It was an announcement that triggered shockwaves in a world still recovering from last year’s financial crisis. When the Dubai government stated that it intends to ask creditors of state-owned Dubai World Corporation, and real estate developer Nakheel, for a temporary, six-month standstill on its outstanding debts, investors worried that a second financial tsunami might be on its way. Those fears have since abated after Abu Dhabi promised to help with a $10 billion loan. Yet, while Dubai’s reputation stands battered, another country is waiting in the wings to gain from its troubles.
Egypt assured anxious investors that it remained unaffected by the crisis in Dubai but what has been left unsaid is that the same investors who are pulling money out of Dubai may turn their attention to this oil-rich country along the Nile. Egyptian banks have limited exposure to Dubai’s debts and post the financial crisis, the economy has continued to expand on an ambitious reforms program that was first introduced back in 2004.
For the fourth time, Egypt finds itself on the top 10 list of global reformers in the World Bank’s Doing Business report. The study found that Egypt has made it easier to start a limited liability company, trimming the process down to just a week instead of two. Cairo has also reduced property registration fees and has established a Ministry of Investment, which has cut miles of red tape and provided added transparency for international investors. The country’s economy grew at a rate of 7.2% in 2008 and is estimated to expand at 4.7% this year, according to the International Monetary Fund.
Egypt’s foundations are also stronger – while Dubai’s growth was spurred by its real estate sector – Egypt has developed on the strength of its oil riches, as well as a boom in domestic consumption. This is why wary investors, scarred by last year’s crisis, may prefer Egypt. Stock inflows are expected to increase as indeed foreign direct investment or FDI. Barring major shocks, oil prices have regained a modicum of stability after last year’s wild swings. Egypt has a long way to go to improve its infrastructure – a recent report by the Ministry of Communications and Information Technology bemoaned Egypt’s lack of internet penetration and the country still ranks a pitiful 106 among 183 economies on the ease of doing business scale, even after all its extensive reforms.
But Dubai may have dropped unexpected opportunity in Egypt’s lap. Despite the Dubai debacle, the Middle East continues to be an important investment destination, and Egypt is well aware that its focus on reforms over the past five years is paying off. It may seem wrong to profit from another’s troubles, but money knows no loyalties – and if Egypt is its new master, the riches may well flow there now.
Postcards from Around the World
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