One-stop shops give business reforms a much needed push

Sherine El Madany
11 Min Read

Had you wanted to register a new company or commercial project in Egypt a few years ago, you would have gone through a bureaucratic nonstop paper chase from one government entity to another that took up to a year.

Register a company today, and you will experience a straightforward process that can be completed in two days at a single location.

That’s because of the General Authority for Investment and Free Zone (GAFI)’s One-Stop Shops that have brought together some 30 different government entities under one roof, allowing foreign and domestic investors alike to pull off the paperwork for registering a company with relative ease.

According to GAFI, the One-Stop Shops aim at reducing both time and cost of obtaining licenses for industrial projects. They simplify and merge all necessary procedures needed to incorporate an enterprise, namely land allocation approval, building permits, industrial registration, operating license, and tax registration.

“Obtaining licenses has always been the most difficult step in starting up any investment project in Egypt. Now with our One-Stop Shops, we have overcome delay in license issuance, and the whole process has become simpler and more straightforward, said Ziad Bahaa El-Din, GAFI’s chairman of the Board of Trustees.

Starting 2004, GAFI has embarked on establishing One-Stop Shops throughout Egypt, beginning with Cairo, Ismailia, Assiut, as well as Alexandria. The sole purpose is to create simpler and more transparent procedures that comply with international best practices and boost investment in the country.

The one-stop shops aspire to transform Egypt into an investor-friendly destination, vying with other countries in the region, particularly the UAE that has attracted large international firms as a business hub and cosmopolitan city in the Gulf.

“It is absolutely intolerable that something like licensing procedures afflict investment environment in the country and thus the wellbeing of its citizens, Bahaa El-Din added.

Such reform efforts – in addition to others – have gained international acknowledgment, with Egypt named world s top reformer of regulations of the ease of doing business in the World Bank’s Doing Business report for 2008, putting Egypt ahead of countries such as Croatia, Saudi Arabia and China. According to the report, Egypt’s reforms “went deep, slashing minimum start-up capital requirements, reducing property registration fees, and innovations like new one-stop shops all contributing to greatly reduced bureaucracy and improved ease of doing business. Egypt also ranked 126 out of 178 economies on the report’s global rankings, improving its position from last year s 165.

We take pride in making such an unprecedented leap in only one a time when other countries are also moving forward with their reforms, commented Bahaa El-Din. This progress is the result of collaboration among ten different governmental entities, the private sector, and the IFC.

Mainly through the one-stop shops, Egypt’s Ministry of Investment has introduced several business reform procedures such as cutting new business registration fees by 40 percent and implementing a flat 20 percent corporate income tax rate. It reduced fees for registering property from three percent of the property value to a low, fixed amount. The ministry also cut minimum capital required to start a business from LE 50,000 to just LE 1,000 and reduced total time to start-up a business from three months to 15 days.

Consequently, these one-stop shops generously contributed to Egypt’s investment climate, with foreign direct investment (FDI) jumping to $11.1 billion during the fiscal year 2006/07, up from $400 million a few years ago.

Recent forecasts indicate that FDI could shoot up to $15-18 by the end of this year. According to the ministry’s records, these reform efforts have led to more than 40 percent growth in private sector investment per annum, with roughly 9,000 new companies established and 1,750 companies expanded.

GAFI’s one-stop shop in Alexandria is part of the Business Start-up Simplification Project, established in collaboration with the governorate, the Industrial Development Authority (IDA), and the International Finance Corporation (IFC). In 2006, the IFC joined forces with GAFI, in a bid to simplify business start-up procedures in Alexandria on a pilot basis. The first phase of the project yielded into inauguration of a one-stop shop in Alexandria last May.

“Do not be mislead thinking this is another governmental office. This is an extensive reform effort to make it easier to establish private businesses in Egypt. And with private business comes more job opportunities and income for Egyptians, said Frank Sader, IFC chief strategist in the Middle East and North Africa region.

IFC, the private sector arm of the World Bank Group, has allocated $800,000 to fund this project in Alexandria. “From IFC’s perspective, Egypt is truly on the move – a tremendous move towards reform, Sader added.

This first phase generated tangible results that showed you can reform the administration. But most importantly for us, these working relationships were a reflection of the reform spirit of this administration that drives the current economic reform process.

He explained that the project s first phase created a new process for industrial licensing in Alexandria that yielded into reducing time for applicants by 42 percent and costs by 27 percent.

Building on its success in Alexandria, the IFC announced last April it would roll out its one-stop shop project nationwide to include three-five cities in its second phase.

The purpose of this project is to create regulatory processes and procedures that make it easier to establish a project [nationwide], Sader pointed out. The question of how to register a business in Egypt . the question of obtaining licenses and permits . they all matter to the average investor in the street.

Over the next two years, the project will help create an integrated platform for business start-up procedures at the national level. Managed by the IFC, the project will involve the government as well as the private sector in identifying issues that hinder processes for obtaining licenses and permits.

IFC will introduce international best practices, replicate pilot reforms at the municipal level, and streamline approval procedures required by public entities.

Moreover, the IFC will support operating license reform within industrial zones as well as help develop a new law reflecting best regulatory practices within these zones. The project comes at a strategic time for Egypt, as the Ministry of Trade and Industry has recently embarked on establishing a number of private industrial zones throughout the country, attracting investors from Turkey, Spain, China, and Russia, among others.

IFC expects the project s second phase to reduce cost and time required to register a business across major Egyptian cities by 40 percent.

The IFC will co-finance the project, but the lion s share of funding comes through a $500,000 grant from the Swiss government.

Egypt is extremely important to the Swiss government in this region, said Madiha Nasr, commercial attaché at the Embassy of Switzerland. This project will help facilitate trade and investment between both countries. . Switzerland sees in this project an opportunity to boost its investment capacity into Egypt by improving regulatory environment for new investors.

Despite these sizeable reforms, several steps still need to be undertaken before Egypt truly becomes an easy place to do business.

Commenting on Egypt’s higher ranking on the Word Bank’s Doing Business report for 2008, Michael Klein, the bank’s vice president for private sector development, said that: Egypt had a very broad sense of reforms, and hence scored top on the list of reformers. But still there is a lot of scope for more reform.

He explained that Egypt still needed to push reform forward in areas including employing workers, protecting investors, paying taxes, enforcing contracts, and clos
ing a business.

Egypt, he added, doubles the rest of the world in enforcing contracts in terms of number of procedures, cost, and time. There are long delays in the system, and there is a need to establish specialized courts that might speed that up.

Establishing a credit bureau is another way Egypt can further enhance its business start-up procedures. Credit bureaus are important because they create information on people and whether or not they pay back their loans.

And when banks have this information, they get more aggressive on lending.

Klein pointed out that when a country facilitates its business environment by, for example, reducing tax rates, business expands, which in its turn, means more revenues for the country itself.

There exists a positive correlation between reform efforts and investment returns in a country, he said. The easier the business environment is, the more companies are created in a country year after year.

The more reforms, the higher returns for investors. And investors like to go to a country where business environment is improving, he added. The trick is to pick a country where the system is still difficult but where the country is aggressive on reform . because more reforms mean higher equity returns.

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