15/3/2015 - Egyptindependent
Despite the economic
and political challenges Egypt has faced over the past five years, the country
is still a pivotal Middle East investment destination and, according to the
latest Global Competitiveness Report, one of the most viable .markets for growth
and development.
Consecutive
governments have recently come to recognize that the creation of an attractive
investment climate in Egypt is the solution to offset the trade deficit (US$33
billion), reduce the unemployment rate (13%) and increase foreign currency
reserves (US$15 billion).
Investment, if it is
properly handled, secures employment, development and stability, both in the
social and the political dimension.
The first earnest
effort made by the Egyptian government to encourage investment, in my view, was
to recognize the problems and impediments that hamper its growth. This step was
taken by the hard-working Investment Minister Ashraf Salman. In fact, a closer
look at the situation can enable us to appreciate the earnestness exhibited and
the tremendous efforts exerted over the past six months to handle investment
issues in Egypt.
Over the past three
ears, there were five major challenges facing investment in Egypt, and
political instability was the first and most important one. Without a doubt,
the referendum on constitutional amendments, followed by the election of
President Abdel Fattah al-Sisi and the appointment of a government with clear
assignments were all positive steps, indicating a quest for political
stability. Those measures will be complemented by the upcoming parliamentary
elections and the appointment of a permanent government.
Contrary to the World
Bank report issued in September 2011, there are no signs of political
instability as a primary impediment to investment in Egypt. This issue is now
behind us, and the situation has been improving continuously, in spite of the
terrorist incidents Egypt has faced.
The second challenge
was the security situation between 2011 and 2014. In spite of terrorist
incidents and attacks perpetrated against vital infrastructure over the past
weeks, the security situation is no longer quoted in international reports as
an obstacle to investment, as was the case in 2011 and 2012. There is a
remarkable decline in theft, chaos and criminal assaults.
Thirdly, the
government had lacked a clear vision of its economic policy both financially
and fiscally, being undecided whether to adopt a free economy or not, or
whether to opt for expansionary or deflationary strategies. However, in the
past six months, the government presented its vision by taking serious steps
towards economic reform, most notably by improving the subsidies system for
petroleum products, opening the door for private investment in infrastructure,
reforming the electricity sector, announcing a five-year tariff for electricity
prices in prepsration for investments in renewable energy, applying the added
value tax instead of the sales tax and implementing a clear expansionary policy
for public expenditure and infrastructure projects.
Therefore, the economic
policy is no longer vague or improvised, making the investors fully aware of
the state’s economic vision and allowing for long-term planning. Hopefully, the
Sharm el-Sheikh conference will represent a genuine opportunity for the
government to announce those policies in a clear and detailed way.
The fourth challenge
that had cast its shadow over the investment sector was the haphazard criminal
prosecutions of investors, judicial disputes and cancellations of years-old
contracts, which contributed to increasing the legal risks surrounding
investment in Egypt and discouraged the potential flow on fresh investments.
After a period of
hesitation, the government, recognizing the negative consequences of inaction,
gained the political will to fix that deficiency. It started with amending the
law that made challenges to state-signed contracts exclusive to cases where
evidence of corruption is supported by judicial rulings, as well as limiting
litigation to parties to the contract.
Moreover, the
government, bypassing many hesitant state officials, embarked on friendly
settlements of several disputes. A close follower of the investment-related
cases referred to the General Prosecution can observe the drastic shift in the
number of cases resolved by settlements, that surpassed 30, while those
forwarded to the criminal court over a whole year can be counted with the
fingers of one hand.
It can be argued that
the latest positive step were the amendments to the investment law, approved by
the Cabinet last week. The amendments, for the first time in Egypt’s
legislative history, distinctly acknowledge the criminal liability of a
corporate personality and removes the material penalties against board
officials and managing directors that were previously imposed even if they had
not personally committed a punishable crime. This constitues a historical shift
in the Egyptian penal legislation, and reflects a genuine desire for an
adequate investment atmosphere.
The bureaucracy
embodied in complex project licensing and implementation procedures was the
fifth challenge that negatively impacted the investment sector. Acknowledging
the problem, the government, at last, amended the investment law to adopt a
“one-window” system, rendering the General Authority for Investment (GAFI) the
sole representative acting on behalf of all government agencies in dealing with
investors. The Investment Minister was honest enough to explain that the
application of that system would take 18 months for all government institutions
to be electronically connected.
Another favorable
change to the investment law was that which added a new chapter on land
allocations for investment, setting rules and terms for an institutionalized
allocation.
Lastly, the adoption
of the amended law on special economic zones as a legal basis for the Suez
Canal development project and other national ventures can arguably represent a
new investment framework as it liberates economic zones from all bureaucratic constraints
and intertwined government competencies.
Without a doubt, all
of the aforementioned steps are worth encouraging and made a positive impact
over the past six months, boosting the economic growth rate to an unprecedented
5 percent and pushing the inflation down by seven percent, while increasing
investment inquiries by 17 percent.
We hereby stress that
this is just the beginning, and that the path to reform is still long and
difficult, requiring harder decisions. Yet, we should remain optimistic and
believe in the possibility of further improvement, since all seems to indicate
that we are steadily taking the right path. Link
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