In this week's edition, we take a look at the recent FDI trends in Egypt and what&rsquo;s needed to attract more FDI to the right sectors, as well as the prospects of the wheat gap and wheat self-sufficiency in Egypt over the years
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<h2>Wheat and Food Security: Support for Small Farmers</h2>
The International Islamic Trade Finance Corporation (ITFC) on June 1&nbsp;<a href="https://enterprise.news/news/story?storyId=f0776725-4317-49a3-93a3-6a0ecd4f3217">approved</a>&nbsp;a USD700-million loan to Egypt to finance grain imports, especially wheat. The loan is part of a USD1.5 billion agreement struck in January 2023 to finance Egypt&rsquo;s energy and commodity imports. The government announced at the time that current strategic wheat reserves were sufficient to cover around 6 months. In its efforts to supply wheat, Egypt is facing a twin crisis due to two main factors:&nbsp;
<ol dir="ltr">
<li style="text-align: justify;">The&nbsp;increasing reliance on Russian and Ukrainian wheat over the last five years, the war has had a severe impact, reducing wheat supply and raising global prices and the cost of domestic bread subsidies, and</li>
<li style="text-align: justify;">The&nbsp;increasing local demand for wheat at rates that outstrip the country&rsquo;s production capacities.&nbsp;</li>
</ol>
Egypt's&nbsp;wheat gap&nbsp;<a href="https://www.mdpi.com/2077-0472/13/1/7">has grown</a>&nbsp;at an annual rate of 6.5% over the last 20 years, posing a direct threat to strategic wheat reserves and national food security.
<img style="display: block; margin-left: auto; margin-right: auto;" src="https://mcusercontent.com/5e42bef7fee7e6a299c3d932d/images/f32ef78f-9cf1-bf3a-c896-5966024cc838.png" width="546" height="432">
<h3 dir="ltr">How is the wheat bill paid? </h3>
Egypt <a href="https://www.nasdaq.com/articles/eu-french-agency-to-provide-60-mln-euro-for-egypt-grain-silo-expansion">has received</a>&nbsp;<a href="https://enterprise.news/news/story?storyId=89b67221-39a6-453f-aace-1a328c7d8744">substantial funding</a>&nbsp;in recent years to cover wheat imports and bolster food security. It currently relies on a USD500-million&nbsp;<a href="https://enterprise.news/news/story?storyId=abe506cf-b207-4ab9-b0de-e8d1d1cce9d8">loan from the World Bank</a>&nbsp;and a USD6-billion loan from the ITFC to pay for wheat imports.
The government&nbsp;<a href="https://enterprise.news/news/story?storyId=abe506cf-b207-4ab9-b0de-e8d1d1cce9d8">will need</a>&nbsp;to come up with an additional EGP15 billion this fiscal year to cover the additional cost of wheat imports&mdash;set at USD350 per ton in the draft budget, or 20% lower than the current market price&mdash;in addition to EGP45 billion for the purchase of local wheat following a supply&nbsp;<a href="https://enterprise.news/news/story?storyId=c4715a71-b0a9-4114-88d7-27fe062d212c&amp;title=%D8%AA%D8%AD%D8%A7%D9%84%D9%81%20%22%D8%A7%D9%84%D8%B3%D9%88%D9%8A%D8%AF%D9%8A-%D8%A3%D9%88%D8%B1%D8%A8%D8%A7%D9%83%D9%88%D9%86%22%20%D9%8A%D9%88%D9%82%D8%B9%20%D8%B9%D9%82%D8%AF%D8%A7%20%D9%84%D8%A5%D9%86%D8%B4%D8%A7%D8%A1%20%D9%85%D8%AD%D8%B7%D8%A9%20%D9%83%D9%87%D8%B1%D8%A8%D8%A7%D8%A1%20%D9%81%D9%8A%20%D9%84%D9%8A%D8%A8%D9%8A%D8%A7">price increase</a>.
<h3 dir="ltr">Food security and self-sufficiency</h3>
According to UN Food and Agriculture Organization (FAO) food security exists when all people at all times have physical and economic access to sufficient safe and nutritious food. In 2022, the Global Food Security Index <a href="https://impact.economist.com/sustainability/project/food-security-index/explore-countries/egypt">rank</a>ed Egypt 77 of 113 countries around the world.
