The Role and Determinants of Direct Foreign Investment in Egypt

Despite of Egypt continuous economic concessions to attract more direct foreign investment （DFI） that is necessary for the breakthrough stage of the comprehensive economic reform since 1991, these investments are still small and inadequate. So, this study attempts to analyze the roles and main factors influencing foreign, especially Japanese direct investment. The corresponding examination includes the DFI share of the developing countries as well as Egypt, the advantages of DFI in Egypt respectively at the national and agricultural sector, reasons for the weak flow of DFI to Egypt, the eligibility of the Egyptian economy to attract foreign investment, the contribution of the DFI flow both in the total Egypt investment and in agricultural sector. The main finding is that the amount of international, particularly Japanese DFI allocated to the developing. countries including Egypt is very small, which are mainly concentrated on the developed countries. The principles factors governing the eligibility of the national economy to attract more DFI can be considered to be the percentage of exports value to the gross domestic product GDP, the growth rate of the GDP, the rate of investment returns, the percentage of public foreign debt to the GDP, payment balance deficit, monetary inflation rate. These indicators can be also used to reflect the real improvement in the performance of the Egyptian economy. However, the determinants for attracting more DFI to Egypt include rate. These foreign debt, current and demand deposits, national savings, banking deposit assets, rate of interest, rate of discount, rate of exchange, and remittances. Several factors, such as the agricultural sector banking deposits, private agricultural investment, agricultural loans, the banking rate of interest, and the private capital reserve in the agricultural sector, seems to be related to attracting more agricultural DFI. In the Egyptian economy and agricultural sector, the roles of DFI are as followings: 1） DFI accounts for 10% of the total national investment on average. 2）Agricultural DFI accounts for 6.5% of the total national agricultural investments. 3) DFI amounts to 11.4% of the national commercial balance. 4） Agricultural DFI amounts to 5.4% of the agricultural commercial balance. Those indicators reflect that the contribution of DFI to Egyptian economy and the national capital formation is very limited. However, the econometric analysis demonstrates a promising future