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Is Private Equity the Next FDI? The Case of Egypt & the MENA Re...

Is Private Equity the Next FDI? The Case of Egypt & the MENA Region

Published on: December 2010​
Genre: Development​ Category: Policy Brief/ Policy Note​

Foreign Direct Investment (FDI) is considered an indicator of economic growth and a catalyst for industrial development. It is important in three ways: (i) capital investments by foreign firms complement domestic savings in increasing the host country’s total investments, translating into higher growth rates, capital formation and employment; (ii) FDI is often credited with positive externalities in areas such as technology transfer and labor/management training; and, (iii) FDI growth is now considered a positive market signal for the potential of an emerging economy.

In contrast with FDI, the explosion of private equity investments and venture capital investments in emerging markets is a recent phenomenon. In 2008, more than 210 private equity funds raised an estimated $66.5 billion targeting emerging markets; this compares with only $6.5 billion in 2004. Similarly, private equity and venture capital investments in Egypt grew significantly, with more than $13.1 billion in committed capital invested through 36 funds during the same five year period.

Given the increasing prominence of private equity investments in emerging markets, should governments create similar policies to attract private equity as they do for foreign direct investments? And are there risks from private equity investments that require regulatory interventions?

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