The risk of food insecurity&nbsp;<a href="https://www.sasapost.com/why-does-not-egypt-grow-enough-wheat/">increases</a>&nbsp;when government imports rely on a small number of countries to provide a strategic crop or food commodity. Egypt is thus vulnerable to food insecurity because of its reliance on Russia and Ukraine for more than 80% of its wheat imports; while their prices were low before the war. The conflict between the countries has spurred a&nbsp;<a href="https://economyplusme.com/105690/">44% increase</a>&nbsp;in global wheat prices. Egypt is currently seeking to diversify its sources of foreign wheat, looking to import from France, Romania, and other countries, but the&nbsp;<a href="https://enterprise.news/news/story#332ad104-a093-4c31-a180-d70715ab6f39">majority</a>&nbsp;of its wheat imports (57%) still came from Russia in 2022.
The wheat crop is the&nbsp;<a href="https://ajas.journals.ekb.eg/article_190358_d104c6ceef76e026790c0ed429d92842.pdf">main determinant</a>&nbsp;of the value and size of the food gap in Egypt, which is when the demand for food exceeds the rate of local production. While total wheat production has increased steadily over the past 20 years at an average rate of 1.64% every year, wheat self-sufficiency has declined by 2% annually because of high population growth, higher domestic and global inflation, and climate changes that threaten limited water resources and the quality and area of agricultural land.&nbsp;
Because of these and other factors - poor storage capacity that results in the&nbsp;<a href="https://gate.ahram.org.eg/News/3441318.aspx">loss</a>&nbsp;of more than 3 million tons of wheat annually to waste and damage, low spending on agricultural research and extension centers - experts&nbsp;<a href="https://www.aljazeera.net/ebusiness/2020/1/9/%D9%84%D9%85%D8%A7%D8%B0%D8%A7-%D8%AA%D8%B1%D8%A7%D8%AC%D8%B9-%D8%A7%D9%84%D9%85%D8%B3%D8%AA%D9%87%D8%AF%D9%81-%D9%85%D9%86-%D8%B2%D8%B1%D8%A7%D8%B9%D8%A9-%D8%A7%D9%84%D9%82%D9%85%D8%AD">believe</a>&nbsp;that Egypt will find it difficult to achieve self-sufficiency in wheat. The Egyptian government has long announced targets for achieving wheat sufficiency but has failed to reach them. For example, Egypt&rsquo;s Sustainable Development Strategy 2030&nbsp;<a href="https://www.mdpi.com/2077-0472/13/1/7">aimed for</a>&nbsp;74% self-sufficiency of wheat by 2017, but achieved only 43% self-sufficiency by the target date. This is what is driving&nbsp;<a href="https://www.madamasr.com/ar/2023/06/08/opinion/%d8%a7%d9%82%d8%aa%d8%b5%d8%a7%d8%af/%d9%87%d9%84-%d9%8a%d8%ac%d8%a8-%d8%a3%d9%86-%d9%86%d9%83%d8%aa%d9%81%d9%8a-%d8%b0%d8%a7%d8%aa%d9%8a%d9%8b%d8%a7-%d9%85%d9%86-%d8%a7%d9%84%d9%82%d9%85%d8%ad%d8%9f/">calls</a>&nbsp;to rethink the Egyptian food system, which is also associated with health problems for Egyptians due the link between poverty and cheap carbohydrates, and to take a broader view of self-sufficiency that considers access to healthy, balanced, and safe food.
<img style="display: block; margin-left: auto; margin-right: auto;" src="https://mcusercontent.com/5e42bef7fee7e6a299c3d932d/images/45ce1bb1-ef5f-3fb1-461c-5ff6f2701dae.png" width="546" height="432">
<h3 dir="ltr">Support for small farmers to plug the gap</h3>
Expert reports recommend support for small and medium local farmers, especially given the high cost of wheat production, inflation, and the decline in state support in the form of subsidized production inputs and agricultural extension. The government should procure wheat from local suppliers at an attractive, fair price that competes with private sector prices without levying sanctions or threats and should announce the price in advance of the wheat growing season to incentivize farmers. A FAO <a href="https://www.fao.org/family-farming/detail/en/c/471489/">study</a>&nbsp;confirms that more than half (50.5%) of land used for wheat production in Egypt is cultivated by smallholders who own less than 3 feddans (about 3 acres). Sustainable agricultural policies that encourage them to cultivate wheat would help to narrow the growing wheat gap in Egypt.
