TOWARDS A STRATEGY TO OF ADVANTAGES OF FOREIGN INVESTMENTS ... · Resource incentives Market...
Transcript of TOWARDS A STRATEGY TO OF ADVANTAGES OF FOREIGN INVESTMENTS ... · Resource incentives Market...
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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 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: [email protected]