After extensive struggles, new investment law emerges to regulate rhythm of Egypt’s economy

Mohamed Ayyad
14 Min Read

The Egyptian economic authorities are racing against time to regulate the rhythm of the economic scene. The cabinet had recently approved the new investment draft law through which it hopes to attract more investments that contribute to increasing employment and economic growth.

Leaders of businesses see that the law is “good”; however, it is not enough to reassure the local and international business communities that are still suffering while issuing operations licences and allocating lands, in addition to the recent increase in the financing costs.

Minister of Investment Dalia Khorshid
Minister of Investment Dalia Khorshid

The law protects the rights of serious investors as well as the state, and stimulates investment, says Khorshid

Minister of Investment Dalia Khorshid said that the new law stands as a quantum leap in handling the issue of investment, as it reassures local and international investors about their money and stimulates investment through new customs and tax incentives for projects that create added value and employ a significant numbers of labourers.

The minister continued saying that the law is a manifestation of the importance of the investment issue for the state now, and also shows the government’s keenness on setting a balanced legislative framework contributing to establishing more investments and enabling current investors to expand in their businesses.

She added that the law provides a programme of real incentives to attract more local and foreign investments and also strengthens investment guarantees, as it provides an effective system to overcome all the obstacles facing investors.

The new law, according to the minster, encourages investment to increase the rates of local production, which contributes to increasing the rate of local components used in production.

Egypt is suffering from a weak inflow of foreign direct investments since January 2011 which was followed by political and economic unrests and has caused Egypt’s US dollar resources to decline, which actually come through foreign investments, Suez Canal revenues, exports, tourism, and remittances.

Regarding the importance of the law, Khorshid said that the law in its current form includes decisive measures that put an end to routine and bureaucracy. Also, it has overcome the contradictions in the regulations and legislations ruling and regulating economic activity.

She continued saying that the new law is a victory for investors and the business community and that it will contribute to increasing production rates with the aim of exporting and creating thousands of jobs for youth, besides pushing the economic growth rate upwards.

Khorshid believes that the law, which is being reviewed by the State Council shortly before being presented to parliament for approval, will contribute to achieving the goals of the government’s economic reform programme and Sustainable Development Strategy: Egypt Vision 2030.

According to the minister, the law includes several articles simplifying procedures and granting licences. It regulates this issue in about 39 articles; nine of which address the establishment and the services of post-establishment; about 15 articles of which address licences, permits, and approvals; and about 15 of which address regulating real estate, which contributes to accelerating the pace of starting businesses and carrying out operations by companies.

Also, the law regulates the process of settling disputes in about 10 articles, most of which focus on finishing the process as soon as possible and the limits of reconciliation, in a way that does not hamper the rights of serious investors and at the same time, does not waste public money.

The draft law set a number of determining factors to ensure achieving the goal behind the new legislation in attracting more local and foreign investments and preparing the environment of doing business, as it also includes a package of guarantees and incentives for investors.

Moreover, it has stipulated mechanising the services offered to investors, which saves time and effort. Additionally, it has set a new strategy for promoting investment outside of Egypt. It has regulated the crisis of licences and allocating lands and activated the mechanism of disputes with investors.

New incentives and advantages in the law

The law’s final draft includes new investment incentives, such as exempting all investment projects from the stamp tax, registration fees for the contracts of establishing companies, and the contracts of registering the lands needed for establishing them for five years starting from the date of registering them in the commercial registry.

Moreover, these projects will benefit from the 2% unified customs tax, in parallel to establishing technological zones in the fields of information technology and communications.

Temporary incentives for three years from the date of application

The law has granted new, however temporary, incentives. It has divided the areas in which investments are decided to be established into two areas: zone A (Upper Egypt and areas most in need) and zone B (the rest of Egypt). Investment projects in zone A will benefit from an investment cost deduction of 40%, with a maximum of 80% of paid capital. Those will also benefit from a tax deduction for seven or more years. As for zone B, investment projects there will benefit from a deduction of 30% of the investment cost. This also includes the Suez Canal Economic Zone. These areas grant a package of incentives for different sectors, including medium-cost education and projects producing and distributing electricity.

The law has also enabled establishing customs outlets for the exports or imports of investment projects. It has enabled the state to pay the cost or part of the cost of installing some additional utilities for some projects and to allocate lands for free for some strategic industries addressed in the law for three years.

