Egypt and the Investment Development Path : Insights from Two Case Studies

According to the Investment Development Path (IDP) hypothesis, there is a U-shaped relationship between a country's economic development and its net outward investment position. An emerging country should evolve from a position of net recipient of foreign direct investment (FDI) to net exporter of FDI as its level of economic development increases. Under the combined pressure of global competition, trade and financial liberalization, privatization and regulatory reform, and faster and shorter product cycles, firms in emerging, transition, and developing countries are expanding overseas through FDI in greater numbers and at an earlier stage of their lifecycle. Much of the existing literature (albeit limited itself) examines this important new phenomenon in a small group of large emerging economies (Brazil, China, India, and Russia). This paper, on the other hand, covers Egypt, an under-researched country in an under-researched area (North Africa). Short of fully testing this hypothesis, this paper looks at the incipient internationalization of the Egyptian economy through the experience of a couple of its multinational corporations (MNCs), Orascom and Oriental Weavers. The paper starts by providing a brief description of the Egyptian economy and industrial structure. It highlights how Egypt, due to poor investment climate and broader geopolitical motives, receives limited FDI inflows, while outward FDI remains limited in size and scope. It then dwells in details into the international expansion of the two MNCs. The paper concludes by pointing to the importance of promoting corporate internationalization throughout an active policy to make the business environment more conducive to risk-taking, instead of rent-seeking, behaviors