your name

TOWARDS A STRATEGY TO

MAXIMIZE THE SUSTAINABILITY

OF ADVANTAGES OF FOREIGN

INVESTMENTS: CASE OF THE

SUEZ CANAL CORRIDOR PROJECT

Dr. A. M. EZZAT

Outline

• Research problem and aim

• Theoretical Framework for the Localization of FDI and how

to Enhance Sustainability

• The Developing Plans of SCCP area

• Incentives and restrictions offered to attract FDI to the

project from the sustainable perspective

• The effective incentives to attract FDI towards sustainability

from the investor’s perspective

• Recommendations and future work

Research problem The Suez Canal Corridor Project (SCCP)

Concentration of activities in three areas

Huge investments are required

Being a global project The domestic resource gap in Egypt

Depending on foreign investments

A Nightmare A Dream OR

Research problem

The concentration of activities in port areas enhances economic development

The conflicts in Port Areas and cities

A Dream

Research problem

At the same time, the concentration of activities leads to negative externalities

The conflicts in Port Areas and cities

A Nightmare

Research problem A dilemma

so, what should we pass on to our kids in the future?

A Dream A Nightmare How to make it a dream?

Research problem

The focus should be on the sustainability

(from the beginning)

Research problem

This is included in Egypt vision 2030

Research Aim To identify:

• The factors attracting FDI to the Suez

Canal Corridor Project

• How to confirm the sustainability of

these investments? Back to contents

Referring to theories and principles of Eclectic

paradigm

The Institutional

approach

The new theory of

trade

MacDougall-Kemp Model

Market imperfections

The product life cycle

Factors Affecting the Localization of Foreign Direct Investment

The behavior

theory

The Internalization

theory

Factors Affecting the Localization of Foreign Direct Investment

Resource incentives

Market incentives

Strategic assets

incentives

eg. natural resources, skilled and unskilled labor, relative

productivity of resources and managerial capabilities

eg. the market size of the surrounding area, inflation rate, trade openness, exchange rate valuation, economic stability,

institutional quality, corruption and regulations

eg. infrastructure quality and technological progress

Att

ract

ing

FDI

The Relationship between Capital Accumulation and Sustainability

Sustainable development

maintaining at least the same stock of capital available over

generations

Natural Capital

Human Capital

Man-made Capital

The economic theories mentioned the FDI effects on sustainability

The effects of FDI on

sustainability

Optimal capital accumulation

The neoclassical

theory

The neo-Malthusians

The modern neoclassical theory

The economic theories mentioned the FDI effects on sustainability

Although having different arguments, theories

agreed that governments should enter

affecting the directions of FDI to enhance

merging the social and environmental effects

Back to contents

Developing Plans of SCCP area

• The Suez Canal

Corridor Project (SCCP) is a

mega project in Egypt .

• The project aims to develop

3 major regions along the

banks of Suez Canal in

three phases, over a period

of 20 years.

Concentration of activities

Developing Plans of SCCP area

To enhance sustainable development, the General Authority for the Suez Canal Economic

Zone announced that the planned project targets three directions

Enhance manufacturing

in the three regions

Facilitate transportations

around the development

zone

Reduce negative effects of the concentration of

industries through adopting some

ecological projects

Developing Plans to enhance manufacturing in the area

The Development Zones in the Suez Canal Corridor Project

• Planners supported having some ecological projects in the

three major regions as follow:

a. Wind farms to supply renewable power to the Suez Canal

Zone. The proposed location is (Ras Sedr).

b. Solar photovoltaic Fields in order to supply renewable power

in Egypt.

c. Waste to energy incineration plants.

d. New desalination plants in order to provide long term water

security to the development of the Suez Canal Zone.

Ecological projects in SCCP area to support sustainability

e. Combined cycle gas turbine power station..

f. New wastewater treatment plant and disposal system.

g. Provision of additional wastewater treatment capacity.

Ecological projects in SCCP area to support sustainability

Back to contents

Incentives to Attract FDI to the Project

Incentives given by law 83 of 2002 and its amended

in 2015

High Quality infrastructure

Complete protection of

private property

Full exemption of export and

import procedures

The independency of the General

Authority

The one-stop-shop

Full exemption from duties

and sales tax

Freedom of setting the prices of products

The Access to Domestic Market

Non-tax benefits and

incentives for certain industries

Environmental considerations as requirements to invest in SCCP

Incentives given by law 83 of 2002 and its amended

in 2015

Consider the environmental

aspects in setting the general policy

Ensuring the application of environmental management

systems

Licenses to investors include the environmental terms and

standards

Incentives for eco-friendly

projects

Integration of authorities to preserve the environment

Incentives given by law 83 of 2002 and its amended

in 2015

Incentives to projects with operating heavy

labor

Reviewing the percentage of foreigners to

Egyptian workers

Ensure minimum standards for labor

rights

Support human capital

capabilities

Regulate terminate labor contracts to

ensure the interests of workers

Back to contents

Social considerations as requirements to invest in SCCP

The methodology used to know effective incentives to attract FDI towards sustainability

