Attitude toward Foreign Direct Investment
Encouragement of investment, including foreign investment, is a top priority of the Government of Egypt. The government has supported this policy through a series of pro-business reforms, including a third-party contract appeal law prohibiting third party interference in state-investor contracts; a competition law; and a presidential decree reforming Egypt's 1997 Investment Law by trimming customs duties, expanding corporate veil protection, establishing additional forums for investor-state disputes, and setting the foundation for a true one-stop business registration shop. The government is launching a Suez Canal Development Zone (http://www.sczone.com.eg/English/Pages/default.aspx) with simplified regulation and licensing aimed at attracting investors to develop manufacturing, logistics, and export industry along the Suez Canal.
Other Investment Policy Reviews
Neither the Organization for Economic Cooperation and Development nor the World Trade Organization nor the United Nations Conference on Trade Development has conducted an investment policy review of Egypt in the past three years.
Laws/Regulations on Foreign Direct Investment
In 2015, Egypt issued Presidential Decree 17/2015, reforming many of Egypt's investment-related laws, including the companies law, general sales tax law, investment guarantees and incentives law, and income tax law. The decree refined Egypt’s one-stop shop system, establishing the Ministry of Investment’s General Authority for Investment and Free Zones (GAFI) as a liaison between investors and government agencies when applying for business licenses. The one-stop shop remains to be implemented as of April 2016. The decree also offered new mechanisms for investor dispute settlement and improved corporate veil protection shielding senior executives from prosecution. Finally, the decree limits the expansion of free zones and gives the cabinet the exclusive right to choose fields of investment in free zones contingent on the state’s economic strategy.
The 1997 Investment Incentives Law was designed to encourage domestic and foreign investment in targeted economic sectors and to promote decentralization of industry away from the Nile Valley. The law allows 100 percent foreign ownership of investment projects and guarantees the right to remit income earned in Egypt and to repatriate capital. Despite this guarantee, companies have experienced difficulty remitting earned income due to currency controls. Other key provisions include: guarantees against confiscation, sequestration, and nationalization; the right to own land; the right to maintain foreign-currency bank accounts; freedom from administrative attachment; the right to repatriate capital and profits; and equal treatment regardless of nationality.
The Investment Incentives Law as amended governs incorporation requirements and grants companies established under either the Companies Law or the Commercial Law certain incentives, including protection from nationalization, imposition of obligatory pricing, and cancellation or suspension of licenses to use immovable property. It also provides companies the right to own real estate required for their activities and the right to import raw materials, machinery, spare parts, and transportation methods without being required to register at the Importers Register. Companies eligible to benefit from incentives provided under the Investment Incentives Law must operate in certain targeted sectors, including: infrastructure; manufacturing and mining; transport; software development; medical services; certain financial services; oil field services; agriculture; reclamation of desert land; hotels; and tourism.
The Companies Law (law 159 of 1981) regulates domestic and foreign investment in sectors not covered by the Investment Incentives Law, whether shareholder, joint stock, or limited liability companies, representative offices, or branch offices. The law permits automatic company registration upon presentation of an application to GAFI, with some exceptions. The law allows 100 percent foreign representation on the board of directors, and strengthens accounting standards.
The Tenders Law (law 89 of 1998) requires the government to consider both price and best value in awarding contracts and to issue an explanation for refusal of a bid. However, the law contains preferences for Egyptian domestic contractors, who are accorded priority if their bids do not exceed the lowest foreign bid by more than 15 percent.
The Capital Markets Law (law 95 of 1992) and its amendments and regulations govern Egypt’s capital markets. Foreign investors can buy shares on the Egyptian Stock Exchange on the same basis as local investors. Brokerage firms have capital requirements of LE 5 million (US$656,200), and same-day trading on the Egyptian stock market is allowed. As of April 2016, 94 brokerage firms had licenses for same-day or intra-day trading. The Capital Markets Law allows local and foreign institutions to issue bonds at a par value of LE 0.10 (US$0.0131).
Decree No. 719 for 2007 by the Ministry of Industry and Foreign Trade and Ministry of Finance provides incentives for industrial projects in the governorates of Upper Egypt (Upper Egypt refers to governorates in southern Egypt). The decree provides an incentive of LE 15,000 (US$1,968) for each job opportunity created by the project, on the condition that the investment costs of the project exceed LE 15 million (US$1.97 million). The decree can be implemented on both new and on-going projects.
Maritime Law 1 of 1998 permits private companies, including foreign investors, to conduct most maritime transport activities, including loading, supplying, and ship repair.
Commercial Law 17 of 1999 has more than 700 articles covering general commerce, commercial contracts, banking transactions, commercial paper, and bankruptcy.