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<h2>FDI and Jobs: What&rsquo;s the Relationship?</h2>
The Supreme Council for Investment, which is subordinate to the president&rsquo;s office,&nbsp;<a href="https://www.presidency.eg/ar/%D9%82%D8%B3%D9%85-%D8%A7%D9%84%D8%A3%D8%AE%D8%A8%D8%A7%D8%B1/%D8%A3%D8%AE%D8%A8%D8%A7%D8%B1-%D8%B1%D8%A6%D8%A7%D8%B3%D9%8A%D8%A9/news1652023-2/#:~:text=%D9%85%D8%B4%D8%B1%D9%88%D8%B9%20%D9%82%D8%B1%D8%A7%D8%B1%20%D8%A8%D8%AA%D9%83%D9%84%D9%8A%D9%81%20%D9%88%D8%B2%D8%A7%D8%B1%D8%A9%20%D8%A7%D9%84%D8%B9%D8%AF%D9%84%20%D8%A8%D8%A5%D8%B5%D8%AF%D8%A7%D8%B1%20%D9%82%D8%B1%D8%A7%D8%B1%20%D8%AA%D9%86%D8%">announced</a>&nbsp;22 new decrees on May 16, 2023 to encourage and attract domestic and foreign direct and indirect investments in Egypt, at a time when the Egyptian economy is facing mounting crises, first and foremost the dollar liquidity crisis.&nbsp;
In addition to introducing new regulatory measures and cutting some taxes, the decrees set a time frame for approvals of the establishment of companies, provided for legislative amendments to lift restrictions on foreigners&rsquo; ownership of land and real estate, expanded the issuance of the so-called&nbsp;<a href="https://www.al-monitor.com/originals/2022/05/egypt-grants-new-incentives-foreign-investors">golden license</a>, and allowed foreign investors to be entered in the importers&rsquo; registry for a period of ten years to address the difficulty of importing production needs.
The golden license law was passed in 2017, but was only enacted after the economic crisis intensified in 2022. A golden license gives an investor&nbsp;<a href="https://www.alarabiya.net/aswaq/special-stories/2022/10/30/%D9%85%D8%A7-%D9%87%D9%8A-%D8%A7%D9%84%D8%B1%D8%AE%D8%B5%D8%A9-%D8%A7%D9%84%D8%B0%D9%87%D8%A8%D9%8A%D8%A9-%D8%A7%D9%84%D8%AA%D9%8A-%D8%AA%D8%B9%D8%AA%D8%B2%D9%85-%D9%85%D8%B5%D8%B1-%D9%85%D9%86%D8%AD%D9%87%D8%A7-%D9%84%D9%84%D9%85%D8%B3%D8%AB%D8%AA%D9%85%D8%B1%D9%8A%D9%86%D8%9F">all the approvals</a>&nbsp;needed to start and run an enterprise at one time, but eligibility is limited to just three investment areas: green hydrogen, the electric vehicles industry, and desalination and renewable energy projects; which some observers believe limits investment opportunities.
<h3 dir="ltr">FDI rates in Egypt</h3>
Foreign direct investment (FDI) in Egypt <a href="https://www.independentarabia.com/node/426211/%D8%A7%D9%82%D8%AA%D8%B5%D8%A7%D8%AF/%D8%A3%D8%AE%D8%A8%D8%A7%D8%B1-%D9%88%D8%AA%D9%82%D8%A7%D8%B1%D9%8A%D8%B1-%D8%A7%D9%82%D8%AA%D8%B5%D8%A7%D8%AF%D9%8A%D8%A9/%D9%87%D9%84-%D9%86%D8%AC%D8%AD%D8%AA-%D9%85%D8%B5%D8%B1-%D9%81%D9%8A-%D8%AC%D8%B0%D8%A8-%D8%A7%D9%84%D8%A7%D8%B3%D8%AA%D8%AB%D9%85%D8%A7%D8%B1-%D8%A7%D9%84%D8%A3%D8%AC%D9%86%D8%A8%D9%8A%D8%9F#:~:text=%D9%88%D9%84%D9%81%D8%AA%20%D8%A5%D9%84%D9%89%20%D8%A3%D9%86%20%D9%87%D9%86%D8%A7%D9%83%20%D8%B9%D8%AF%D8%AF%D8%A7%D9%8B,%D9%83%D8%A7%D9%86%20%D9%8A%D8%AA%D9%85%20%D8%AE%D9%84%D8%A7%D9%84%20%D8%A7%D9%84%D8%B9%D9%82%D8%AF%20%D8%A7%D9%84%D8%B3%D8%A7%D8%A8%D9%82">increased</a>&nbsp;94% over the current fiscal year after reaching a&nbsp;<a