CAIRO – The declining value of the Egyptian pound will impact Saudi investors in Egypt, according to the chairman of the Saudi-Egyptian Business Council Abdullah bin Mahfouz. Other experts argue that this should not be a concern for investors targeting long-term profits in the destabilized country.
Mahfouz told Al-Eqtisadiah newspaper that these investments are vulnerable to ongoing political turbulence as they are concentrated in the services sector that caters to the local market.
In January 2011, the US dollar was valued at EGP 5.92, but has now fallen by 25 percent, to about EGP 7.02.
Saudi Arabia is the largest Arab investor in Egypt, and the second-largest foreign investor, responsible for projects valued at EGP 71 billion, according to the Egypt’s State Information Service (SIS).
According to the official website, trade between the two neighbors reached $4.4 billion in 2008, with Egypt importing mostly petroleum products, and Saudi Arabia importing iron and steel products, furniture, foodstuffs and electric and medical materials.
A number of Saudi investors in Egypt faced hurdles as projects stalled following the 2011 revolt. After ongoing promises by the government that timely solutions will be offered and settlements will be reached, Mahfouz was quoted on 28 June as expressing the council’s intentions to increase investments in the Suez Canal, which are mostly in storage, packing and re-export.
Sherif Sami, an investment expert, told the Daily News Egypt that the value of the Egyptian pound becomes a concern for foreign investors “only if they intend to get out of the market.” He explained that those willing to invest in a risky environment always target a higher profit margin, which Saudi investments may not be making given current political turbulences. “As long as the political situation is chaotic, we’ll find the investors seeking higher profits than before,” which is harder to achieve, Sami said, emphasizing the importance of stability for foreign investors.
“An investor does not care if a government is Islamic or liberal. The form of governing does not matter to investors; what they look for is a place which can guarantee high profits,” Sami said.
He added that the amount of foreign direct investment (FDI) in the Egyptian market was $10 billion in 2008, while it currently stands at $1 billion “which reflects investors’ fears.”
An Egyptian economy that was ailing when President Mohamed Morsi took power a year ago has since tumbled under his leadership and is at the root of the unrest gripping the country.
“The economy has been bleeding on the floor since the revolution began and has gotten much worse since Morsi took over,” said Paul Sullivan, an expert on security and economics in the Middle East who teaches at Georgetown University in Washington.
Political instability drove away investors, and the current government’s unwillingness to compromise with the political opposition has prolonged and exacerbated the political crisis, Sullivan said.
“The politics of no compromise are at fault for a good part of the economic disaster,” he added.
With government debt rising, cash reserves melting away and unemployment and inflation on the rise, the regime’s solution has been to seek more loans to cover expenses that include subsidies on food and fuel that help millions of Egyptians.
The government’s debt to foreign and domestic debtors has grown from $30 billion before the revolution that ousted Hosni Mubarak in February 2011 to $40 billion now. — Agencies