New guarantees for investors

The final version of the law seeks to achieve equality in terms of incentives and guarantees provided to Egyptian and foreign investors, in a way that guarantees the creation of a climate attractive for investments.

Moreover, it protects investment projects from arbitrary decisions, such as nationalisation, expropriation, and cancellation of licences to expand projects, as well as encourages more projects to serve the Egyptian economy.

The law gives investors the right to transfer the profits of investment projects abroad, and facilitates the liquidation of and exit from projects, in addition to allowing investors to import any raw materials or production requirements without the need to be registered onto the importers’ registry, while providing necessary statistics and data to any investor to complete the investment project. It also allows establishing new agencies to price lands to avoid long-term procedures, and setting new pricing standards that include not overestimating the land value and finishing the pricing process within 30 days.

The law also provides investors with the right to obtain necessary property to continue their activities or expand in them, regardless of the nationality of partners or contributors or where they live, while establishing investment departments in all branches of the General Authority for Investment and Free Zones to deal with the requests of investors.

The law specified 10 and 60 days to issue approvals for permits and licences, with the introduction of accreditation offices to facilitate the obtainment of licences, and issuing a guide for investors, including all conditions, procedures, and timings of establishing companies and obtaining necessary permits.

The new law has created a new incentive called “Golden License”, which allows strategic or national projects to obtain one permit to establish and operate projects, including construction licences and land allocation with the activation of a unified approved number for all the dealings between investors and different state agencies.

Facilitating procedures

Under the title “Facilitating Procedures”, the law has set standards to allow facilitating the procedures of the obtainment of licences, as within 90 days from the date of approving the new law, the system of electronic services, business, and databases in all agencies will be activated.

The law obliges all authorities concerned with looking into requests to establish companies to decide on them within 24 hours. Companies gain their corporate personality once the certificate to establish it is issued. Moreover, to guarantee a fast delivery of services, the authority will issue decisions without being bound by any procedures stipulated in other laws.

To activate the dispute mechanisms with investors in the new law, the decisions of the ministerial committee to settle investment disputes have executive power without breaching the investors’ right to resort to the judiciary.

The new version of the law allows the establishment or a contribution in the establishment of companies to promote available investment opportunities internally and externally and keep up with the latest global investment promotion systems.

In terms of social responsibility, the draft law allowed investors to allocate part of their annual profits for social services in healthcare, social and cultural fields, supporting vocational education, or financing research studies and community outreach campaigns.

Hussein Sabbour, former chairperson of the Egyptian Businessmen Association and an investor in the real estate sector
Hussein Sabbour, former chairperson of the Egyptian Businessmen Association and an investor in the real estate sector

We need a legislative revolution to stimulate investment, say investors

Hussein Sabbour, former chairperson of the Egyptian Businessmen Association and an investor in the real estate sector, commented that the new law is good, but insufficient, and that Egypt needs a legislative revolution in everything regulating and governing economic activity in the country, because we have laws that have not been reviewed for many years.

Sabbour added that the law stipulates forming committees to decide on the allocation procedures of investment lands which was a step that had been delayed for a very long time. This will accelerate allocating lands to investors, but Sabbour was concerned that the allocation process will remain slow, especially after the process of allocating lands was assigned to many parties instead of one. This contradicts what had been previously said about activating the one-stop shop mechanism.

He noted that the cost of economic activity inflated after recently liberalising the US dollar exchange rate, which obliges the government to establish incentivised procedures for investors to expand their business in order to face the declining demand on the purchase of products due to current price hikes.

“The bankruptcy law is a good step as a mechanism to ensure investors’ rights while exiting from the market, but the interest rates increase the burdens of financing costs. The interest rate was increased by the Central Bank of Egypt (CBE) by roughly 3% to exceed 15%,” Sabbour said.

Mohamed Taymour, an economist and founder of Pharos Holding, said that the law is required, but that public servants must be granted the authority to eliminate bureaucracy, stimulate investment, help companies implement new expansions, and open the way for other companies to inject new investments.

Taymour said that the activation and speedy application of the law will define its success, and that there should be a law to protect public servants and grant them all authorities, and not to hold them criminally responsible for administrative mistakes.

He pointed out that the law includes positive points, such as the direction of the General Authority for Investment and Free Zones to set up an authority to promote investment abroad to reassure the international business community on the development of economic conditions in the country. He noted that we also need to reassure local investors, because domestic investor expansion is great evidence for the improvement of the business environment in the country.

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