* Sisi seen as capable of enforcing stability
Strongman could draw on popularity to rein in subsidies
* Arab states and investors enthusiastic, Westerners wary
By Noah Browning
CAIRO, March 20 (Reuters) - Egyptian Army chief Field Marshal Abdel Fattah al-Sisi may not look like a model democrat, but foreign and local businessmen believe he can deliver stability to open up investment opportunities in the most populous Arab nation.
Sisi - whose smiling face, framed in sunglasses and capped by a beret, appears across Egypt on posters, t-shirts and even chocolates - inspires fear in his opponents that the country will soon have a military man as its president once again.
But to investors, and many Egyptians, Sisi offers the hope of relief from three years of political turmoil that began with the Arab Spring uprising, even though he was the man who toppled Egypt's first freely-elected president, Islamist Mohamed Mursi.
"I think most investors would say it doesn't appear all that democratic, but it's more stable, so my investment will be safer," said Gabriel Sterne of Exotix, a frontier market bank in London which handles investments in Egypt.
Sisi deposed Mursi last July after mass protests against his Muslim Brotherhood government and unveiled a political roadmap that includes presidential elections. Given his strong popularity he is widely expected to run and win, albeit after probably giving up his army position.
Once in office, he will need to deliver on the economy which he has acknowledged presents huge "challenges", without saying publicly how he intends to tackle them.
Sisi is regarded as a decisive figure who can take bold decisions. After two changes of government in three turbulent years, Egyptians crave economic and political calm, and Sisi is seen as the man who can deliver.
Western investors appear to agree. "He does seem to have support that has been absent from any single politician. Whatever it is, it's a sign of stability," said Sterne.
Egyptian industry and investment minister Mounir Fakhry Abdel Nour says he realises Western governments are wary of Sisi's change from camouflage fatigues to a president's business suit, but he believes investors will thank him for it.
"In the West, a candidacy and maybe the election of an army officer or an ex-officer to the presidency of a developing, third world country would raise eyebrows and call to mind the image of a Pinochet rather than a George Washington, ... a dictator rather than a reformer," he said.
"(But) this country as it stands today needs a strongman that can pull it together ... Law and order is good toward investment and toward the economy," he added at Cairo's ornate 19th century bourse.
Generals-turned-politicians have earned varying reputations across history. Washington, who led American forces in the war of independence and became the first U.S. president, is widely regarded as a statesman. Strongman Augusto Pinochet, who ousted an elected Chilean government in 1973, oversaw economic reforms but was accused of major human rights abuses during his dictatorship.
Security forces killed hundreds of pro-Brotherhood activists protesting against Mursi's overthrow and have gained the upper hand in stamping out the Islamist movement, partly through curbs on dissent and public gatherings.
However, Sinai-based Islamist militants have claimed responsibility for several high-profile attacks, including an assassination attempt on the interior minister last year.
GULF AID POURS IN
Serious progress on the economy remains elusive. Massive debt, a weak Egyptian pound and political uncertainty had scared away much foreign direct investment (FDI).
However, billions of dollars in aid from the military-backed government's allies in the Gulf have improved prospects for infrastructure growth and bought time for economic reforms.
The current account ran a $757 million surplus between July and September last year, driven by a massive increase in official transfers from Gulf monarchies such as Saudi Arabia and the United Arab Emirates.
Egyptians' household spending climbed last year. Analysts say Samsung of South Korea is likely to pour tens of millions of dollars into its local assembly plant, and Coca-Cola announced a half-billion dollar investment in Egypt last week.
"Strong business and strong communities go hand-in-hand and our investment not only helps to create good jobs, opportunity and a better tomorrow for Egyptians but also sends a strong signal about Egypt's future," said Curt Ferguson, President of Coca-Cola's Middle East and North Africa Business Unit.
Overall, FDI remains sluggish. It edged up to $1.25 billion between July and September last year from $1.16 billion in the same period of 2012. FDI totalled $3 billion in the year ending June 2013, when Egypt was in turmoil, almost $1 billion less than in the previous year.
Before the 2011 revolution which toppled autocratic president Hosni Mubarak, a former air force commander, Egypt was attracting net FDI of around $8 billion annually, according to central bank data.
But with Egypt's stock market hitting a five-year high and the global economy in a much better state than in Mubarak's last years in office, Sisi should enjoy an easier investment climate.
A report by Bank of America Merrill Lynch last month described a Sisi presidential bid as "market-friendly in the near term", saying that keeping up the Gulf aid or agreeing a loan from the International Monetary Fund (IMF) was crucial.
But it sounded a warning over Sisi's holdover of officials and policies from the Mubarak era. Mubarak enjoyed some economic successes, but his rule was widely seen as corrupt and inept.
"The Egyptian political transition is likely to be complete in 2014 but could result in a watered down version of the pre-revolution regime ... This will likely weigh on growth and keep fiscal and external financing vulnerabilities high," it said.
STATING THE OBVIOUS
Though Sisi has been omnipresent on Egyptian television, he has offered few pointers on economic policy beyond stating the obvious in a speech last week: "I am saying it with the utmost sincerity. Our economic conditions are so, so difficult."
More interestingly, he broached the issue of fuel subsidies that cost the government $15 billion a year, a fifth of the state budget, but gave no clear prescription.
The subsidies, in place for half a century, drain foreign currency that could be used to pay off debts to overseas energy companies and improve payment terms to encourage investment.
Investment minister Abdel Nour hinted that Sisi may be able to absorb the public anger that major cuts to the subsidies are likely to provoke. "I think he will be able and probably willing to draw on his popularity to take the difficult and often painful decisions to reform the Egyptian economy and face the fiscal problems," he said.
LIFELINE FROM THE GULF
Dubai firm Arabtec signed a $40 billion deal this week to build a million homes in Egypt, a possible sign of politically-inspired Gulf investment in the country's infrastructure. Arabtec's CEO said the UAE would provide initial financing, signalling that Gulf companies' Egyptian investments will enjoy government backing and protection.
Because many Gulf firms are partly state-backed or family-run, their more cohesive base of shareholders may be more easily convinced to plunge into Egypt when Western firms would hesitate.
"They've got a different variety of people they have to answer to, and not all of them work in conjunction in the West," said Angus Blair, chairman of business and economic forecasting think-tank Signet.
Western investors, worried by repeated spasms of violence in recent years, are more sensitive and shareholders have a more short-term outlook, according to Blair.
Analysts agree that the flood of cash and confidence from the Gulf into Egypt has encouraged Western investors to follow, but are split on whether long-lapsed negotiations for an IMF loan, which would demand tough budget reforms, are the answer.
"In the end there's nothing like a good old-fashioned IMF-type fiscal adjustment to put the position on the straight and narrow to provide long-lasting confidence, because you never know when these (Gulf) gifts finish," said Sterne of Exotix.
But legal obstacles, not a binding international agreement to curb Egypt's rampant corruption and soaring subsidies, may be what holds Western companies back. "Legislation is as badly needed as subsidy reform, it is just not in the spotlight," said Moheb Malak, Cairo-based economist at Prime Securities.
A draft investment law aims to prevent third parties from challenging contracts made between the government and an investor, a move designed to attract investment.
The clauses are intended to reassure investors unnerved by previous legal challenges to such deals, some of which have left companies sold by the government in legal limbo. "Yes, Egypt needs a strongman but it needs a lot more than just a strongman, it needs to correct its investment policy," Malak added.
(Additional reporting by Shadia Nasralla; Editing by Michael Georgy and David Stamp)