Egypt's investment case: What's really changed?

Since the revolution I have visited Egypt three times and have talked to my clients in China, Europe and the Gulf about Egypt. I have seen both the current reality of the new Egypt and canvassed the opinion of those who are being targeted as investors.

Much of the international discussion of Egypt’s post-revolution investment case has an underlying theme that “the fundamentals remain the same.” Demography is destiny and Egypt’s demography is the same now as it was on January 24. Therefore the investment attractiveness of the country should also remain the same. But both FDI and portfolio investment flows from outside the country are sharply lower, which is understandable, but they look set to remain at a lower rate for some time to come and Egypt needs to act to regain lost ground.

The revolution, and its effect on investment, must be set against a troubled global investment environment. Data on FDI flows always lags but it is my belief that 2011 will not be a great year — anywhere.

Chronic debt concerns in developed markets and the continuation of global financial imbalances show that the systemic instability which lay at the heart of the 2008 crash remains. It is not, I believe, unreasonable to say that investment flows to Egypt would have shrunk in 2011 even if the revolution had not happened. This is the new normal and it isn’t pretty.

But the revolution did happen and I was fortunate enough to be here when it did. I am convinced that, despite the inevitable difficulties the nation will face, that Egypt is firmly on the right path. The demographic growth story which drives foreign investment in Egypt is, it is true, just as compelling now as it always has been. But the risk profile of Egypt has changed.

Investors are sitting on the sidelines watching political developments with interest. They are looking at the way Mubarak-era contracts are being scrutinized. Indubitably some of the business deals made during the Mubarak era were corrupt and scrutiny of contracts is both understandable and necessary. If the law has been broken then strong sanctions should be applied. This is the right approach — both for the country and for investors.