Tuesday,12 December, 2017
Current issue | Issue 1317, (27 October - 2 November 2016)
Tuesday,12 December, 2017
Issue 1317, (27 October - 2 November 2016)

Ahram Weekly

Investment ready?

Despite its improved ranking on the World Bank’s Doing Business 2017 Report, Egypt has some work to do on its investment climate, reports Niveen Wahish

Investment ready?
Investment ready?
Al-Ahram Weekly

Egypt ranked 122 out of 189 countries in the World Bank Group’s Doing Business 2017 Equal Opportunity for All Report. Last year it came in at 131 out of 189 countries. 

The report, released this week, showed that Egypt had made two important reforms. “Starting a business is now easier, as one-stop shops have introduced a follow-up unit to liaise with the tax and labour authorities on behalf of the entrepreneur,” the report said.

Moreover, minority investors are now better protected because their role in major corporate decisions has been strengthened.

Starting a business and getting credit are two areas where Egypt performs well. “It takes about one week for Egyptian entrepreneurs to incorporate a business, compared to 10 days in Russia and 43 days in South Africa,” said the report. As for getting credit, “Egypt is one of only four economies in the Middle East and North Africa region where credit reporting follows best international practices.”

“Yet, there is a lot to be done in other significant areas like contract enforcement, licensing and gender equality” said Mouayed Makhlouf, International Finance Corporation (IFC) regional director for the Middle East and North Africa. 

Egypt ranks near the bottom on the bank’s enforcing contracts indicator, where it takes almost three years to resolve a commercial dispute through the local courts. This compares to less than a year in Russia. Meanwhile, it takes 240 hours on average to comply with Egypt’s customs regulations to import goods, compared to 99.4 in Indonesia and 144 in South Africa.

The improvement in Egypt’s ranking, though modest, may have come as a surprise to many as calls for improving the investment environment have been incessant over the past two years. 

Sherif Al-Diwany, advisor to the Alexandria Businessmen’s Association, was not expecting an improvement in Egypt’s position on the Doing Business ranking because the investment climate has not been on top form. 

“There has been a lot of uncertainty, which is the worst thing for a business environment. There is a huge price in the form of a risk premiums,” he said. 

Al-Diwany was hopeful that if the government continued on the path it started on this year in terms of the agreement with the IMF and planned reforms as well as plans for a new investment law, there could be a major leap forward.

The investment law has been a contentious issue for the past two years. Ever since it was hastily amended ahead of the Egypt Economic Development Conference (EEDC) in March 2015, experts have voiced their opinion that the amendments are not enough. 

In the past couple of weeks, the minister of investment has said that modifications are no longer on the table and that a totally new investment law is in the making that will soon be reviewed by the cabinet. 

The new law will facilitate procedures on acquiring licenses and access to land, according to statements made by Prime Minister Sherif Ismail during a television interview this week.

“The problem, however, is no longer about the provisions of this or that law,” wrote Ziad Bahaaeddin, former deputy prime minister, in an article published earlier this month on Ahram Online. 

“Investors no longer look for a special track or a handful of incentives and benefits. They seek an overall climate that is conducive to investment.”

Al-Diwany agrees. “The investment law will not be the magic wand that will resolve all problems. Investors are not waiting for the law before making their investment,” he said.

“Countries successful at attracting and promoting investment have therefore abandoned the single law that offers investors a pathway through the jungle of red tape that impedes economic activity because this special track was no longer working,” Bahaaeddin wrote.

Today, foreign investment seeks an environment where legislation is stable, government policies are clear, access to finance swift and fair, and there is an efficient currency exchange market and modern infrastructure, as well as political and social stability, wrote Bahaaeddin in an article published this week in the Al-Shorouk.

Several drafts have been circulating of the new investment law, but the minister of investment has said that none of them reflects the draft being prepared by the government. 

While no one knows what is in the new law, many know what they do not want to see in it. Hisham Tawfik, chairman of Cairo Solar, a solar-energy company, is against offering energy subsidies for investment in certain regions. Nor does he think it wise to exempt employers in certain areas from paying a lower share of social insurance for their employees.

The state insurance funds are already suffering a huge deficit of around LE3 trillion, he said.

Al-Diwany meanwhile does not want to see tax breaks. He does not believe that tax breaks attract investors, as double-taxation treaties would compel them to pay the difference in their own countries. However, he would encourage tax cuts in certain areas such as the special economic zones to make them more attractive.

“Such exemptions rob the treasury of much-needed resources, foster fraud and corruption, and favour large investors over small ones. It would be much better to develop the current tax administration, close tax and customs loopholes, and reassess tax distribution. When the new investment legislation is submitted to parliament, I hope it rejects the tax breaks we worked so hard to eliminate a few years ago,” Bahaaeddin wrote. 

In 2005, a new income tax law ended all tax holidays.

The solution to the investment climate, according to Tawfik, is to allow each industry to regulate itself. “Theoretically, it is the private sector that should be leading growth, but practically speaking it has been the government and the army,” he said. 

“Everyone, from taxi-drivers to heavy industries, should set their own rules. It should not be left to ministers because it has become rare that we get ministers who know what they are doing,” he commented.

President Abdel-Fattah Al-Sisi recently issued a decree establishing a Supreme Investment Council whose decisions are binding on all ministries and public bodies. The council, which meets every two months, will be chaired by the president and will include the prime minister and the Central Bank governor and the ministers of defence, interior, finance, investment, trade, justice and the heads of the General Intelligence Service, the Administrative Control Authority and the Investment Authority, as well as the heads of the Federations of Industries and investors’ associations.

The council will look into everything concerning investment, including following up investment plans by government agencies, reforms of the legislative and administrative environment for investment, and the settlement of investment disputes. 

The fact that the president heads the new council is very important and sends the right message to investors, Al-Diwany said, adding that its composition would help resolve any issues that come up. 

In his opinion, the council is the closest thing to the ombudsman used in Germany and the Nordic countries to look into grievances by investors against the public authorities. 

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