Central Depository Law 93 of 2000 reduces risks associated with trading securities, enhances market liquidity, and tries to streamline the securities exchange process by standardizing registration, clearance, and settlement procedures.
Business Registration
The World Bank ranks Egypt among the easiest countries in the Middle East and North Africa in which to establish a business, although there are often significant delays obtaining required licenses after a business is established. According to the World Bank, a business can be started in 8 days, compared to a regional average of 19 and a global average of 42. Business registration is unavailable online and must be done in person at the General Authority for Investment (GAFI), located in Nasr City, Cairo, with satellite offices in Ismailia, Assuit, and Alexandria. In addition to GAFI, new business founders must open a company file and register employees at the National Authority of Social Insurance and obtain a bank certificate from an authorized bank in order to open a bank account. Businesses have reported registration times anywhere from one to ten weeks. In addition to registering, businesses must obtain licenses authorizing business activity. Businesses have reported the time required to obtain business licenses ranges from 3 to 12 months.
In addition to processing business registrations, GAFI is responsible for assisting foreign investors wishing to invest in Egypt (http://www.gafi.gov.eg/English/Pages/default.aspx).
The government supports local organizations as well as government initiatives aimed at increasing entrepreneurship rates in Egypt. In an effort to direct lending to small and medium-sized enterprises, the Central Bank of Egypt has directed banks present in Egypt to lend 20 percent of their loan portfolio to SME’s by the year 2020. In addition, microfinance institutions are now licensed and regulated by Egypt’s non-bank financial regulator, the Egyptian Financial Services Authority (EFSA), in accordance with a new law to support lending to Egypt’s smallest firms. The government defines small and medium-sized enterprises as follows: Enterprises with paid-up capital of less than 50,000 EGP and fewer than 10 employees are classified as micro enterprises. Enterprises with paid-up capital between 50,000 and 5 million EGP (for industrial establishments) or 50,000 and 3 million EGP (for non-industrial establishments) and fewer than 200 employees are classified as small enterprises. Enterprises with paid-up capital between 5 million and 10 million EGP (for industrial establishments) or 3 million and 5 million EGP (for non-industrial establishments) and fewer than 200 employees are classified as medium-size enterprises.
Industrial Promotion
Energy & Mining: The petroleum industry is one of the most commercially significant in Egypt, and hydrocarbon production is by far the largest single industrial activity. Although petroleum, natural gas, and petrochemicals have traditionally been Egypt’s top exports, acute energy shortages in recent years have turned Egypt into a net importer of oil, gas and refined petroleum products. Feedstock shortages have hit the petrochemical sector. Other energy-intensive sectors, such as cement, steel and fertilizer production, have also suffered from natural gas and power shortages. The Egyptian government encourages investment by international oil and gas companies, and currently dozens of international producers are operating in Egypt. The hydrocarbon industry is managed by the Ministry of Petroleum and Natural Resources, under which four state-owned companies function as government agencies. One of these is the Egyptian General Petroleum Corporation (EGPC), which concludes concession agreements with foreign and domestic oil and gas producers in the form of production-sharing agreements (PSAs). The Egyptian Natural Gas Holding Company (EGAS) performs a similar function for investments in Egypt’s offshore natural gas fields. Egypt grants concessions in specified geographical areas through the promulgation of a special law for each concession, which forms the legal basis for the PSA between the investor and the state-owned partner company. Basing each concession agreement in law gives the agreements supremacy in application over contrary legislation or regulation. After concluding the agreement, any contractual changes are remedied through amicable adaptation of its provisions or through arbitration. These safeguards were specifically devised by the Government of Egypt to help forge trust with foreign investors and improve investment in the hydrocarbon sector. In some cases, the Egyptian military needs to grant permission for firms to access and operate in restricted-access concession areas.
A lack of competition among internet service and fixed landline providers, such as TE Data, has led to high prices, low internet speeds (2-8 Mbit/s in downtown Cairo), unreliable service quality, and high numbers of customer complaints. Only 3G mobile data services are currently available in Egypt. The Ministry of Communications and Information Technology has stated that 4G and broadband services will be permitted once the unified license is announced.
Travel: Prior to January 2011, tourism was Egypt’s third-largest source of foreign currency and a significant source of employment. Tourism has fallen significantly since the 2011 revolution, particularly higher-end cultural tourism. Beach resorts have fared better. As of fiscal year 2014/2015, according to the Ministry of Tourism, tourist visits have rebounded to 10.2 million, up from 7.9 million in 2013 but still below the 11.9 million tourist arrivals Egypt saw in fiscal year 2010/2011. Tourism income in 2014/15 was down 31 percent from the pre-2011 period, reaching $7.3 billion, according to the Ministry of Tourism. Tourism has fallen to sixth place as a source of foreign currency in Egypt.
