Egypt’s farmland offers minimal incentives to Arab investors
Daily News Egypt | 29 March 2015
Irrigation plots between Lake Nasser and Toshka Lakes, Egypt
Egypt’s farmland offers minimal incentives to Arab investors
Cairo - While Egypt finds no difficulties in drawing billions of dollars in investments to its diverse sectors, the country’s farming and agriculture sectors seems the least attractive.
According to data from the Central Bank of Egypt (CBE), the agricultural sector has only attracted a mere $1bn from a total $16.97bn injected by Arab investors into the Egyptian market since 1970 to January 2015.
The situation is not any better with regards to Western investors’ interest in Egypt. Out of a total $16.1bn pumped by members of the European Union and the US, from the year 1970 to last January, only $4m was in the agricultural sector.
Even as Egypt boasted the completion of agreements set to draw in billions of dollars during the Sharm El-Sheikh conference earlier this month, a mere fraction was directed to the farming sector as opposed to infrastructure, energy, real estate, industry and others.
This is all despite the fact that the sector provides livelihood for about 55% of the country’s population of over 85 million people, employing around 30% of the labour force, according to the Food and Agriculture Organization (FAO). The sector also accounts for approximately 17% of Egypt’s GDP, and 20% of the foreign exchange influx, the group said.
Outdated legal setup
Hany Farahat, senior economist at Cairo-based CI Capital, attributed Arab investors’ keenness to fund farming projects to a series of challenges, facing both the sector and the investor.
“The legal setup governing this sector is not as advanced as others. Being the oldest source of income in Egypt, the sector has inherited a lot of procedural and administrative problems, such as those pertaining to land registration, availability, and allocation,” he said.
As some of the laws governing the sector date back to the 1960s, and there is bureaucracy marring necessary procedures rendering them lengthy, many investors avoid involvement in Egypt’s agricultural sector.
According to Abdel-Aziz Sheta, head of Land Reclamation Department at the Ministry of Agriculture, legal challenges persisted for a very long time. These were, however, addressed recently through a series of new laws which facilitate paperwork.
“At least seven new laws were recently issued to ease the procedures of individual farmers as well as investors, such as the one-stop option for registering land or completing paperwork,” he said, adding that he hoped this would lure in more investors.
Farahat also noted that the sector requires “more corporatisation”, adding that the majority of the country’s arable areas of land, largely extending along the river Nile, are family-owned.
“This means it lacks the financing, automation and general economies of scale required for higher production and efficiency,” he said.
Project gone bad
In a bid to spur this sector, in 1997 the government launched what was meant to be a new city to attract at least 17 million people away from the cluttered capital and cities of the Delta.
Called Toshka, or the New Valley, the project aimed to expand the urban area in Egypt from a current 5% to 25%, with plans of pumping water from Lake Nasser to irrigate the city located in Upper Egypt. With massive goals in mind, Incentives were made to lure investors to the dream of the then-president Hosni Mubarak.
But many years later, the city was proved to be a massive failure, and land remains bare. Local press quoted a report issued by the Accountability State Authority as saying that, as of June 2010, only 6.6% of the 343,000 acres land allotted for investors were planted.
Since then, disputes broke out between the government and some of the Arab investors, who failed to make a significant progress with regards to land reclamation in the new city. Such companies included Saudi Rajhi International Agricultural Investment Company, which was to reclaim 100 acres, and Kingdom Agricultural Development Company, among others.
“Egypt has worked to resolve problems arising with Gulf investors in the agricultural sector,” Farahat said, with reference to Toshka. “But we need more examples of successful cases were foreign investors managed to capitalise on investment opportunities in this sector.”
With lesser incentives, and fewer measures to promote opportunities, sectors like real estate, energy and tourism in Egypt attract investors from around the world.
According to Alaa Diab, Chairman of PICO Modern Agriculture Company, and head of the agriculture committee at the Egyptian Business Association, the reason lies in the government’s approach.
“When marketing opportunities in other sectors, the government speaks highly of the massive consumption base in Egypt and the large unmet demand, in ways that attracts any investor who ultimately aims to profit. As for the Ministry of Agriculture, its sole focus on the process itself: the land reclamation, rather than the attractiveness of the sector, and the guaranteed sale of produce,” he said.
He also added that industrial, construction, real estate and energy sectors were all boosted by mega, nationalist, government-sponsored projects like the Suez Canal Development Corridor, or the new capital, which together drew attention to opportunities, as well as encouraged Egyptians too to take part.
“The agriculture sector requires a boost like this one, to make a difference,” Diab said.
Meanwhile, Farahat attributed the attractiveness of certain sectors’ to the investors’ preference. “Investors like to invest in fields where they have the expertise, and the trend is moving to more focus on retail, infrastructure and real estate, and oil and gas.”
Sheta, on the other hand, explained that investors’ also eye opportunities with the “shortest cycle of capital”, adding that farming and cattle raising both require longer periods to break-even and then profitability.
During Sharm El-Sheikh’s Economic Summit, the government announced the availability of 4m acres of land for reclamation by investors, in a bid to draw in FDI and boost the sector.
Farahat saw the measure as a good step forward. “It will open up the sector, given the government streamlines procedures and markets the project under a more suitable private sector set up,” he said.
Sheta echoed his opinion, adding that the proposal saw positive reactions from investors who were drawn by incentives offered and the attractiveness of the opportunity.
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