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Title page 1

Contents 6

Foreword 4

Abbreviations and acronyms 8

Executive summary 9

1. The contribution of FDI to productivity and innovation 13

1.1. Summary 14

1.2. Growth in labour productivity has been modest compared to peer economies 15

1.3. FDI contributes to higher productivity but knowledge spillovers are limited 19

1.4. FDI is prevalent in less innovation-intensive sectors and few companies engage in innovation activities 22

1.5. There is an untapped potential for FDI to increase GVC integration and exports 27

References 31

2. The contribution of FDI to job quality and skills development 33

2.1. Summary 34

2.2. Egypt faces major employment challenges, particularly for the youth and women 35

2.3. The contribution of FDI to employment 38

2.4. The contribution of FDI to job quality 43

2.5. The contribution of FDI to skills development 46

References 49

Notes 50

3. Policies to boost FDI-SME linkages and productivity spillovers 51

3.1. Summary of findings and policy recommendations 52

3.1.1. Recent reforms are improving Egypt's potential to attract investment 52

3.1.2. Policies addressing SME capacities have been implemented, but there is room to create a more supportive business environment 53

3.2. The institutional framework supporting FDI-SME linkages and spillovers 56

3.2.1. The fragmentation of the institutional environment and frequent organisational reforms may weaken investment promotion efforts... 56

3.2.2. While high-level strategic oversight of investment policies is strong, co-ordination among government agencies could be further improved 59

3.2.3. An overarching investment promotion strategy and robust M&E framework will be necessary to target quality FDI in line with... 61

3.3. The regulatory framework for attracting productivity-enhancing investment 63

3.3.1. Egypt's economy is open to foreign direct investment 63

3.3.2. Policy reforms to streamline the regulatory environment for business have accelerated in recent years, yet more could be done... 64

3.3.3. Investment promotion could be further aligned with Egypt's strategic goal to strengthen the productivity and competitiveness... 69

3.3.4. FDI in Egypt's growing green economy provides opportunities for innovation and technology transfer 72

3.3.5. Investment facilitation services could be more focused on connecting foreign investors with Egyptian suppliers and... 74

3.3.6. The role of industrial and free zones could be further leveraged to enhance knowledge spillovers on local economies 78

3.4. Strengthening the capacity of Egyptian SMEs to collaborate with foreign multinationals 80

3.4.1. Improving the absorptive capacities of Egyptian SMEs will require streamlining access to business development services 81

3.4.2. Beyond export training, emphasis should be placed on local supply chain development 84

3.4.3. Innovation programmes could be geared towards supporting R&D partnerships with foreign multinationals 87

References 90

Tables 7

Table 3.1. GAFI's policy priorities related to the Sustainable Development Goals 70

Figures 6

Figure 1.1. GDP is growing rapidly, but average income remains low 15

Figure 1.2. Within-sector effects account for most of productivity growth in Egypt 17

Figure 1.3. Egypt's labour productivity is moderate and has grown gradually 18

Figure 1.4. Significant shares of FDI are in energy, construction, and manufacturing 20

Figure 1.5. Sources of and destinations of greenfield FDI in renewable energies 21

Figure 1.6. The foreign labour productivity premium is particularly high in Egypt 22

Figure 1.7. A low share of FDI goes to R&D activities 24

Figure 1.8. Relatively few firms in Egypt invest in R&D 25

Figure 1.9. Innovation outcomes of foreign firms in Egypt are weaker than in other countries 26

Figure 1.10. Foreign firms are more energy efficient than Egyptian firms 27

Figure 1.11. Egypt's level of involvement in GVCs is low 28

Figure 1.12. The majority of inputs are sourced from the domestic market 29

Figure 1.13. Few firms in Egypt use foreign technology 30

Figure 2.1. Unemployment is high, particularly among women and young people 35

Figure 2.2. The public sector accounts for a relatively large share of total employment 36

Figure 2.3. Average wages in Egypt are relatively low 37

Figure 2.4. Educational attainment is somewhat low in Egypt 38

Figure 2.5. Jobs from FDI are increasingly created in services and renewables 39

Figure 2.6. Job creation intensity in Egypt is relatively low compared to peer countries 40

Figure 2.7. Greenfield FDI is concentrated in sectors with the lowest job creation intensity 40

Figure 2.8. Job creation intensity by sector 41

Figure 2.9. FDI in developing countries increased in sectors with low job creation intensities 42

Figure 2.10. Egypt is one of the countries with the largest number of jobs created from FDI in renewables 42

Figure 2.11. In Egypt, foreign and domestic firms pay similar wage levels 44

Figure 2.12. Both foreign and domestic firms have space for much greater levels of involvement by women 45

Figure 2.13. Some skill-intensive manufacturing sectors attract significant shares of FDI 47

Figure 2.14. Foreign firms contribute to the skills upgrading of Egyptian workers 48

Figure 3.1. Public institutions involved in investment, SME, and innovation policy 57

Figure 3.2. OECD FDI Regulatory Restrictiveness Index in selected MENA economies, 2024 64

Figure 3.3. Laws relevant to investment, SMEs, and innovation 65

Figure 3.4. International Property Rights Index in Middle East and North African countries, 2023 68

Figure 3.5. Motivations for promotion priorities in Egypt and OECD Member countries 72

Figure 3.6. Estimated Chilean green hydrogen sector growth to 2050 74

Figure 3.7. Types of policy instruments and policy targeting 81

Boxes 7

Box 1.1. Egypt relies more on within-sector productivity growth than on the reallocation of labour to drive economic growth 16

Box 1.2. Foreign investment in Egypt's growing renewables sector 20

Box 2.1. The green and digital transitions are reshaping the contribution of FDI to job creation 41

Box 2.2. The just transition and green skills 43

Box 2.3. Harnessing FDI for gender equality and women's economic empowerment in Egypt 45

Box 3.1. Policy recommendations 54

Box 3.2. Co-ordination on investment promotion and facilitation: the Invest in Holland Network 60

Box 3.3. The reform of Chile's National FDI Promotion Strategy 62

Box 3.4. Policy initiatives to foster a transparent investment climate: country examples 67

Box 3.5. Strengthening FDI-SME linkages through international investment agreements 69

Box 3.6. Lessons from Chile's plan for growing the green economy and green hydrogen sector 73

Box 3.7. Promoting value chain linkages between foreign and domestic firms 76

Box 3.8. Leveraging knowledge-intensive FDI for human capital development 77

Box 3.9. Access to land can be a barrier to investment 78

Box 3.10. Types of industrial and special economic zones in Egypt 80

Box 3.11. Increasing SME absorptive capacity: policy initiatives from EU countries 83

Box 3.12. Strengthening the competitiveness and internationalisation of industrial clusters: The automotive cluster in Portugal 86

Box 3.13. Leveraging the technology transfer potential of foreign multinationals in the ICT sector 89

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알라딘제공
This report examines how foreign direct investment (FDI) contributes to productivity, innovation, job quality and skills development in Egypt. While foreign investment serves as a vital source of financing for Egypt, sustaining and deepening the current reform efforts is essential to ensure more equitably distributed benefits across society and to foster the growth of a knowledge-based economy. This report evaluates the country's policy and regulatory environment shaping technology transfer from foreign multinational enterprises (MNEs) to small and medium-sized enterprises (SMEs). It offers policy recommendations to promote and attract FDI with significant spillover potential, enhance the ability of Egyptian SMEs to absorb new knowledge, and strengthen Egypt's integration in global value chains.