The third Middle East & North Africa economic summit, to be held in Cairo on 12-14 November, has undergone something of an identity crisis. A year ago, when Cairo was selected to host the conference, the vision of Arab- Israeli peace leading inexorably to an era of regional co-operation and prosperity was very much alive. The Cairo meeting appeared to offer the chance to seal Israel's integration into the Arab world.

Things have changed a great deal since then. The fears for the future of the peace process following the election of Benjamin Netanyahu as Israeli Prime Minister at the end of May prompted Egypt to consider postponing or even cancelling the conference. President Mubarak finally decided to press ahead, but with the emphasis firmly on promoting Egyptian and Arab interests, rather than Arab-Israeli co-operation.

The conference organisers, The World Economic Forum, say the response from business executives has been positive all along, despite the worsening political climate. Representatives of almost 1,000 companies are expected to attend, along with high-level delegations from Jordan, Israel, the Palestinian Authority, Oman, Qatar and Yemen.

What has made the conference such a powerful draw is the growing conviction in the international business community that Egypt is becoming a sound investment prospect.

That sense of conviction has been hard fought for. Ten years ago, Egypt was on the point of bankruptcy. It faced formidable social problems and ran the risk of political instability. The second two parts of the equation have not greatly changed - in these respects, Egypt differs little from most other developing countries. What has changed is that Egypt is at long last creditworthy. It has even received a rating, albeit not a particularly distinguished one, from Moody's Investors Service.

Egypt has now embarked on what should be the last lap of a marathon programme of macroeconomic reform and debt restructuring under the supervision of the IMF. The budget deficit has been cut, inflation brought down, and foreign exchange reserves built up. The government has also worked painstakingly to create the financial infrastructure of a market economy, reviving the capital market and overhauling bank legislation.

The dividends have started to become apparent in 1996, following the January appointment as prime minister of Kamal el-Ganzouri, who brought two essential ingredients - energy and conviction - to the government's reform programme. He acted quickly to dispel doubts about the government's seriousness in taking privatisation to its logical conclusion - the transfer of ownership and management to the private sector. This triggered an inflow of some $500 million in foreign portfolio investment in just six months.

However, the government and the business community agree that Egypt cannot build growth and prosperity on the whims of foreign investment fund managers. What is needed, above all, is a sustained and significant inflow of foreign direct investment.

'Our savings and investment ratio is only 17 per cent of gross domestic product,' says Economy Minister Nawal el-Tatawi. 'We must increase this ratio to 25 per cent.' She emphasises that almost all of the current 17 per cent is domestic savings. 'Foreign investment, allied to new technology and management techniques, should be the main factor in helping Egypt achieve the higher ratio,' she says.

There are indications that direct foreign investment is starting to materialise. The Swiss cement company, Holderbank, has taken a 20 per cent stake in a new private cement firm; Owens Corning Corporation of the US is investing in a glass reinforced pipe project; another US corporation, Fata Hunter, is considering taking a 45 per cent stake in an estimated $170 million scheme to make aluminium foil at Naga Hammadi, in Upper Egypt; and two French banks have bought controlling stakes in joint ventures set up in the 1970s under the previous investment law, which prohibited majority foreign ownership of banks.

All these initiatives have come in the few weeks before the economic conference, and provide good examples for other foreign investors to study.

The government is arranging visits for delegates to prime investment areas, including the industrial cities around Cairo, new development areas in Sinai and the ambitious New Valley land reclamation project in the southwest.

If this grand promotion exercise succeeds, it will stimulate a burst of investment that Egypt badly needs to equip it for the challenges on the horizon. One such challenge is the EU partnership agreement, which is now the subject of tough negotiations. The agreement would break down tariff barriers between Egypt and the EU for industrial goods and services - not farm produce, if the EU gets its way - and give Egypt access to the $6,000 million mesures d'accompagnement (MEDA) grants the EU has attached to the Mediterranean partnership programme.

Most of these funds would go to social sectors such as education, health and the environment. Unless these sectors can be radically improved, the gains Egypt is making in macroeconomic and financial terms are in danger of proving ephemeral.