Sunday,23 September, 2018
Current issue | Issue 1237, (12 - 18 March 2015 )
Sunday,23 September, 2018
Issue 1237, (12 - 18 March 2015 )

Ahram Weekly

‘Only the beginning’

Gamal A Abou Ali argues that the Egypt Economic Development Conference is not the end of legislative reforms but a starting point for more, much-needed positive messages to investors

Al-Ahram Weekly

Laws play a crucial role in encouraging and attracting local and foreign investment and boosting investors’ confidence in the Egyptian market. As such, market-oriented economic and investment laws that take into account the needs of the Egyptian market, and offer actual incentives and guarantees to investors, are key to Egypt’s economic development plans.

The government started working on legislative reforms in June 2014 and, for the first time, engaged the business community in its policy discussions and analysis, a trend that we hope will continue. After several drafts of a new investment law to replace the current Investment Guarantees and Incentives Law No 8/1997, the government decided to amend the current law prior to the Egypt Economic Development Conference (EEDC).

Many support this decision as it allows more time to carefully draft and issue a new investment law. A new investment law should not be issued until the government has a clear understanding of investor needs, a determination of the incentives it is willing and able to offer, and a vision of its economic development plan that identifies types of businesses and geographic regions it wishes to develop.

The main amendments introduced to the current investment law include a new system for the allocation of land to investors. Investors complain of increasing costs and procedures for obtaining property, and the existence of several authorities that own and can dispose of property to investors. The amendments include procedures that facilitate allocation procedures, costs and ensure transparency.

Amendments also include a number of non-tax-based incentives to be offered to labour-intensive projects, energy projects and projects established in remote or underdeveloped areas. These include reduced energy prices and reimbursement of infrastructure costs.

The amendments also introduce a new mechanism for out-of-court settlements of disputes arising between the investor and the state, the aim being to reduce time, effort, costs and damages to investments resulting from litigation. Finally, the amendments re-organised the General Authority for Investment and Free Zones and established the National Center for the Development and Promotion of Investment.

These amendments send a positive message to investors, showing that the country is on track to modernise its investment system and that Egypt is open for business after four years of stagnation.

But, as both the government and investors are well aware, these amendments alone are not sufficient and will not bring the economic prosperity Egypt deserves. There will be continuous pressure on the government to consider other legislative amendments. The EEDC is not the end of legislative reforms but a starting point for more, much-needed positive messages to investors.

Investors have been complaining about lengthy and burdensome procedures to establish and operate a business, and to issue the necessary licences and permits from various authorities that sometimes have overlapping jurisdiction. Other complaints include various degrees of corruption and incompetence of government employees.

The government’s tax policy in the last two years, including the increase of income tax rate by 50 per cent and introduction of capital gains tax on stock market transactions, added to the suffering of investors who already face economic difficulties due to the events that have been taking place in Egypt since 2011.

The Labour Law, which takes much of its provisions from the socialist labour laws issued six decades ago, does not provide for a balanced relationship between employers and employees. Employees can effectively hinder business operations and prevent struggling business from reorganising, resulting in huge losses to business owners and eventually to the employees themselves.

As a result, employees are regarded as a burden that should be avoided as much as possible rather than an asset and an important element in business development. Access to finance, especially for small and medium enterprises, is another major obstacle faced by investors.

Businesses that do not have collateral that exceeds in value the required financing are unable to obtain finance, or obtain finance with harsh terms and high interest rates. Investors in Upper Egypt and in remote areas complain about the centralisation of government authorities and public services in Cairo and a few large cities.

These issues and others must be addressed from a legal and administrative perspective, both substantively and procedurally. When we talk about investment laws, we’re talking about more than just the law titled “Investment Law.”

Laws such as the Companies Law No 159/1981, Labor Law No 12/2003, Customs Law No 66/1963, Trade Law No 17/1999, Income Tax Law No 91/2005, Social Insurance Law No 79/1975, and State Civil Employees Law No 47/1978 must all be upgraded by amendment or replacement.

Some of the proposed changes include allowing single-owner companies with limited liability, to encourage entrepreneurs and small and medium enterprises; facilitating procedures for incorporating and governing legal entities; and limiting the state’s role in interfering in businesses operations — as it is doing — through the process of approving board and general meeting resolutions.

Other changes under consideration are enacting laws that encourage financial institutions to finance businesses against reasonable collateral, repayment terms and interest; reconsidering tax policy with the understanding that tax incentives can be a tool to encourage and direct investments in sectors and geographic areas that need more development; moving towards a decentralised government; and enacting labour and social insurance laws that provide a balance between employees rights and employers’ interests.

To be fruitful, legislative reforms must be coupled with administrative reforms and proper training for government employees. A proper law with improper application is no more attractive to business than a bad law.

The government’s efforts and legislative amendments made to date should be supported, with the hope that these reform initiatives will lead, after the EEDC, to a better and more prosperous Egypt.

The writer is an attorney at law at the Hassouna & Abou Ali law firm.

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