After lengthy debates MPs finally approved a new investment law earlier this week. Two years in the making, the government hopes the new law will encourage local and foreign investment and boost investor confidence. Egypt desperately needs investments to increase production, create jobs and boost growth. The government has targeted a growth rate of 5.5 per cent of GDP by 2018-19. Growth came in at 3.8 per cent in the second quarter of the current fiscal year, a drop from four per cent for the same period last year. The government's first attempt to revise the investment law was in 2015 when it hastily tweaked the Investment Guarantees and Incentives Law No 8/1997 ahead of the Egypt Economic Development Conference in March of the same year. The investment community was not impressed. The new law offers investors rebates on investment costs of up to 50 per cent for projects in the least developed regions, rebates on the cost of land if factories begin production within two years and a variety of incentives for labour intensive projects, small and medium enterprises and projects utilising or producing renewable energy. Amr Ghallab, head of parliament's Economic Affairs Committee, told Al-Ahram Weekly he is confident the 112-article law will help boost investment in Egypt. “Competition for foreign investments in the Arab world and the Middle East is tight. But this new legislation comes at the right time to give Egypt an edge,” said Ghallab. Mohamed Badr, senior director at NGage Consulting, warns that the law is only one among several factors investors will take into account, and not necessarily the most important. He told the Weekly potential investors are looking for a complete set of regulations not just an investment law. The real problems investors face, says Badr, concern day-to-day operations and the challenges they encounter in obtaining approvals and permits and dealing with Egypt's Byzantine bureaucracy. “Many countries do not have an investment law and yet they are attractive destinations to investors because they have a clear and friendly regulatory environment.” “Countries that are successful in attracting investment do not need to offer incentives. Business facilitation, and transparency of doing business there, are what they depend on.” Among the advantages of the new law, says Badr, is that it clearly states no entity has the right to take decisions which add financial or procedural burdens on investors without the approval of the General Authority for Investment and Free Zones (GAFI), the cabinet and the Supreme Council for Investment. Another positive of the law is the establishment of “accreditations offices” which should aid investors in finalising the paperwork required for their projects. Ghallab also points out the law allows for the establishing of an Investor Service Complex (ISC) which will oversee the provision of services necessary to set up new investment companies, cutting red tape and bureaucracy. The ISC will include representatives from the various authorities mandated to issue final approvals and licences and sets a time limit within which investors must receive a response to proposed projects. Any delay beyond the deadline will mean the project is approved. The ISC will eliminate unnecessary bureaucracy and help investors establish companies electronically, Minister of Investment Sahar Nasr said in a press release following approval of the law. “Eliminating bureaucracy will be achieved by establishing a fixed timeframe for the finalising of procedures, responding to incorporation requests within one working day, legalising the company as soon as incorporation certificates are issued and introducing accreditation office systems to examine documents and ensure the project fulfils all requirements and procedures.” Significant changes were introduced to the government's draft by the Economic Committee. According to Omar Marwan, minister of parliamentary affairs, 75 per cent of the law was modified. One of the most controversial changes involved special economic zones. “Many people believe that rather than increase Egyptian exports these zones have been used to smuggle goods into the country,” says Badr. He believes the executive regulations of the law should include a mechanism to review existing projects with special economic zone status and ensure they produce added value rather than simply packing and re-exporting products. Badr argues special economic zones should only be established for specific reasons, encouraging individual industries or developing the most deprived areas of the country. Bahaa Al-Adli, head of Badr City Investors' Association, also worries special economic zones offer a window for smuggling. “There has to be close supervision of these zones and it must be mechanised rather than left to the discretion of employees which only opens the doors to corruption,” he told the Weekly. Speaking to journalists earlier this week Finance Minister Amr Al-Garhi said it was important to review the budgets of companies in free zones to ensure they are achieving what they set out to do. Under the new law establishing new special economic zones will require cabinet approval. Regulations will also be put in place to guarantee they are not used for customs and tax evasion. Existing special economic zones will be subject to higher fees. The new investment law will come into effect once the executive regulations are ready, and they should be finalised within a month, according to Nasr. The Ministry of Investment will prepare the executive regulations which will then be presented to the cabinet for approval. “The executive regulations are make or break,” warns Badr. He argues they should be the product of intensive dialogue between the business community, the Economic Affairs Committee and all other concerned parties. “If the executive regulations do not manage to solve conflicts and grey areas between different government entities the law will be just ink on paper,” he says. Al-Adli agrees. Implementation of the law is more important than the law itself, whether it is the executive regulations or the mechanisms of implementation. He cites, as an example, the employees who will implement the law. They will be important to its success and must be well trained. He also agrees that it takes more than a law to attract investment. There must also be a strong market, stable policies, the necessary logistics and clear mechanisms for implementing existing laws. In its attempts to attract investment Egypt should follow in the footsteps of Morocco, argued former finance minister Ahmed Galal in an article published in Al-Masry Al-Youm. Rather than issue a new law Morocco focused on resolving the problems investors themselves raised, eliminating obstacles by repealing cumbersome laws, modifying procedures and reallocating the often overlapping competencies of state institutions. Morocco used the World Bank's Doing Business report as a blueprint. It covers investors' perceptions of the process of starting a business, dealing with construction permits, getting access to electricity, registering property, securing credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. Egypt ranked 122 among 190 in the 2017 report. Morocco ranked 68. “Egypt needs to encourage investment for many reasons, the most important being job creation to reduce unemployment, especially among the young. With a low domestic saving rate we also need foreign investment, which is often accompanied by other benefits, such as modern technology, efficient management and, sometimes, greater export opportunities. But if we are serious about increasing investment and raising growth rates we need to create a better investment climate than exists now,” wrote Galal.
