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Two years after grassroots protesters toppled a trio of entrenched strongmen across north Africa, expectations that bloomed with the Arab spring revolutions have yet to make honeybees out of foreign investors. Still, keep watch on a few desert flowers.

These emerging democracies have long-range promise, with Egypt boasting a youngish 85 million people, Libya standing atop gushers of oil, and Tunisia’s centuries-old mercantile culture a short sail from the eurozone. “They’re all good access points to Europe, and it presents opportunity,” says Larry Seruma, chief investment officer of Nile Capital Management and its Nile Africa funds.

Interest is mounting, judging from turnout last month at a conference on business in the three countries sponsored by Sace, Italy’s export credit company. “The topic is hot,” says Giulio Dal Magro, Sace’s chief economist.

Yet the obstacle is obvious – lingering political uncertainty even after democratic elections in all three nations. Egypt’s not-quite year-old Muslim Brotherhood-led government has faced issues over many decisions, especially President Mohamed Morsi’s move to grant himself expanded powers last autumn.

“The euphoria and excitement around the potential for systematic change in Egypt after the revolution has been damped,” says Ahmed Fattouh, chief executive of Landmark and Globalist funds in New York. “The transition was poorly managed and the international investment community is definitely in a wait-and-see mode.”

The unease is even rawer in Tunisia, where the February assassination of opposition leader Chokri Belaid and subsequent resignation of the prime minister have hampered a modest economic recovery.

Libya is the wobbliest because it was already the least developed and then most damaged by its violent revolution. There are stark questions of “who is in charge”, Mr Seruma says.

The politics mask more basic gaps, adds Bowman Cutter, senior fellow at New York’s Roosevelt Institute and chairman of the US State Department’s Tunisian-American Enterprise Fund board.

“The problem is the undeveloped character of governance, rules of finance, rules of the road,” Mr Cutter says.

Egypt is so highly regulated, “it’s constipated”, he adds.

These countries also must shed public corruption.

That mix of shaky politics and slim foundations has slowed growth, hiked inflation, undermined currencies and sparked asset outflows, especially in Egypt, Mr Seruma says. It has even lifted stock markets in Tunisia and Egypt because, with few places to put money, domestic investors are artificially bidding up prices.

Foreign investors now have few inroads anyway, beyond targeted venture capital or private equity funds.

That may soon change. Ambitious foreign asset managers interested in creating mutual funds focused on the region are making the rounds in Tunisia.

New investment engines also are firing up, such as development funds supporting small business in Tunisia and plans for a public-private partnership law. Venture capitalists see Egypt, with throngs of young engineers, as a future information technology hub, Mr Fattouh adds.

Even these harsh landscapes have viable buds for economic growth. One is technology-driven services, Mr Cutter says.

The clearest rumblings, though, come from excavators and bulldozers. “Construction companies will lead the way,” Mr Dal Magro says.

In Egypt, persistent protests are fuelling a “big exodus from downtown Cairo”, as businesspeople flee “the political noise” for developments around the city, Mr Fattouh says. Publicly traded companies are very active as schools, offices, shopping centres and roads take shape.

These are lands for patient capital, and Libya may be the best proof. For now, it is “partly out of the game”, Mr Dal Magro says, as it reboots government, institutions and infrastructure. Yet it has vast capital reserves with its oil rigs pumping again. It could well be Libya that helps its more populous neighbours. “If it starts on the right path of growth,” Mr Dal Magro continues, “Libya can absorb Egypt and Tunisia’s big problem of unemployment.”

Tom Stabile is associate editor of FundFire, a Financial Times service

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