Egypt

Executive Summary

The Egyptian government continues to make progress on economic reforms, and while many challenges remain, Egypt’s investment climate is improving.  The country has undertaken a number of structural reforms since the flotation of the Egyptian Pound (EGP) in November 2016, and after a strong track record of successfully completing a three-year, $12 billion International Monetary Fund (IMF)-backed economic reform program, Egypt was one of the fastest growing emerging markets prior to the COVID-19 outbreak.  Increased investor confidence and the reactivation of Egypt’s interbank foreign exchange (FX) market have attracted foreign portfolio investment and grown foreign reserves.  The Government of Egypt (GoE) also understands that attracting foreign direct investment (FDI) is key to addressing many of its economic challenges and has stated its intention to create a more conducive environment for FDI.  FDI inflows grew 11 percent between 2018 and 2019, from $8.1 to $9 billion, according to data from the Central Bank of Egypt.  The United Nations Commission on Trade and Development (UNCTAD) has ranked Egypt as the top FDI destination in Africa between 2015 and 2019.

Egypt has implemented a number of regulatory reforms, including a new investment law in 2017; a new companies law and a bankruptcy law in 2018; and a new customs law in 2020.  These laws aim to improve Egypt’s investment and business climate and help the economy realize its full potential.  The 2017 Investment Law is designed to attract new investment and provides a framework for the government to offer investors more incentives, consolidate investment-related rules, and streamline procedures.  The 2020 Customs Law is likewise meant to streamline aspects of import and export procedures, including a single window system, electronic payments, and expedited clearances for authorized companies.

The government also hopes to attract investment in several “mega projects,” including the construction of a new national administrative capital, and to promote mineral extraction opportunities.  Egypt intends to capitalize on its location bridging the Middle East, Africa, and Europe to become a regional trade and investment gateway and energy hub, and hopes to attract information and communications technology (ICT) sector investments for its digital transformation program.

Egypt is a party to more than 100 bilateral investment treaties, including with the United States.  It is a member of the World Trade Organization (WTO), the African Continental Free Trade Agreement (AfCFTA), and the Greater Arab Free Trade Area (GAFTA).  In many sectors, there is no legal difference between foreign and domestic investors. Special requirements exist for foreign investment in certain sectors, such as upstream oil and gas as well as real estate, where joint ventures are required.

Several challenges persist for investors.  Dispute resolution is slow, with the time to adjudicate a case to completion averaging three to five years.  Other obstacles to investment include excessive bureaucracy, regulatory complexity, a mismatch between job skills and labor market demand, slow and cumbersome customs procedures, and various non-tariff trade barriers.  Inadequate protection of intellectual property rights (IPR) remains a significant hurdle in certain sectors and Egypt remains on the U.S. Trade Representative’s Special 301 Watch List. Nevertheless, Egypt’s reform story is noteworthy, and if the steady pace of implementation for structural reforms continues, and excessive bureaucracy reduces over time, then the investment climate should continue to look more favorable to U.S. investors.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Israel

Executive Summary

Israel has an entrepreneurial spirit and a creative, highly educated, skilled, and diverse workforce. It is a leader in innovation in a variety of sectors, and many Israeli start-ups find good partners in U.S. companies. Popularly known as “Start-Up Nation,” Israel invests heavily in education and scientific research. U.S. firms account for nearly two-thirds of the more than 300 research and development (R&D) centers established by multinational companies in Israel. Israel has the third most companies listed on the NASDAQ, after the United States and China. Various Israeli government agencies, led by the Israel Innovation Authority, fund incubators for early stage technology start-ups, and Israel provides extensive support for new ideas and technologies while also seeking to develop traditional industries. Private venture capital funds have flourished in Israel in recent years.

The fundamentals of the Israeli economy are strong, and a 2018 International Monetary Fund (IMF) report said Israel’s economy is thriving, enjoying solid growth and historically low unemployment. With low inflation and fiscal deficits that have usually met targets, most analysts consider Israeli government economic policies as generally sound and supportive of growth. Israel seeks to provide supportive conditions for companies looking to invest in Israel, through laws that encourage capital and industrial R&D investment. Incentives and benefits include grants, reduced tax rates, tax exemptions, and other tax-related benefits.

