In an exemplary manifestation of economic resilience and foresight, Egypt astoundingly emerges as the lead Arab nation in terms of foreign investment growth during the first quarter of 2023. This pivot of fortune reflects the diligent work and strategic reforms that have been instituted by the nation’s leadership over the last decade, which notably included crucial monetary policy amendments such as liberalizing the exchange rate.
The exchange rate liberalization alone has propelled a substantial influx of foreign portfolio investments, exceeding a remarkable $30 billion since its inception. This action underscores Egypt’s financial investments as a pivotal magnet, attracting foreign investors with its lucrative and stable prospects.
In a comparative lens, foreign portfolio investments were dispersed to $4.2 billion in 2018/2019 compared to $12.1 billion in 2017/2018, and ascended further to $7.3 billion in 2019/2020. Although global events, notably the US-China trade wars and the upheaval wrought by the COVID-19 pandemic, dampened investment flows, they soared back to $18.7 billion in 2020/2021 amidst improving conditions.
Accelerating forward to the current year, 2023, investment flows have surged by a staggering 72%, propelled by facilities provided by the government following 22 decisions issued by the Supreme Council for Investment. This upward trajectory is bolstered by a rise in the volume of Foreign Direct Investment (FDI) in Egypt, climbing from $5.2 billion in 2021 to $8.9 billion in 2022. In the first quarter of 2023 alone, the net FDI inflows to Egypt soared to approximately $3.3 billion, positioning Egypt as the foremost nation in North Africa in terms of incoming investment flows and first among Arab countries in terms of foreign investment growth.
Monetary reform decisions have also played a critical role in achieving a surplus in the balance of payments, surpassing $26 billion during 2016/2017 and 2017/2018. Though 2018/2019 witnessed a fluctuation in the performance of secondary balances, reflecting negatively on the balance of payments and resulting in a deficit of $0.1 billion, the balance of payments realized a surplus of $1.86 billion in the fiscal year 2020/2021.
As of September 2022, Egypt’s balance of payments achieved an overall surplus of $523.5 million, supported by a rise in tourism revenues, proceeds from both petroleum and non-petroleum exports, alongside the escalating revenues from the Suez Canal and an increase in the net inflow of FDI in Egypt.
These positive developments were mirrored in the net international reserves, which witnessed historic rates in December 2018, amounting to $45.55 billion, and although it relinquished these levels due to global influences, reaching $33.53 billion by November 2022, it recovered subsequently by August 2023, standing at $34.9 billion.
In regards to exchange rates, 2020 witnessed a commendable performance of the Egyptian pound against emerging markets, backed by the results of the economic reform program and the nation’s endeavors to enhance economic indicators and protection programs during the coronavirus pandemic. Yet, at the start of 2022, the exchange market experienced a significant shift due to global fluctuations and shocks to the international economy resulting from the Russian-Ukrainian war. Consequently, global and, subsequently, the Egyptian Central Bank adopted a stringent policy to control elevated inflation rates. Amid these conditions, the dollar exchange rate rose against the Egyptian pound from 15 pounds per dollar to reach 30.90 pounds per dollar.
Inflation rates have retreated at a faster pace than analysts anticipated, with the inflation rate dropping from 21.6% in 2017/2018 following the liberalization of the exchange rate due to the economic reform program, to 6.4% and 7% during 2019/2020 and 2020/2021, respectively. Although it rose significantly due to the impacts of the Russian-Ukrainian war on global and local inflation rates, it is expected to stabilize once again in 2023/2024 to levels below 20%.
In summary, Egypt’s strategic economic reforms and decisions have navigated through a complex global economic scenario, positioning it as a robust and enticing haven for foreign investments, hence attesting to the nation’s economic stability and strategic resilience amidst global challenges.