In 2005, Egypt removed restrictions on foreign property ownership in a number of tourist areas, including resorts on the Red Sea and along the Mediterranean coast west of Alexandria. However, land ownership policies remain complex and unclear in many cases. Requirements to build on land to maintain tenure encourage rapid, large-scale development over conservation and more sustainable projects.
Limits on Foreign Control and Right to Private Ownership and Establishment
Agribusiness: Land/Real Estate Law 15 of 1963 explicitly prohibits foreign individual or corporate ownership of agricultural land (defined as traditional agricultural land in the Nile Valley, Delta and Oases).
Energy & Mining: Electricity Law 18 of 1998 allowed the government to sell minority shares of electricity distribution companies to private shareholders, both domestic and foreign. A new electricity law enacted in 2015 will further open electricity generation and distribution to the private sector once it is implemented.
The Egyptian Companies Law does not set any limitation on foreigners, neither as shareholders nor as managers/board members, except for Limited Liability Companies where the only restriction is that one of the managers should be an Egyptian national. In general, this is not considered a limitation on foreign contribution in management as the Egyptian manager may be appointed with very limited authority and other authorities may be granted to other foreign managers. In addition, companies are required to acquire a commercial and tax license, and pass a security clearance process. Although companies are able to operate while undergoing this security screening, if it is rejected they must cease operations and undergo a lengthy appeals process. Businesses have cited instances where Egyptian clients were hesitant to engage in protracted business contracts with foreign businesses that have not yet received security clearance, and have expressed concern about seemingly arbitrary refusals, opaque explanations when a security clearance is not issued, and a lengthy appeals process. Although the Government of Egypt has made progress streamlining the business registration process at the General Authority for Investment, lack of familiarity or experience working with foreigners has sometimes led to inconsistent and questionable treatment by banks and government officials, delaying registration.
Sector-specific limitations to investment include restrictions on foreign shareholding of companies owning lands in Sinai. Likewise, the Import-Export Law requires companies wishing to register in the Import Registry to be 100 percent owned and managed by Egyptians. In 2016, the Ministry of Trade prepared an amendment to the law allowing the registration of importing companies owned by foreign shareholders; as of April 2016, the law had not yet been submitted to Parliament.
Privatization Program
Egypt has not concluded significant privatizations of state-owned enterprises since 2008. Efforts to continue privatization since then have stalled. In March 2016, Prime Minister Sherif Ismail declared that the government would cease efforts to privatize the public sector, saying state-owned enterprises needed to be reformed instead. This statement followed the reestablishment of a Ministry of Public Enterprises in the same month.
Egypt's privatization program was based on Public Enterprise Law 203 of 1991, which permitted the sale of state enterprises to foreign entities. In 1991, Egypt began a privatization program for the sale of several hundred wholly or partially state-owned enterprises and all public shares of at least 660 joint venture companies (joint venture is defined as mixed state and private ownership, whether foreign or domestic). Bidding criteria for privatizations are generally clear and transparent.
In 2014, the President signed a law limiting appeal rights on state-concluded contracts to reduce third-party challenges to prior government privatization deals. The law was intended to reassure investors concerned by legal challenges brought against privatization deals and land sales dating back to the pre-2008 period. Ongoing court cases had put many of these now-private firms, many of which are foreign-owned, in legal limbo over concerns that they may be returned to state ownership.
Screening of FDI
Egypt maintains de facto oversight of certain categories of FDI based on geography and sector. While there are no formal geographical restrictions on investments in Egypt, the government generally denies approval for investment in manufacturing facilities in Cairo due to congestion. Approval by the security services is also usually required for investments in the Sinai Peninsula. In addition, certain regulatory approvals are required in the financial sector. The government does not issue new licenses for banks or insurance companies. Foreign firms can only enter the Egyptian market by having their purchase of a stake in an existing bank or insurance company approved by the Central Bank of Egypt.
Competition Law
The Egyptian Competition Authority is the body tasked with ensuring free competition in the market and preventing anticompetitive practices. The Authority operates under the Egyptian Competition Law, which was enacted in 2005 and covers three categories of violations: 1) cartels; 2) abuse of dominance; and 3) vertical restraints. In 2008, laws number 190/2008 and 193/2008 introduced amendments to the Competition Law aiming at protecting competition, prohibiting monopolistic practices, and assuring free competition and free entry and exit from the market based on economic efficiency. The main challenges to implementing the Competition Law include the lack of competition policy at the country level, a significant informal sector, and the lack of availability of information and data.