href="https://www.independentarabia.com/node/426211/%D8%A7%D9%82%D8%AA%D8%B5%D8%A7%D8%AF/%D8%A3%D8%AE%D8%A8%D8%A7%D8%B1-%D9%88%D8%AA%D9%82%D8%A7%D8%B1%D9%8A%D8%B1-%D8%A7%D9%82%D8%AA%D8%B5%D8%A7%D8%AF%D9%8A%D8%A9/%D9%87%D9%84-%D9%86%D8%AC%D8%AD%D8%AA-%D9%85%D8%B5%D8%B1-%D9%81%D9%8A-%D8%AC%D8%B0%D8%A8-%D8%A7%D9%84%D8%A7%D8%B3%D8%AA%D8%AB%D9%85%D8%A7%D8%B1-%D8%A7%D9%84%D8%A3%D8%AC%D9%86%D8%A8%D9%8A%D8%9F#:~:text=%D9%88%D9%84%D9%81%D8%AA%20%D8%A5%D9%84%D9%89%20%D8%A3%D9%86%20%D9%87%D9%86%D8%A7%D9%83%20%D8%B9%D8%AF%D8%AF%D8%A7%D9%8B,%D9%83%D8%A7%D9%86%20%D9%8A%D8%AA%D9%85%20%D8%AE%D9%84%D8%A7%D9%84%20%D8%A7%D9%84%D8%B9%D9%82%D8%AF%20%D8%A7%D9%84%D8%B3%D8%A7%D8%A8%D9%82">ten-year high</a> in FY2021/22 of USD22.2 billion.
<img style="display: block; margin-left: auto; margin-right: auto;" src="https://mcusercontent.com/5e42bef7fee7e6a299c3d932d/images/094aff6b-11bb-f697-9c82-004087c9f5a1.png" width="546" height="432">
The oil and construction sectors&nbsp;<a href="https://www.cbe.org.eg/-/media/project/cbe/listing/research/annual-report/arabic-file/ar---2020--2021.pdf">accounted for</a>&nbsp;two-thirds of Egypt&rsquo;s FDI inflows (72.1%) over the past decade. FDI&nbsp; in the industrial sector, on the other hand, are quite low and in the agricultural sector nearly non-existent.
Research&nbsp;<a href="https://www.oecd-ilibrary.org/sites/1822d1d5-en/index.html?itemId=/content/component/1822d1d5-en">shows</a>&nbsp;that the more FDI is concentrated in the extractive and mining sectors, the less likely it is to contribute to sustainable development in the host country, as these sectors are more capital intensive than labor intensive. Investment in the construction sector provides more jobs, but they are short-term and seasonal.
Currently, the&nbsp;<a href="https://www.capmas.gov.eg/Pages/Publications.aspx?page_id=5104&amp;YearID=23620">top five employment sectors</a>&nbsp;in Egypt are agriculture and fisheries (19.2% of the workforce), construction (13.8%), wholesale and retail trade (15%), manufacturing (12.6%), and education (7.8%).
<h3 dir="ltr">FDI and employment?</h3>
There is a direct correlation between a country&rsquo;s employment rate and FDI. Research examining the relationship between the two indicators from 2003 to 2019 <a href="https://www.investmentmonitor.ai/sdgs/sdg8-fdi-jobs-economy">found</a>&nbsp;that countries with decent employment rates attracted more FDI projects than those with low employment rates. Foreign investment can also boost employment rates if it is directed to specific sectors, indicating a two-way relationship.
<img style="display: block; margin-left: auto; margin-right: auto;" src="https://mcusercontent.com/5e42bef7fee7e6a299c3d932d/images/afa7dccf-03c5-8e0d-9c01-0a4b7f99df22.png" width="546" height="432">
Expert reports recommend that the Egyptian government move away from policies that offer redundant incentives and instead channel its efforts into improving the country&rsquo;s economic performance by providing a qualified, educated workforce that attracts foreign investors to value-added and sustainable industrial and agricultural sectors.
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"Adasa" is a weekly policy digest by Alternative Policy Solutions. "Adasa" provides an analysis of a select number of policy developments and their effect on inclusive development and socioeconomic change.
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