Foreign Indirect Investment in Egypt: Full Guide
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What is foreign investments?
When a domestic investor chooses to acquire ownership of an asset in a foreign nation, this is referred to as a foreign investment. To complete the deal, cash flows must be transferred from one nation to another. The foreign investor can have the ability to affect the business strategy of the organization if their ownership interest is sizable enough.
Such investment is divided into two types, Direct Investment and Indirect Investment. When investors make a physical asset purchase in another nation, such as a factory, plant, or machinery, this is known as a foreign direct investment. Foreign indirect investments, on the other hand, occur when investors purchase stock in foreign corporations that trade on those countries' stock exchanges.
Since the assets they buy are viewed as long-term, direct foreign investments are typically preferred by the foreign country over indirect foreign investments. As a result, they gradually aid in boosting the economy of the host nation.
In contrast, indirect foreign investments are frequently less long-term and aren't always employed to support the long-term expansion of the economy of another nation.
What is foreign indirect investment in Egypt?
Foreign indirect investments is when the investor company has received entire foreign investment and is not owned or managed by citizens of Egypt who live in Egypt.
The investments could expand to vast options such as industrial, agriculture, tourism, communications or technology sectors, or even it could be a fair share in some ongoing projects, that as we mentioned above, aren't long-term investments.
What are the main types of indirect foreign investments?
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Multilateral Development Banks
Multilateral development banks are financial entities that invest in developing countries' foreign assets in order to boost and stabilize economic activity. Rather than focusing on profit, multilateral development banks invest in projects that help the economic development of their respective countries.
Infrastructure projects in other nations, such as toll roads or bridges, are an example of where the financing is made up of very low to zero interest debt. As a result, it generates new industries and possibilities in that field.
Purchasing stock in real estate investment trusts (REITs)
Investing in a trust fund or a Real Estate Investment Trust (REIT) is an example of an indirect investment.
A REIT is a real estate investment trust that is authorized by Egyptian law, listed on a stock exchange, with the purpose of managing real estate on behalf of stockholders. In REITs investors can invest in commercial property, residential property, or both.
It has a particular tax treatment to align with the tax arrangements for direct investment in property.
Check out this article to know more about the Commercial Real Estate investments in Egypt: Commercial Real Estate Opportunities in Egypt!
Purchasing stock in listed real estate companies
Corporates that may own, develop, and manage property on behalf of shareholders are known as property investment companies and are listed on stock exchanges. Typically, they are too tiny to qualify as REITs.
If the corporate property in which you invest in does well, you will receive a portion of the profits. You invest by purchasing shares in the company.
Additionally, you can profit if the share price increases, enabling you to sell your investment for a bigger sum than you paid for initially.
Balanced property investment portfolio
As opposed to concentrating on a single market or class of real estate assets, indirect investment in real estate assets is a fantastic method to disperse some of your risks and diversify your portfolio.
You may have more success if you choose the indirect property investment path.
With that said, Egypt is flooding with many real estate investments opportunities as this sector is one of the flourishing ones in Egypt nowadays. It would be a good opportunity to invest in one of these flourishing projects, such as Mivida Business Park.
What are the benefits of indirect investment?
Unlike direct property investment, indirect property investment has a number of benefits, such as:
1. Lower initial capital expenditure
2. Cost savings in management
3. An increase in asset liquidity
Which countries invest the most in Egypt?
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According to Egypt Independent, United Arab Emirates spent a net investment of $2.67 billion in the third quarter of the fiscal year 2021/2022.
Additionally, compared to $1.47 billion in the second quarter, with a growth rate of 81.63%, the UAE ranked first among the nations with the biggest investments in Egypt.
With net investments totaling $168 million in the third quarter compared to 155 million in the second quarter and a growth rate of 8.39%, Kuwait came in second place.
In the third quarter of the fiscal year 2021–2022, Qatar ranked third with around $140 million in net direct investments, up from $109 million in the second quarter and a growth rate of 28.44 percent.
With net direct investments totaling $121 million in the third quarter compared to $55 billion in the second, Bahrain came in fourth place with a growth rate of 120%.
Saudi Arabia finished fifth with $108 million in net direct investments during the third quarter compared to $80 million in the second quarter, a growth rate of 35%.
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Investment management includes more than just purchasing and selling financial assets and other investments. Creating a short or long-term strategy for the acquisition and sale of portfolio holdings is a component of management. It may also cover banking, budgeting, and tax-related services and obligations.
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