totally aware of the necessity of overcoming the investment-related problems that used to represent impediments facing FDI, comprising the following: 1-     Difficulties in land access for investment purposes, for which a new General Authority for Industrial Development was established to deal with this issue. 2-     Difficulties in access to credit, which the government is aiming to overcome though reforming the banking sector. 3-     Dispute settlement problems related to investment, in the context of which, the government has issued the antitrust Law and the tax and customs law and is working on the issuance of  the law for establishing specialized economic courts 4-     Bureaucratic and red tape problems, which GAFI is trying to solve though the expansion of one stop shop. D. These achievements were highly appreciated by the international economic institutions. For example, in the annual World Investment Report, issued by the UNCTAD, last October, Egypt has gained 60 notches over the past two years, to improve the international ranking of Egypt from the 126th in 2003, to the 98th in 2004 to the 66th in 2005 and to be ranked the 2nd in Africa after being the 5th in 2004. On the macro level, Egypt has recorded a Growth rate of 6.9% during 2005/06, foreign exchange reserves have reached USD 26 billion in September 2006 up from 14 billion dollars two years ago, and Egypt has been able to maintain a stable exchange rate since the inception of the reform program. The contribution of net capital inflows in general and FDI in particular to these positive outcomes- namely, exchange rate stability, accumulation of international reserves and improvement in sectorial growth- cannot be ignored.