Assessment of FDI Incentives in Egypt

The paper tests the hypothesis that the FDI incentives scheme that Egypt chose to adopt since the open door policy in 1974 did not have a significant effect on the volume of FDI inflows attracted to Egypt and placed budgetary burdens on the Egyptian tax-payers. The paper quantitatively estimates the effect of the incentives offered by Egypt to foreign investors in Law 8/1997, on the incremental increase in FDI inflows to Egypt and on the cost born by the budget to support these incentives. It is concluded that the policy on FDI in Egypt should have focused on deriving macroeconomic benefits from FDI rather than on attracting the FDI. Offering incentives, especially tax incentives, is not the way out to more benefits, but improving the availability of sufficiently qualified labor, focusing on the establishment of sound institutions, and opening up to international trade will make Egypt’s locational characteristics more favorable to potential investors.