Issue No. 600
Economy
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22 - 28 August 2002 Issue No. 600 Economy |
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| Published in Cairo by AL-AHRAM established in 1875 | Recommend this page | ||
Not enough to go on
Yehia El-Gammal wonders if industrial zones have been given adequate incentives to boost investments
A recent law passed by the Egyptian parliament has simplified the administrative process with regard to exporting. Now exporters will have to deal with only one government organisation that will be in charge of granting them all the necessary licences. The new law is intended to give a push to investments in new industrial areas, such as Sixth of October, 10th of Ramadan and Sadat cities.
A slowdown in investments and the termination of several new projects has made the introduction of fast remedies imperative to sustain development in industrial zones. Ahmed Said, owner of a chemicals plant in Sixth of October, remembers that after he bought his land and started building a factory he was taken aback by having to deal with a number of different authorities to conduct his work. He recalls having to secure approvals from 12 different organisations -- each part of a different ministry -- for each phase of the project. Because many of these authorities had contradictory positions, frequent delays in production occurred. Said's initial tax exemption period is about to expire and he has not had proper turnover on startup capital yet.
According to Said, measures such as environmental impact assessment could raise Egyptian products to international standards if they did not have to be subjected to unnecessary bureaucracy. Many multinationals changed their mind about entering the Egyptian market when they learned they had to deal with a bundle of regulations they are not accustomed to.
Mona Abdel-Rahman, country manager of an American multinational operating in the fields of power distribution and industrial control and running a production plant in one of the new industrial areas, thinks that frequent increases in customs duties and sales taxes dissuades foreign investors. Lack of transparency is another major factor discouraging foreign money from entering the country. A streamlining of the process in needed in order to boost confidence in the market.
Continuous changes in import and export laws and customs duties regulations pushes corporation to move out of the country, Abdel-Rahman said. Multinationals follow precise strategies and are very pragmatic about their geographical presence. If investment climates are not favourable within a number of set years, they withdraw their investment.
One phase of the government's reform programme launched in 1991 remains to be completed, which includes fiscal reform, enhancement of monetary policy instruments, increasing the pace of structural reform and enhancing transparency in the regulatory and institutional frameworks. The promotion of export-led economic growth and development has been a recent focus of the government.
Meanwhile, government decree 1498 for the year 2001 provides incentives to the service sector in new industrial areas. Beneficiaries of this decree must limit their activities to these areas, they must not have exercised their activities prior to their establishment in the new cities and any tax exemptions will only affect services provided inside the geographical boundaries of the new industrial cities. Since exemption will only be applicable to services represented by syndicates, most of the vital trades are excluded from this decree.
Osama Abdel-Meguid, a public accountant, believes that decree 1498 did not actually create extra incentives for strategic businesses as it does not apply to any of the sub-sectors involved in the production cycle, such as the suppliers of raw material and shopping malls to be built in the cities. It also contradicts with one basic principle of the constitution that grants all citizens equal rights.
Magdy Eid, owner of a small outlet for the distribution of construction material, said that the present transitional period needs a proper investment climate. Scores of housing complexes in new towns have not been finished and have been turned into stagnant capital. He suggests the government should reconsider the incorporation of activities such as his in the new incentive decrees. As many infrastructure projects are presently needed to develop the new areas, any incentive will surely be timely.
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