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Washington Report, May 27, 1985, Page 9

Trade and Finance

U.S. Investment in Egypt

By John Haldane

A new study on U.S. investment in Egypt credits that country with having made significant progress over the past decade in creating a more attractive climate for private investors. Even so, the volume of U.S. investment in Egypt has fallen far short of expectations in both countries, and the study concludes that Egypt will first have to make some fundamental changes in its economy to spur greater U.S. investments.

The study, published by the U.S. section of the Egypt-U.S. Business Council, was presented to Egyptian Prime Minister Kamal Hassan Ali when he accompanied President Mubarak to the U.S. last March. It was prepared by J. Philip Hinson, the director of Middle East Affairs at the U.S. Chamber of Commerce.

Total U.S. investment in Egypt today amounts to approximately $1.2 billion. However, 86 percent of this amount is in the petroleum sector, and another 6.5 percent in banking, both of which are, in many ways, special cases. Investment in the industrial, consumer, agricultural and re-export sectors has not been commensurate with existing investment opportunities or with Egypt's developmental aspirations, the study says.

Recommendations to Egypt

Certainly the problem has not been a lack of U.S. investor awareness of the Egyptian market, for few developing nations have received more exposure in the American business community in the last ten years than Egypt. The trickle of U.S. investment into Egypt is prima facie evidence that Egypt has not yet made the kinds of changes in its political and economic order that are necessary to attract American venture capital on a scale commensurate with publicly-stated desires. The study recommends that the Egyptian government: 1) dismantle the extensive system of subsidies; 2) simplify customs procedures; and 3) eliminate the multi-tiered foreign exchange system. Egypt's willingness to take action in these three problem areas would send a positive signal to foreign investors regarding its commitment to private sector development, the study says.

In the past, many opportunities for American corporations have arisen from the extensive role in Egypt of the U.S. Agency for International Development (AID). One key AID program, the Private Sector Feasibility Studies Project, assists American investors by reimbursing them for exploratory visits to Egypt, as well as for subsequent feasibility studies. Other important AID projects include physical and institutional infrastructure modernization programs designed to increase overall economic productivity.

Egypt itself offers a large and generally homogenous consumer market of over 46 million people. It is endowed with an excellent climate, mineral and energy resources, rich agricultural land, and a diverse, motivated, and skilled labor force. Equally important, Egypt is a politically stable nation with emerging democratic institution and has preferential access to markets in Europe, Africa, and the Middle East.

The study reports that Egypt's progress in creating a more attractive investment climate can be traced back to 1974 and the passage of Law Number 43 ("Concerning the Investment of Arab and Foreign Funds and the Free Zones"). Law 43 was the cornerstone of Egypt's "Open Door Policy" and marked the beginning of Egypt's move away from an economy based on centralized planning and overwhelming public sector primacy toward one allowing a greater role for market-oriented production based on private ownership and incentives. The new law led to a series of efforts to reform the legal framework for investment and to streamline the cumbersome system of regulations.

A copy of the eight-page report may be obtained from Mr. Hinson at the U.S. Chamber of Commerce, 1615 H Street, N.W., Washington, D.C. 20062, (202) 463-5487.

Unemployment in Israel

By John Haldane

The last six months have seen a steep rise in unemployment in Israel, with an estimated 100,000 citizens presently out of work. Worse yet, it is understood that a report issued recently to Labor and Social Affairs Minister Katzav forecasted a sharp increase in the number of jobless, with the total expected to reach 125,000 by June. This would represent about 8.5 percent of the Israeli work force, a highly unpalatable figure to a country long committed to guaranteeing jobs to all new immigrants.

Unemployment continues to be a subject of growing public apprehension throughout Israel, especially in view of the government's efforts to stem high inflation and bring its economy under control. The problem is particularly severe in the "development towns," small towns established in the late 1950's and early 1960's to draw people away from the heavily populated urban areas. Histadrut Secretary General Kessar complained recently on Israeli television that the development towns, which contain only 10 percent of the nation's population, have 40 percent of the unemployment.

John Haldane is a specialist in Middle East affairs who has served as a foreign service officer in Baghdad, Beirut and Cairo, and as an international economist in the Departments of Commerce and Treasury.