A survey is used to determine and

arrange

government tools to support the

sustainability of SCCP

factors attracting

FDI

main obstacles of FDI to the

SCCP

main motivations of FDI to the

SCCP

Determinants of foreign investment Factors affecting company's decision to invest abroad

68

24

8

28

60

12

4

16

80

0

10

20

30

40

50

60

70

80

90

Market incentives Resource incentives Assets incentives

%

More Important Important Less Important

Determinants of foreign investment Market incentives factors affecting company's decision to

invest abroad

52

40

8

48 48

4 0

12

88

0

10

20

30

40

50

60

70

80

90

100

The business environment The market size and itspotentialgrowth

Liberalizing the economy of thehost country

%

More Influencing Influencing Less Influencing

Determinants of foreign investment Resource incentives factors affecting company's decision

to invest abroad

60

24

16

28 24

48

12

52

36

0

10

20

30

40

50

60

70

Human capital and lower wages The abundance of factorsofproduction

Labor market flexibility

%

More Influencing Influencing Less Influencing

Determinants of foreign investment Assets incentives factors affecting company's decision to

invest abroad

72

28

0

28

56

16

0

16

84

0

10

20

30

40

50

60

70

80

90

Good transport infrastructure Technological capabilities Managerial capabilities

%

More Influencing Influencing Less Influencing

The main motivations of foreign investments to the SCCP

83.3

60.0

46.7

43.3

36.7

33.3

26.7

20.0

0102030405060708090

Incentives to investment

Location advantages

Full foreign ownership of companies

Full foreign control of import/export activities

Roads, railways connectivity

Imports exempt from customs duties and sales tax

Organizational processes (ease of registration andlicensing)

Assets capabilities (labor, infrastructure …etc

%

Determinants of foreign investment The main obstacles of foreign investments to the SCCP

90.0

86.7

66.7

33.3

20.0

0102030405060708090100

Government bureaucracy

Economic instability

Restrictions on the transfer of capital

Poor organizational attributes

Insufficient infrastructure

%

Determinants of foreign investment The efficient government tools to support the

sustainability of SCCP

Back to contents

54.8

22.6 22.6

32.3

51.6

16.1 12.9

25.8

61.3

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

Government Incentives Laws and regulations Government Restrictions

%

More Effective Effective Less Effective

Recommendations to support the sustainability of Foreign investments to SCCP

• At the state level:

• The legislature is required to review the laws and regulations to

focus on supporting the sustainability.

• More of efforts are needed to be applied on both fiscal and

financial incentives, basically ease of retrieving capital back.

• Further efforts towards the fight against corruption.

• Minimizing government bureaucracy through speeding up the

activation of the one-stop-shop described in article 13 of the SZ

law.

Recommendations to support the sustainability of Foreign investments to SCCP

• At the institutions level:

• The Ministry of Environment is required to activate its membership in

the board of directors of the authority to emphasize the commitment

to protect the environment.

• The General Authority for the Suez Canal economic Zone needs to

stress in the marketing for the zone on:

• The business environment especially government incentives and

guarantees for the transfer of profits abroad.

• The incentives to foreign investment, full foreign ownership of

companies and imports exempt from customs duties and sales

tax.

Recommendations to support the sustainability of Foreign investments to SCCP

• At the institutions level:

• Taking advantage of legal provisions that grant the right to

intervene to protect the environmental and social aspects.

• Giving incentives to the use of:

• Renewable sources of energy,

• The reuse of waste

• Find a way to include environmental externalities into

prices as the effective factors to support the sustainability.

Future Work

• In the future, the impacts of the centralization of activities in each

area need to be studied from the sustainability perspective.

• A detailed study of the impacts of libralizing the foreign exchange

market on the performance of the investments.

• A comparison between the incentives given in the SCCP with

competition areas.

To summarize • The paper targets encouraging the sustainability of investments to

SCCP.

• Theoretical preview confirmed the importance of government intervention for the sustainability of benefits of investment.

• The Egyptian government offered incentives and commitments towards sustainability in laws.

• The survey found that incentives to investment and location are the main motivations of foreign investments to the SCCP. Accordingly, a recommendation came to stress on them in our marketing for the project putting into consideration the environmental and social perspectives.

Dr. Ahmed M. Ezzat Tel: (+2)01006318031 E-mail: ezatahmed@aast.edu

Thank you