Monday,19 February, 2018
Current issue | Issue 1259, (20 - 26 August 2015)
Monday,19 February, 2018
Issue 1259, (20 - 26 August 2015)

Ahram Weekly

Suez development work begins

Work on the Suez Canal Area Development Project can start rolling out now that the legal framework has been agreed, reports Niveen Wahish

Suez development work begins
Suez development work begins
Al-Ahram Weekly

A presidential decree designating the Suez Canal area a special economic zone was issued last week, stating that the law regulating operations in the zones now applies to the area, which extends over 460 km.

The idea behind making the Suez Canal Area Development Project (SCADP) subject to this law is to attract and facilitate investment to the area on which Egypt is pinning hopes to spur economic growth and job creation.

It includes six ports, East Port Said, West Port Said, Ain Al-Sokhna, Al-Arish, Al-Tor and Adabya, and other areas such as the Technology Valley in Ismailia and various industrial and logistical zones around the three canal cities of Suez, Ismailia and Port Said.

Now that the area is officially a special economic zone, the prime minister is supposed to proceed with the establishment of the administrative entity that will run things within the designated parameters, appointing a chairman and a board of directors.

According to Hani Sarie-Eldin, managing partner of the law firm Sarie-Eldin & Partners, this entity will have multiple functions, including as regulator, developer and marketer. It will carry out the mandates of various ministries, except for judicial and security matters.

In order to carry out its role it will need heavyweight personalities who are able to make things happen, he told American Chamber of Commerce in Egypt (AmCham) members in July. The advantage he said, was that it would be a totally new entity, meaning it would not inherit problems.

The Suez Canal Authority (SCA) will be carrying out the role of this entity for a transitional period of between six months to a year to do preparatory work until it is up and running. This is also needed to ensure that the development of the area is not delayed.

The special economic zones law has been in force since 2002. Sarie-Eldin, whose company was part of the consortium which won the bid to draw up the master plan for the SCADP, explained that rather than waste time writing a new law for the region, it was concluded that some amendments would make the existing law, number 83/2002, fit for it.

He said the law was a good piece of legislation, but that it had never been as successful as it should have been due to reasons that had nothing to do with the law itself.

It has only been applied in the North-West Gulf of Suez investment area, but this area has not taken off because of a lack of financing, a scarcity of land, and a board of directors mostly composed of representatives of the various ministries and not having decision-making powers, he said.

Although amendments to the law had taken longer than hoped for, the amended law, number 27/2015, was approved by president Abdel-Fattah Al-Sisi in June. Sarie-Eldin explained that among the advantages of the law was that it provided a simplified tax and customs regime, one of the main hurdles facing investment in Egypt.

It also exempts exports from all forms of tax, and it has a very flexible dispute-settlement scheme. Sarie-Eldin said that whereas the original 2002 law had allowed for a low 10 per cent rate of corporate tax, the amended version no longer offered that privilege, with the ministry of finance deciding to unify taxes across the country at 22.5 per cent.

However, the amended law does provide some non-tax incentives, such as payment of social insurance contributions for Egyptian employees for a limited amount of time, or bearing the cost of training employees. These details are to be specified in the executive charter which usually comes out within six months of the issuance of a law.

The law also allows foreign-owned companies to operate within the area. Previously. there were concerns that foreign companies could be a threat to security, but Sarie-Eldin said that the military was “very supportive” of the amendment and that foreign-owned companies are now allowed.

However, companies, domestic or foreign, will not own the land they set up their projects on, but they will have the right to use it for 50 years, extendible for another 50 years.

The government is betting on the SCADP and the New Suez Canal boosting Egypt’s hard currency earnings. It hopes income from the Suez Canal will reach $13 billion by 2023, compared to around $5 billion currently.

Vessels passing through the new canal have increased by around 30 per cent, Prime Minister Ibrahim Mehleb said this week.

However, some have cast shadows on the government’s forecasts. Moody’s, the international credit rating agency, has said that “the degree of support [for Egypt’s credit quality] will depend on an acceleration in global trade growth, which seems unlikely to materialise quickly,” according to Website Aswat Masria.

To achieve the targeted $13 billion revenues, Moody’s said that global trade needed to grow by 10 per cent. Global trade grew at around three per cent this year, and is forecast not to increase by much next year.

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