Egypt’s recent years of turmoil was not exclusive to politics, but saw many projects dragged into legal webs of disputes in arbitration. This, along with the political unrest, shook investors’ confidence in the Arab world’s fourth largest economy.
Dr Karim A Youssef, a leading arbitrator and arbitration practitioner in Egypt and the Arab World and partner and Head of Middle East Arbitration at the law firm of Amereller Legal Consultants (associated in Cairo with Mena Associates), spoke to Daily News Egypt about ongoing investment disputes. The associate professor of Law at the Cairo University Law School speaks of government measures in that regard.
It is common knowledge that there have been investor disputes and arbitrations since the 25 January Revolution, but what really happened on this front?
What happened in January 2011 was a reflection of the dynamics of regime change. When change happens, you revisit what was done before. Some of the major economic transactions which were done under the Mubarak regime have come under scrutiny. A number of those transactions were nullified or re-wound, and investor rights were taken away. The disputes erupted from two major sources. First, foreign investors who became entangled in criminal investigations and ultimately in court cases involving Mubarak-era transactions (think of the gas pipeline cases or the “licence plates” case). Second, between 2011 and 2013, Egypt’s administrative courts (the Council of State) have nullified approximately seven contracts awarded as part of the Mubarak government’s privatisation programme, which began in the early and mid-1990s. Private citizens, often former employees of the companies, have succeeded in reversing these privatisations on the basis that the deals involved corruption, did not follow tender procedures, and were not in the best interests of the state. Examples include: Al-Nasr for Steam Boilers, Tanta for Cotton and Oils, SEMO for the paper industry, and other court cases. Obviously, when reviewing transactions which were finalised long ago, and questioning investor rights which were long standing, typically, aggrieved investors will resort to international arbitration before the World Bank or elsewhere, in order to be made whole.
Are you involved in some these arbitrations?
Yes, I am involved in a number of investment arbitrations and commercial claims involving the State or State entities.
Based on your involvement in some of these cases, what can you say about the efforts by the Government to settle?
The Government established a high arbitration commission, chaired by his Excellency the Prime Minister Ibrahim Mehleb and comprising the key ministers, including those of investment, finance, international cooperation, and justice. The Committee, among other things, centralises dealings with investors in relation to settlements. A number of disputes were settled, including Al Futtaim and DAMAC. Others are in the process, but the settlement discussions are confidential, and hopefully some of the positive outcomes will be announced in Sharm El-Sheikh.
It is also important to note that the Government maintained its commitments under all international treaties providing for arbitration or foreign investors’ rights. A government facing a number of large arbitration claims could be tempted to cancel bilateral investment treaties (BITs) or exit the World Bank (ICSID) Convention (and there are examples of that including for example, Bolivia in 2007, Ecuador in 2010, Venezuela in 2012). But, Egypt did not do any of this. This is something which is not openly spoken about and is taken for granted, but it should be recognised. And as you know, no FDI will come into the country in the future if the State or the State entities were unwilling to arbitrate future disputes. This is now one of the modern unqualified rules of hedging investment risk.
The Government also introduced an early amendment to the Investment Law, (by Law 32/2014) which aims to restore investor confidence by permitting only the parties to a state contract to challenge its validity. This law applies to all pending cases, and restricts the ability of courts to nullify contracts based on claims brought by third parties and strangers. As I have said, all the “privatisation cases” were taken to court based on claims by third parties, and although the government is usually party to these contracts, it was not the government that started these cases.
Egypt is reportedly in the final stages of issuing a new investment law intended to curb bureaucracy, but there has been criticism against the draft bill. How do you see the law, and how efficient do you see this law is in resolving investors’ hardships in Egypt and in attracting more investment into the country?
I have read an early draft of the law. I have not read the critics’ comments. This law is about business. Therefore, assessing whether it is good must be done with that in mind. Think first of the basic investor expectations. Without appearing simplistic, what investors need the most is simplicity and transparency: an “automation” of procedures so to speak. An investor needs to find out in less than five minutes (online preferably) what it needs to do to establish a company, to obtain certain licences, what the fees are for certain government services, and other important information. Investors also need to know that their legitimate expectations are protected. That includes putting in place mechanisms to avoid legitimately acquired rights being challenged or withdrawn in the future. An investor needs to know that Egypt guarantees an investment climate which is comparable to other attractive investment destinations. If some of this is missing, FDI probably goes elsewhere. Second, revamping the Investment Law is a major endeavour, and sends a clear signal that this government is pro-investment. The signal is real because I doubt that the government of Egypt, or for that matter any government, would embark on such a taxing endeavour without having the will and determination to make things better for investors. Third, this law – and any law – is only text. The real deal is that the success of the law depends on attitudes and the behaviour of those entrusted with its application. It is necessary to upgrade the bureaucratic apparatus and the government bodies that are entrusted with dealing with the investors. I think what needs to be changed more than laws and regulations, or at least as importantly as those things, are attitudes.
According to a report issued recently by the Egyptian Centre for Economic and Social Rights, Egypt’s legal system currently favours foreign investors’ interests over state’s interest. How do you see these claims?
Good question. My simple answer is that I, with respect, disagree with that conclusion. Two points are important here. First, I do not want to use too much legalese, but the Egyptian legal system (meaning the Egyptian investment laws and related legislation) are not where the main protection for foreign investors is found. Foreign investors are protected mainly under international law, which is a very different set of rules, and contains minimum international standards that apply to all foreign investors. It also consists of bilateral investment treaties (BITs) signed between Egypt and the country of the investor that the investor can rely on. Egypt has currently in effect slightly more than a 100 BITs, and these BITs are not necessarily different from the usual BITs offered by other countries, either within the region or elsewhere.
Second, there is also some misguidance in saying the State’s interests are necessarily at odds with the interests of foreign investors. Other than in cases where government officials were corrupted, both parties’ interests are often aligned. Foreign investors are often listed companies which have strict compliance requirements. Egypt – as much as any country – needs FDI, and needs to set the conditions to attract it. FDI occurs often through local subsidiaries who pay taxes, create labour opportunities, and provide social benefits. Ultimately, Egypt’s investment programme fulfils the aspirations of the Egyptian people and, in the broader scheme of things, will help re-launch Egypt as a regional leader. That being said, protection of labour, equal treatment and equal opportunity with local investors are all supremely important.
I suggest a state message that conveys power, which is a natural expression of sovereignty, but which also conveys genuine and honest friendliness to business and investors, both local and international. Friendliness encompasses regulation and attitudes. I suggest that it should also encompass dynamic dialogue where concrete solutions are proposed to address investor’s existing concerns. Egypt is naturally attractive country. Egypt is also naturally attractive for business. Government will and government action will before long establish Egypt’s stability and economic heavyweight.