The U.S.-Israeli bilateral economic and commercial relationship is strong, anchored by two-way trade in goods that reached USD 33.9 billion in 2019, according to the U.S. Census Bureau, and extensive commercial ties, particularly in high-tech and R&D. The total stock of Israeli foreign direct investment (FDI) in the United States was USD 38.5 billion in 2018, according to the U.S. Department of Commerce. This year marks the 35th anniversary of the U.S.-Israel Free Trade Agreement (FTA), the United States’ first-ever FTA. Since the signing of the FTA, the Israeli economy has undergone a dramatic transformation, moving from a protected, low-end manufacturing and agriculture-led economy to one that is diverse, open, and led by a cutting-edge high-tech sector.

The Israeli government generally continues to take slow, deliberate actions to remove some trade barriers and encourage capital investment, including foreign investment. The continued existence of trade barriers and monopolies, however, have contributed significantly to the high cost of living and the lack of competition in key sectors. The Israeli government maintains some protective trade policies, usually in favor of domestic producers.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Jordan

Executive Summary

Jordan is a Middle Eastern country centrally located on desert plateaus in southwest Asia and strategically positioned to serve as a regional business platform. Since King Abdullah II’s 1999 ascension to the throne, Jordan has taken steps to encourage foreign investment and to develop an outward-oriented, market-based, and globally competitive economy. Jordan is also uniquely poised as a platform to host investments focused on the reconstruction of Iraq and projects in regional markets.

Jordan’s economy grew by two percent in 2019, despite ongoing domestic and regional challenges. Jordan’s economic growth has been slowed for several years by series of exogenous shocks, starting with the Global Financial Crisis in 2008, followed by the Arab Spring in 2011 which resulted in interruptions of energy imports, the 2015 closure of Jordan’s borders with Iraq (reopened in August 2017) and Syria (partially re-opened in 2018), and an influx of Syrian refugees. By October 2019, foreign direct investment had dropped 29 percent from its level at the end of 2018 and 67 percent from 2017 levels.

During this same period, the government ran large annual budget deficits but has been able to reduce its near-term financing gap with loans, foreign assistance, and savings from economic reform measures enacted as part of an International Monetary Fund (IMF) Extended Fund Facility program that began in August 2016. On March 25, 2020, the IMF Board approved a USD 1.3 billion Extended Fund Facility program for Jordan centered on increasing economic growth, job creation, and transparency while and strengthening fiscal stability and social spending.

The COVID-19 outbreak poses a huge burden on the Jordanian economy. The IMF forecasts a 3.4 percent contraction in Jordan’s Gross Domestic Product (GDP) for 2020 as a result of the pandemic. The government of Jordan implemented a set of measures to contain the spread of the virus, which entailed a strict curfew and lockdown of schools, colleges and 75 percent of all economic activity. The IMF Mission Chief to Jordan commended the government’s measures to defeat the pandemic, stating “Jordan will reap from the tough measures the government put in place in the coming weeks and months.” The IMF approved Jordan to receive additional credit from the Rapid Financing Instrument, to help manage its fiscal obligations during the pandemic.

In parallel, Jordan introduced plans to mitigate the negative impact on the economy in the short and medium terms. The Central Bank of Jordan (CBJ) injected JD 1.5 billion (USD 2.1 billion) to reduce hardships in the banking system. It also lowered the lending rate and allowed borrowers to reschedule their loans until the end of 2020. The CBJ launched a JD 500 million (USD 706 million) loan guarantee program at competitive interest rates to help small and medium enterprises (SMEs) resume their operations and pay their operational costs. The government also announced measures to alleviate financial and operational burdens on businesses by postponing General Sales Tax (GST) payment and customs fees, reducing the cost of labor by exempting companies from paying social security retirement insurance for three months starting in March 2020, reducing energy costs for the industrial sector, and facilitating control procedures on incoming goods by reducing inspection rate of essential products, in addition to halting judicial procedures on defaulting individuals/companies.

