Bureaucracy, legislation forest drives investors away from Egypt: FEB legal advisor

Hossam Mounir
12 Min Read
Ruqaya Riad, a legal adviser to the Federation of Egyptian Banks

Ruqaya Riad, a legal adviser to the Federation of Egyptian Banks (FEB), believes that Egypt’s complex web of bureaucratic practices and legislative procedures is one the major deterrents turning investors away from the market, and called for the formation of a committee of jurists to review and amend Egypt’s economic laws.

Riad also expressed her desire to see the administrative detention law canceled and preferential creditors’ rights revoked for the negative effects they have on the country’s economic and business environment.

She pointed out, during an exclusive interview with Daily News Egypt, that the tax system in Egypt as well needs to be revised, expressing her dissatisfaction with the way in which the new investment law and other laws had only been slightly tweaked.

From your point of view, why have investments been turning away from Egypt?

Egypt is a legislative forest— many of [the policies] are paradoxical and contradict one and other. Also, the multitude of government fronts investors are asked to deal with, and most importantly, the bureaucratic policies practiced by those institutions.

Does bureaucracy have such a great impact on investors’ escape from that forest of laws you speak of?

In my point of view, yes.

Bureaucracy has the worst impact on investment; the law can be very clear but then employees will not apply it, sending the investor into a vicious cycle that ultimately leads them to taking their investments abroad.

What is the reason behind that?

The laws conflict with the instructions given to various government offices that deal with investors. Those instructions sometimes include provisions that restrict the work of employees, who you can’t possibly blame. They are held accountable and rewarded or punished according to how strictly they have followed those instructions. So, they are keen on following regulations to greater lengths than those necessitated by the laws themselves.

How can we amend the legislative system in Egypt to cope with the rapid developments taking place in the capital market?

I believe we should form a committee of jurists and experts— who are plenty in Egypt— to review, amend, and streamline all legislation in the country, especially ones pertaining to the economy. The committee should process paradoxical and outdated laws that deter investments.

I would like to emphasise the importance of making wise choices when selecting the members of said committee, keeping it far removed from any favoritism in order to accomplish the necessary work in the best manner possible. The committee’s work should not be limited to tweaking or patching-up these laws, which will be reviewed isolated.

Why don’t you prefer the implementation of amendments to these laws?

Unfortunately, the law amendment processes have many disadvantages. One of those is that amending a law that contradicts another law’s provisions with adjustments tailored to fill a specific gap that only opens the door to more loopholes and legal questions.

We don’t need to reinvent the wheel. We can look into recent legislations adopted around the world and study how they have aided economic growth and the extent of their contribution to the elimination of bureaucratic practices, as well as their applicability in Egypt.

For instance, the Civil Code was drafted in 1948, but it did not require many amendments because 99% of its articles are clear and conclusive. So, the importance of laws lies in how responsive they are to the needs of the community and how much they help development, while also guarantees and protects people’s rights.

One of the worst things that happens to the Egyptian legislative process are hiring exceptions for one reason or another, because they often lead to corruption and compromise the interests of citizens and investors alike.

What is your outlook on what is being done on the investment law?

I am not satisfied with the process of merely patching up the investment law, or any other law. Unfortunately, whenever a new official comes to office, they want to start from scratch in order to leave their own mark. I wonder why, though, don’t we build on the old and refine it, or why we don’t work as a team instead of playing individually?

What about bureaucracy and its role in driving investors away ?

Bureaucracy is a chronic problem in Egypt and should be resolved by any means. I’m surprised when I hear that in a country like the UAE, a company is established and operational within a 24-hour time span, while in Egypt, investors find themselves lost around and within different governmental offices governed by paradoxical rules that eventually drive them away.

This comes at a time when the Ministry of Investment is issuing figures stating that thousands of companies are being established within short periods of time. But those figures are not indicative of the real number of companies that are actually up and running.

What are some of the other problems that investors face in Egypt and how can they be resolved?

Egypt’s tax system is also in need of a revision. The Public Tax Authority often denounces the owner of any existing project and hinders arbitrary taxes. f they fail to pay, the authority places them under administrative detention and deals with the financier as an uncommitted person until proven otherwise.

I personally hope to see the administrative detention law abolished. It has been in place since the days of the socialist regime and yet it still exists. This law has a negative effect on the promotion of investments and harms many citizens.

Can you elaborate on this matter?

In simple terms, the Public Tax Authority imposes arbitrary taxes on the taxpayer and then notifies them. In case of non-payment for whatever reason—even if that reason was the failed delivery of the notification—the administrative detention law allows the authority to freeze the financier’s bank accounts and assets. The law obliges banks to enforce these measures within 15 days of the notification or they risk bearing the taxpayer’s debt.

The authorities used to directly notify the banks until banking law no. 88 of 2003 was enforced. The law stated that customer accounts are confidential and obligated the authority get an order from the Court of Appeals and the attorney general’s approval before addressing the banks. No matter what measures the authority takes, ultimately it achieves its goals and seizes the taxpayer’s bank accounts.

The owners’ names of the suspended/detained accounts are always written by their first, middle, and third names. In Egypt, there are a lot of similarities between names, so a lot of citizens are accidentally detained by authorities for that reason.

I’m calling for the cancelation of preferential treatment granted lawfully to certain creditors and companies, also because of its negative impact on the investment climate.

Who are the preferential creditors?

Preferential creditor rights allow sovereign entities such as the Public Tax Authority and banks established under special laws— and they are three banks operating in Egypt— the right to receive their dues before any other entity.

For example, if a citizen owes money to ten banks, owes taxes to any of those sovereign fronts, and has liquidity that would allow him to repay part of the debt, these entities have the preferable creditors’ rights to receive their dues first, while other creditors collect their debts from what remains.

This is a serious matter because the banks that do not have preferable rights lose their money, so they don’t support their defaulting customers. Any liquidity they inject to support said customers will be handed over to owed entities that have preferable rights—it will cover their debt but the customer will not benefit from it.

One very frustrating matter for investors and citizens are fees charged by administrative authorities in exchange for certain services. These fees have been increasing periodically for no apparent reason, even though it is a tax-paying citizen’s right to receive state services free of charge.

These fees are sometimes determined by the law, while other times administrative offices are allowed to impose whatever fees they see fit, which doesn’t make sense, especially since a large portion of those fees are given to employees at these entities, usually in the form of bonuses or incentives. So, these have to be determined by laws. Or the law should at least set limits for them and prohibit its different divisions from charging fees or receiving money from investors, no matter the circumstances.

Finally, what is your outlook on the Egyptian economy at the moment?

We have to swallow the bitter medicine; by that I mean accept the harsh measures undertaken by the government as part of its economic reform programme. We have been postponing the making of those kinds of decisions since 1977, due to our fears of losing our position or popularity, which led to the accumulation of problems until we got to where we are now. I think that the political leadership is moving in the right direction, but some of the president’s assistants are not helping him to achieve his aspirations.

I assure you, though, we have no option but to succeed. If the Egyptians do not help themselves, no one else will and it is not possible to always depend on aid. Productivity is a must, and we must firmly and harshly deal with corrupt and vicious people.


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