Record FDI inflows mask stalling productivity and job growth across Egypt’s economy

Egypt is attracting more FDI than ever, but it isn’t buying us the productivity we need, according to the OECD’s FDI Qualities Review of Egypt (pdf) out earlier this month. While the headline figure looks good — USD 11 bn in inflows last year — the quality of the growth is stalling.

Why this matters: For every USD 1 bn of greenfield FDI coming our way, only 1.1k jobs are created. That is nearly half the OECD average of 2.1k and significantly below the regional average of 1.6k.

Almost 80% of the greenfield FDI that came our way in the decade ending 2023 went toward construction and resource-based sectors, which are “capital-intensive sectors with high levels of productivity but limited prospects for innovation and knowledge diffusion.” Meanwhile, a mere 0.2% went toward R&D, and only 5.5% of foreign firms operating here reported investing in R&D.

Then there’s the capability gap, which the review blames on the “limited absorptive capacity of Egyptian firms.” Foreign firms are 1.5x more productive than their domestic counterparts, which sometimes lack the “necessary capabilities to harness the technological spillovers that FDI can generate.”

The review lays out a handful of recommendations aimed at helping the country unlock the full potential of FDI. These include enhancing the link between SMEs and FDI so that SMEs are able to absorb the productivity spillover of foreign investment, setting up directories of SME suppliers, and matchmaking services to make it easier for foreign players to source inputs locally.

What’s next? The General Authority for Investment and Freezones and the World Bank are working to finalize the National FDI Strategy, which will “outline clear policy priorities, target sectors, governance arrangements, and a comprehensive [monitoring and evaluation] framework based on international good practices.”