In response to the COVID-19 crisis, the Prime Minister formed specialized, public-private sector teams focused on setting manufacturing priorities, balancing domestic needs with export obligations, outlining production plans, and developing an enabling environment to ensure sustainability, focusing on sectors that excelled during the crisis, and have great potential to expand. The sector-focused teams are: pharmaceutical manufacturing team; food manufacturing team; medical devices and sterilization manufacturing team.

International reports and metrics indicate that Jordan’s overall investment environment is improving. Jordan was selected as one of the top three most improved business climates in the World Bank’s “Doing Business Report 2020,” jumping 29 places from 104 to 75. Jordan advanced 33 points in the simplified tax services index for implementing an electronic filing and payment system for labor taxes. In ease of getting credit, Jordan ranked on par with the United States and Australia. In the World Economic Forum’s 2019 Global Competitiveness Report Jordan ranked 40, advancing six points in its domestic competition indicator. Jordan also ranks sixty-third on the 2018 Global Entrepreneurship Index, and twenty-ninth on the Global Innovation Index.

The Jordanian Investment Law grants equal treatment to local and foreign investors and grants incentives for local and foreign investment in industry, agriculture, tourism, hospitals, transportation, energy, and water distribution. In 2017, Jordan passed amendments to the Companies’ Law and a law to regulate and unify monitoring and inspection of economic activities. The government implemented additional reforms in 2018, including the Insolvency Law, Movable Assets and Secured Lending Law and Bylaw, the Venture Capital bylaw, and a new Income Tax Law. In January 2020, The Jordan Investment Commission (JIC) implemented an investors grievances bylaw which enables investors to file complaints concerning decisions issued by government agencies.

In 2020, Jordan endorsed a new Public Private Partnership Law to support the government’s commitment to broadening the utilization of the public-private sectors partnership and encouraging the private sector to play a larger role in overall economic activity.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Lebanon

Executive Summary

Lebanon’s economy is in crisis.  GDP contraction could top 20 percent in 2020, the local currency has lost more than 60 percent of its value on secondary exchange markets, and most banks are dollar insolvent.  Since October 2019, Lebanon’s financial sector imposed ad hoc capital controls, preventing most Lebanese from transferring any money overseas or withdrawing dollars from their bank accounts, despite the fact that 75 percent of accounts in Lebanese banks are denominated in dollars.  On March 7, 2020, Lebanon announced it would default on and restructure its nearly USD 31 billion in dollar-denominated debt, the first such default in Lebanon’s history.  On April 30, the government published an economic plan with a focus on restructuring its financial sector and attracting foreign assistance; the next day Lebanon signed an official request for IMF assistance.  Most analysts assess that Lebanon’s near- and medium-term economic future is bleak, with likely fiscal austerity, continuing capital controls, further devaluation, and a potential loss of value applied to wealthy accountholders to recapitalize the banking sector.  The Minister of Finance in May said Lebanon needs USD 28 billion in financial assistance over the next four years.  The World Bank projected that the poverty rate will reach 40-50 percent by the end of this year.

These developments hold consequences for Lebanon’s potential as a destination for foreign investment.  Much depends on how Lebanon implements overdue economic and governance reforms, including in connection with its negotiation and implementation of a potential IMF program.  If the country is able to implement necessary reforms, attract foreign capital, stabilize the exchange rate, and recapitalize its financial sector, opportunities remain for U.S. companies.  To date, Lebanon has the legal underpinnings of a free-market economy, a highly-educated labor force, and limited restrictions on investors.  The most alluring sector is the energy sector, particularly for power production, renewable energies, and oil and gas exploration, though challenges remain with corruption and a lack of transparency.  Information and communication technology, healthcare, safety and security, waste management, and franchising have historically attracted U.S. investments.  However, corruption and a lack of transparency have continued to cause frustration among local and foreign businesses.  Other concerns include over-regulation, arbitrary licensing, outdated legislation, ineffectual courts, high taxes and fees, poor economic infrastructure, and a fragmented and opaque tendering and procurement processes.  Social unrest driven by a decline in public services and growing food insecurity may further hamper the investment climate.

