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.
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.