PROPOSED MODEL FOR THE USE OF CLEAN DEVELOPMENT MECHANISM TO ATTRACT FOREIGN DIRECT INVESTMENT TO EGYPT

Abstract

The Clean Development Mechanism (CDM) is the Kyoto Protocol mechanism. The Mechanism has two main objectives; to assist Annex I Parties to cost-effectively fulfil part of their emission reduction targets under the Kyoto Protocol, and to help non-Annex I Parties in achieving sustainable development through new investments, climate friendly technology transfer and know-how, skills development, employment. Based on the literature review, none of the studies assessed the clean development mechanism from the point of comparative benchmarking analysis between several countries. Most of the studies focused solely on the carbon climate and its economics away from the overall country business climate, competition and investment policies. Attracting foreign direct investments, even for environmental purposes, is an economic activity and there is a need to assess and test how to integrate the promotional activities for environmental projects into the country investment promotion strategy. RESEARCH PROBLEM As the Clean Development Mechanism (CDM) has evolved, it has become clear that it provides developed and developing countries with opportunities. The former can hope for a cheap way to fulfil their obligations under the Kyoto Protocol, whilst the latter see the CDM as a tool for promoting sustainable development and technology transfers. Despite these high hopes, there are doubts surrounding the CDM. So is the main problem of this study on the attempt to figure out how to use clean development mechanism to attract Foreign Direct Investments (FDI). As there is no linear relationship between the Clean Development Mechanism and the investment consolidation activities, the research aimed to assess the relation between the Clean Development Mechanism and Foreign Direct Investments and to reach a proposed model for Egypt to use CDM to attract FDI. RESEARCH OBJECTIVES: 1. Benchmark Egypt’s position and ranking on economic and environmental indexes with China, India, Brazil, and South Africa ones. In this research, I assessed the main categories and subcategories of the 6 major global indexes for the period of 10 years from 2006 till 2015, to develop proposed statistical model. 2. Survey both governmental sectors responsible for investment promotion in general and clean development mechanism (by interviewing their representatives) in order to examine the level of coordination in the area of using CDM to attract FDI and to develop recommendations to enhance opportunities to benefit from the CDM. 3. Target and suggest list of potential investment countries and sectors related to the CDM for Egypt based on the analysis of the net foreign direct investment inflows to Egypt for the period of 25 years from 1985 until 2015. HYPOTHESIS: 1. If the country has better economic and environmental performance, then it will attract more Clean Development Mechanism projects. 2. If the country lacks incentives and investment guarantees, then it will not host Clean Development Mechanism projects. 3. If the country suffers from the absence of sources of funding and the high risks of investors’ confidence, then it will host limited number of Clean Development Mechanism projects. 4. If the country ability to establish advanced technology and innovation hubs for industrial purposes is limited, then it will be unqualified to establish environmentally friendly industry.

METHODOLOGY: This study was conducted in order to propose a model and action plan to benefit from the clean development mechanism in order to attract foreign direct investment to Egypt.To be able to gather the necessary data, the researcher utilized descriptive method using both qualitative and quantitative approaches.Herein the chosen responded governmental officials were selected from the assigned Egyptian ministries responsible for investment and environmental affairs. Structured interviews was the research method used for data gathering to evaluate the challenges that facing the inclusion of clean development mechanism within Egypt’s investment opportunities, and to reach out the potential sector and targeted foreign countries to invest in Egypt’s CDM projects. The compiled values and statistical analysis utilized the official data released from the UNFCCC secretariat along with the official investment data of Egyptian General Authority for Investments and Free Zones and the official reports of the below mentioned global indicators; • The Environmental Performance Index; • Energy Sustainability Index; • Foreign Direct Investment Confidence Index; • The Global Opportunity Index; • The Doing Business report; • The Global Competitiveness report.

The credibility of the findings , proposed statistical model , suggested action plan , and conclusions extensively depend on the quality of research design, data collection, data management, and data analysis. UNIT OF ANALYSIS: Egypt, China, India, Brazil, and South Africa are the units of analysis of the research. China, India, Brazil, and South Africa are the Key non-annex 1 developing countries of Kyoto Protocol, which forms more than 80% of the CDM market (CDM fact sheet, UNFCCC), and prominent emerging economies.

DATA ANALYSIS: The researcher analysed global investment indicators in the clean development mechanism projects in order to identify the key countries investing in the global CDM projects. Based on the foreign direct investment inflows to Egypt for the last 25 years from 1985 till 2015, the researcher analysed on yearly basis 191 foreign country investment inflows to Egypt on sectorial distribution as follows; Industrial, Construction, Services, Agriculture, and Financial Services. The researcher compared the list of Top countries investing globally in CDM projects with the List of Egypt Top Foreign Investors according to their exact annual capital inflows per sector. The researcher surveyed the related governmental entities responsible for investment promotion, industrial modernaization, and the clean development mechanism (by interviewing their representative(s) in order to assess the CDM market in Egypt and to examine the level of coordination in the area of using CDM to attract FDI and to develop recommendations to enhance opportunities to benefit from the CDM. The researcher developed guideline questionnaire to follow it through out the interviews. The researcher had meetings and interviews , and communications with officials and representatives from the following governmental entities during the period from 2009 till 2015.

The results of the study may help the decesion maker to integrate more the environmental projects into the investment policies. Despite the uncertainity that might shape the future of CDM, the researcher would like to stress on the need to capitalize on CDM benfits and to learn from the other peer developing countries experience. The proposed model may be used as a catalyst towards more integration of the CDM framework into the country investment climate and doing business activities.