If Lebanon is able to reform its business environment – a likely condition as part of an overarching IMF program – it may one day regain its role as a hub for foreign investment in the Middle East.  Lebanon’s economic crisis is likely to be long and painful, however, and recovery can only be accelerated through quick but careful implementation of reforms.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Turkey

Executive Summary

Turkey experienced strong economic growth on the back of the many positive economic and banking reforms it implemented between 2002 and 2007.  After the global economic crisis of 2008-2009, Turkey continued to attract substantial investment as a relatively stable emerging market with a promising trajectory of reforms and a strong banking system.  Turkey saw nine years of gross domestic product (GDP) growth between 2011 and 2018. However, over the last several years, economic and democratic reforms have stalled and by some measures, regressed.  GDP growth was 2.6 percent in 2018 as the economy entered a recession in the second half of the year.  Challenged by the continuing currency crisis, particularly in the first half of 2019, the Turkish economy grew by only 0.9 percent in 2019.  While the Government of Turkey originally projected 5.0 percent GDP growth in 2020, the COVID-19 pandemic has dramatically slowed economic activity and the majority of economists project a growth rate that is negative or near zero for the year.  In April 2020, the World Bank lowered its economic growth forecast for Turkey to 0.5 percent for 2020, while the IMF predicts a contraction of 5 percent.

The government’s economic policymaking remains opaque, erratic, and politicized, contributing to a fall in the value of the lira.  Inflation reached more than 11 percent and unemployment over 13 percent by the end of 2019.  The COVID-19 crisis will likely lower inflation due to reduced demand, but will put upward pressure on the unemployment number.

The government’s push to require manufacturing and data localization in many sectors and the recent introduction of a digital services tax have negatively impacted foreign investment into the country.  Other issues of import include tax reform and the decreasing independence of the judiciary and the Central Bank.  Turkey hosts 3.7 million Syrian refugees, which creates an additional economic burden on the country as the government provides them services such as education and healthcare.

Recent laws targeting the Information and Communication Technology (ICT) sector have increased regulations on data, online broadcasting, tax collection, and payment platforms.  In particular, ICT and other companies report GOT pressure to localize data, which it views as a precursor to greater GOT access to user information and source code.  Law #6493 on Payment and Security Systems, Payment Services and e-money Institutions, also requires financial institutions to establish servers in Turkey in order to localize data.  The Turkish Banking Regulation and Supervision Agency (BDDK) is the authority that issues business licenses as long as companies 1) localize their IT systems in Turkey, and 2) keep the original data, not copies, in Turkey.  Regulations on data localization, internet content, and taxation/licensing have resulted in the departure of several U.S. tech companies from the Turkish market, and has chilled investment by other possible entrants to the e-commerce and e-payments sectors.  The laws potentially affect all companies that collect private user data, such as payment information provided online for a consumer purchase.

Turkey transitioned from a parliamentary to a presidential system in July 2018, following a referendum in 2017 and presidential election in June 2018.  The opacity of government decision making, lack of independence of the central bank, and concerns about the government’s commitment to the rule of law, combined with high levels of foreign exchange-denominated debt held by Turkish banks and corporates, have led to historically low levels of foreign direct investment (FDI).

While there are still an estimated 1,700 U.S. businesses active in Turkey, many with long-standing ties to the country, the share of American activity is relatively low given the size of the Turkish economy.  Increased protectionist measures add to the challenges of investing in Turkey, which saw 2018-2019 investment flows from the United States and the world drop by 21 percent and 17 percent, respectively.  Although there are still positive growth prospects and some established companies have increased investments, near-term projections indicate that foreign investment will continue to slow.

The most positive aspects of Turkey’s investment climate are its favorable demographics and prime geographical position, providing access to multiple regional markets.  Turkey is an island of relative stability in a turbulent region, making it a popular hub for regional operations.  Turkey has a relatively educated work force, well-developed infrastructure, and a consumption-based economy.

In the past few years, the government has increasingly marginalized critics, confiscated over 1,100 companies worth more than USD 11 billion, and purged more than 130,000 civil servants, often on tenuous terrorism-related charges alleging association with Fethullah Gulen, whom Turkey’s government alleges was behind the 2016 coup attempt.  The political focus on transitioning to a presidential system, cross-border military operations in Syria, the worsening economic climate, and persistent questions about the relationship between the United States and Turkey as well as Turkey’s relationship with the European Union (EU), all may negatively affect consumer confidence and investment in the future.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics