- Openness to Foreign Investment
- Conversion and Transfer Policies
- Dispute Settlement
- Performance Requirements and Incentives
- Right to Private Ownership and Establishment
- Protection of Property Rights
- Transparency of Regulatory Rights
- Efficient Capital Markets and Portfolio Investment
- Political Violence
- Corruption
- Bilateral Investment Agreements
- OPIC and Other Investment Insurance Programs
- Labor
- Foreign Trade Zones/Free Ports
- Foreign Direct Investment Statistics
- Web Resources
Openness to Foreign Investment
The Egyptian government has made increasing foreign investment a
major goal of its economic reform program and strategy for
fostering private sector-driven growth. Egypt faces a
significant challenge in improving living standards and
increasing employment opportunities for its growing
population. The Ministry of Investment (MOI) was
established in 2004 and handles privatization of state-owned
enterprises (except for banks, which are handled by the Central
Bank) and oversees various regulatory agencies with
investment-related areas of responsibility including the Capital
Market Authority, the Egyptian Insurance Supervisory Authority,
the General Authority for Real Estate Mortgage Affairs and the
General Authority for Free Zones and Investment
(GAFI).
Key Laws Governing Foreign Investment:
Investment Incentives Law 8 of 1997: This law was
designed to encourage domestic and foreign investment in targeted
economic sectors and to promote decentralization of industry from
the crowded Nile Valley area. The law and its executive
regulations and amendments provide over 20 investment
incentives. The law allows 100 percent foreign ownership of
investment projects and guarantees the right to remit income
earned in Egypt and to repatriate capital. 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 Income Tax Law enacted in June 2005 (Law 91/2005) eliminated
some of the incentives in the Investment Incentive Law, namely
all corporate tax exemptions and tax holidays that the latter law
had authorized for newly established companies. The 2005
tax law also repealed tax deductions extended to companies listed
on the stock exchange. The tax incentives were not
eliminated retroactively, however, so all existing companies will
continue to receive their tax incentives until the end of the
period stipulated when the company was established. Law 8
incentives for agricultural activities including reclamation,
cultivation, irrigation, animal breeding, bee-hiving and fish
farming were not removed by the Income Tax Law.
Under the Investment Incentives Law, qualifying investments in
various fields are assured approval, effectively creating a
"positive list." These fields include land reclamation;
fish, poultry, and animal production; industry and mining;
tourism (covering hotels, motels, tourist villages, and
transportation); maritime transportation; refrigerated
transportation for agricultural products and processed food; air
transportation and related services; housing; real estate
development; oil production and related services; hospitals and
medical centers that offer 10 percent of their services free of
charge; water pumping stations; venture capital; computer
software production; projects financed by the Social Fund for
Development; and leasing. Projects in certain fields,
however, still require special approval (generally security
clearance) from relevant ministries. Such projects
include: any investments in the Sinai and any investments
related to military production and related industries.
Procedures for obtaining approval to establish new companies are
becoming simpler and waiting times shorter than in the
past. GAFI's "One-stop-shop" brings together all the
government ministries needed for establishment of a new
investment and provides after-care services for existing
companies. The One-stop-shop reportedly processes approvals
for new investments on average within 72 hours. The
approval system is computerized and in some instances regulations
enable a company to begin operating pending security
clearance. While not a legal requirement, in practice all
proposed foreign investments are scrutinized by the security
services, which has in the past caused significant delays in the
approval process.
Law 94 of 2005 amended the Investment Incentives Law and made
companies incorporated under the Investment Incentives Law
subject to the relatively simpler incorporation provisions of the
Companies Law 3 of 1998 (see below). Further, Law 94
limited the authority of the board of directors of each Public
Free Zone (see below) to issuance of preliminary approvals for
projects to be established in the free zone, with the final
approval issued by GAFI.
Decree No. 719 for 2007 by the Ministers of Trade and Industry
and Finance provides further incentives for industrial projects
in the governorates of Upper Egypt (Upper Egypt refers to
governorates in southern Egypt). The decree provides an
incentive of 15,000 Egyptian Pounds (the Pound or LE) for each
job opportunity created by the project, on the condition that the
investment costs of the project exceed LE 15 million. The
decree can be implemented on both new and on-going
projects.
Companies Law 159 of 1981: This law applies to
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. These exceptions include companies whose
founders have failed to comply with procedures and laws in the
past, as well as companies whose founders have demonstrated
insufficient qualifications to operate a business. The law
does provide a right to petition a denial of incorporation.
It also removes a previous legal requirement that at least 49
percent of shareholders be Egyptian; allows 100 percent foreign
representation on the board of directors; and strengthens
accounting standards. Founders of joint stock and limited
liability companies must submit a bank certificate to GAFI
showing that 10 percent of the company's issued capital has been
paid in.
Law 94 of 2005 (mentioned above) also amended some of the
provisions of the Companies Law. It removed restrictions on
board members representing other board members by proxy in board
of directors meetings and made it possible for a board of
directors to be formed of an even number of members. Law 94
also added a provision stipulating that companies operating in
the Sinai do not acquire legal persona unless approved by a
decree from the chairman of GAFI. It also granted companies
established under the Companies Law or the Commercial Law certain
incentives under the Investment Incentives Law, including
protection from nationalization, imposition of obligatory pricing
and cancellation or suspension of licenses to use immovable
property. It also granted 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.
Other laws governing foreign investment:
Land/Real Estate Law 15 of 1963: This law explicitly
prohibits foreign individual or corporate ownership of
agricultural land (defined as traditional agricultural land in
the Nile Valley, Delta and Oases). Prime Ministerial Decree
No. 548 for 2005 removed restrictions on foreign property
ownership in a number of tourist and new urban areas, namely the
Red Sea coast, including the beach resort of Hurghada, the
Mediterranean beach resort Sidi Abdel-Rahman and Ras Al-Hekma,
also on the Mediterranean in Matrouh Governorate. Foreign
individuals are still, however, limited to ownership of a maximum
of two residences in Egypt. Companies/citizens of other
Arab countries have customarily received national treatment in
this area.
Public Enterprise Law 203 of 1991: Egypt has an
ongoing privatization program under the Public Enterprise Law 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 defined as mixed state and private
ownership, whether foreign or domestic). The law permits
sales to foreign entities. Law 203 was amended in 1998 to
allow the general assemblies of the public holding companies that
manage public enterprises in a particular sector to accept bids
below the initial reserve price. Although the amendment
allows sales below the reserve price, very few assets have been
sold below the reserve price since 1998.
MOI has made enterprises in all sectors subject to privatization,
and has sold entities in the construction, petroleum, telecoms
and chemicals sectors, all previously considered "strategic"
sectors and therefore not part of the privatization
program. Several of these companies have been sold to
foreign investors, who are treated equally to local investors in
the privatization process. MOI has also opened the
privatization program to include services and some public
utilities. Some infrastructure areas, including ports and
airports, power generation, and cellular phone networks have also
been opened to private investors on a build-own-operate-transfer
(BOOT) basis. Foreign companies have won major BOOT tenders
in power generation and airport and maritime port
construction. Since 2002, however, the government has
suggested that BOOT projects that require payment for their
services in foreign exchange will also be required to generate
foreign exchange revenues.
A variety of privatization methods are currently in use by MOI,
including asset unbundling and leasing with options to buy.
Incentives, including five-year tax exemptions (notwithstanding
the 2005 tax law) and the removal of real estate value from
company valuations, were provided for the sale of 53 distressed
or loss-making companies in 2006 and 2007. MOI is also
restructuring public enterprises that are facing difficulties in
remaining afloat. The restructuring is tailored
individually to lead to sale of the enterprises in the medium to
long-term. Additional incentives have been used to make
public enterprises more attractive to investors, including
allowing the transfer of excess and idle assets, some working
capital items, and liabilities to the public holding companies
responsible for public entities in a particular sector.
Bidding criteria for privatizations are generally clear and
transparent.
Investors have traditionally identified valuation and commitment,
as reflected in the pace of execution of deals, as the two
primary obstacles to effective privatization in Egypt.
While the government's commitment and the pace at which it has
concluded privatizations have increased markedly since MOI took
responsibility for the program, privatization remains
controversial in Egypt. Starting in mid-2006, concerns were
raised about potential price and supply problems in various
industries under consideration for privatization, such as sugar
and pharmaceuticals. Political opposition and pressure to
slow the privatization program reached a head with outcry from
parliament, the media and the public over sale in 2007 of the
department store Omar Effendi to a Saudi investor.
Accusations of undervaluation of the store's assets resulted in
parliamentary investigations, which affirmed that there was no
evidence of wrongdoing. Despite the flap over Omar Effendi,
the government has proceeded with plans to privatize some major
assets. The government has made financial sector reform one
of its top priorities and the privatization and/or reorganization
of some of those companies have been successful. The Bank
of Alexandria was successfully privatized in 2006, but efforts to
privatize Banque du Caire have been more difficult, and ongoing
efforts to privatize the state-owned insurance companies is
behind schedule.
Privatization has generated a total of LE 15 billion in revenue
from July 2006 to March 2008.
Capital Market Law 95 of 1992: This law and its amendments
and regulations govern Egypt’s capital markets. In 1998,
the government made significant amendments and changes to the law
to strengthen stock market regulations against fraud, price
manipulation, and insider trading. Foreign investors can
buy shares on the Egyptian Stock Exchange (the ESE, formerly the
Cairo and Alexandria Stock Exchange (CASE)) on the same basis as
local investors. In April 2006, CASE announced new
membership rules for brokerage firms, including an increase in
their capital requirement from LE 250,000 to LE 5 million.
Additional regulations prohibiting price manipulation and
information exploitation were also issued in April 2006, on the
back of a major stock market slump that began in February
2006.
In July 2007, the Capital Market Authority (CMA), the capital
markets regulator, amended existing regulations to speed up the
process of listing new shares of companies on the stock
market. The new regulations stipulate that the primary
source of a company’s profitability should be income from
continuing operations, while net profit for the last fiscal year
before listing should exceed 5 percent of the company’s
capital. The CMA issued a decree in September 2007 to
modify the capital adequacy criteria for securities
intermediation companies to enhance management of market,
settlement, liquidity, operational and credit risks.
In November 2007, MOI issued a decree adding the activity of
market-makers to the functions of companies operating in the
field of securities. The new activity allows the provision
of permanent liquidity for stock exchange-listed securities for
which the market maker is committed to guaranteed dealing during
trading sessions.
In June 2008, the People’s Assembly ratified Law No.
123/2008, amending certain parts of the Capital Market Law.
The amendments provide local and foreign institutions with
opportunities to issue bonds and also lower the minimum per value
of shares to LE 0.10 from LE 1.00. The amendments also
strengthen the administrative role of CMA by increasing its
authority to maintain market integrity, enforce standards of
fairness and transparency, regulate prices and prevent
information exploitation.
Also in 2008, Egypt’s Small and Medium Enterprise stock exchange,
called the NileX, began operating. It is designed for
companies with capital of less than 2.5 billion Egyptian
pounds. The auditing and disclosure requirements are also
less burdomsome than on the ESE.
Maritime Law 1 of 1998: This law amended the General
Egyptian Maritime Organization Law 12 of 1964. The Maritime
Law permits the private sector, including foreign investors, to
conduct most maritime transport activities, including loading,
supplying, and ship repair.
Electricity Law 18 of 1998: This law amended Law 12
of 1996 to allow the government to sell minority shares of
electricity distribution companies to private shareholders, both
domestic and foreign.
Tenders Law 89 of 1998: This law amended the Tenders
and Bidding Law 9 of 1983 governing foreign companies' bids on
public tenders. It required 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 retained
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 law was amended in mid-2006,
requiring contracting government entities to acknowledge price
fluctuations in the first year of the contract or increases or
decreases in cost, and to compensate contractors where
necessary. In June 2008, another amendment was ratified by
parliament requiring a revision of the value of contracts every
three months for contracts having durations longer than six
months.
Insurance Law 156 of 1998: This law amended Law 91
of 1995, removing a 49 percent ceiling on foreign ownership of
insurance companies, authorizing privatization of state-owned
insurance companies, and abolishing a ban on foreign nationals
serving as corporate officers. Law No. 118, issued in May
2008, amended certain articles of Law 10 of 1981. The
amendments lifted the ban on operation of foreign insurance
intermediaries in Egypt and increased the minimum capital level
for insurance companies from LE 30 million to LE 60 million and
allowed the Egyptian Insurance Regulatory Agency (EISA) greater
independent control over its budget. Executive regulations
for this decree have not been issued yet.
Commercial Law 17 of 1999: This law has more than
700 articles covering general commerce, commercial contracts,
banking transactions, commercial papers (including checks), and
bankruptcy.
Central Securities Depository and Registry Law 93 of 2000:
This law allows bookkeepers and companies dealing in central
depository instruments to dematerialize shares (i.e. replace
physical entries for securities to book entries).
Special Economic Zones Law 83 of 2002: This law
authorized establishment of special zones for industrial,
agricultural, and service activities that are mainly
export-oriented. Firms operating in these zones enjoy
incentives and facilities designed to encourage increased local
and foreign investment in export-producing sectors.
Telecommunications Law 10 of 2003: This law
stipulated that Telecom Egypt (TE) would relinquish its monopoly
status as Egypt's sole domestic fixed-line operator and sole
international operator by January 2006 and provided for greater
flexibility in selling shares of TE through public
offerings. Although the government did not meet the January
2006 deadline, the Ministry of Telecommunications and Information
Technology announced that the license for a second fixed-line
operator would be sold by auction in September 2008. The
National Telecommunications Regulatory Agency (NTRA) blamed the
delay on continuing negotiation over interconnection agreements
and tumultuous global markets. The NTRA said the deferment
would give the regulator more time to lay the foundations for a
fixed-to-mobile interconnection agreement.
Banking Law 88 of 2003: This law replaced a number of laws
regulating the Central Bank of Egypt, the banking sector, foreign
exchange, account secrecy, and privatization of public sector
banks. The law strengthened prudential banking regulations,
raised minimum capital requirements for banks and foreign
exchange bureaus, and re-affirmed the government's authority to
privatize public sector banks.
Informal Barriers: While the Nazif administration
has taken significant steps to attract foreign investment,
certain informal barriers still exist. Foreigners may
function as commercial agents, but are prohibited from acting as
importers for trading purposes. A foreign company wishing
to import for trading purpose must do so through an Egyptian
importer. In the banking sector, the Central Bank has not
issued a new commercial banking license in almost 20 years.
In practice, the only way for a new bank, whether foreign or
local, to enter the market (except as a representative office) is
to purchase an existing bank. As part of a plan to restructure
the banking sector, the government has sold shares in several
joint venture banks to foreign banking entities since 2004.
The first public bank to be fully privatized was Bank of
Alexandria, which was sold to a foreign banking entity, Sanpaolo
Intesa of Italy in October 2006. In July 2007, the government
reversed previous plans to merge Bank Misr and Banque du Caire
and instead announced it would sell 80 percent of its stake in
Banque du Caire to a strategic investor. However, after a round
of bidding, the government ultimately decided that the bids did
not meet their minimum selling price and the sale has been
cancelled until further notice.
In the insurance sector, the government has stated that it will
not issue licenses for new insurance companies, in order to focus
investor attention on privatization of the existing firms.
Therefore, as in the banking sector, foreign firms can only enter
the Egyptian insurance market through purchase of shares in
existing insurance firms. In 2006-07, MOI began
restructuring the public insurance companies in preparation for
privatization. In September 2007, the companies were merged
and placed under an insurance holding company, and real estate
assets were stripped out of the companies and transferred to a
newly established affiliate, Misr for Real Estate. A
foreign consultant is helping the holding company to prepare a
prospectus.
Pharmaceutical prices remain controlled, although the government
has decontrolled prices of many other industrial products.
The government uses a standard cost-plus formula to determine
pharmaceutical prices for new-to-market products. Most
pharmaceutical companies rely heavily on imported inputs, so the
devaluation of the Egyptian Pound in 2003 sharply reduced their
profitability. The Ministry of Health and Population has
revised prices on existing pharmaceuticals over the last few
years, but in a selective manner that has precluded price
adjustments for the majority of domestic and foreign
pharmaceuticals. Due to price controls and a drop in
profitability, some companies claim to be operating at a
loss. During 2005-06, the government allowed an increase in
the price of specific foreign and domestic pharmaceutical
products. Between 2006 and 2007, the Minister of Health
issued decrees increasing prices of various medicines, on the
grounds that prices of international raw materials were
rising. In March 2008, the Holding Company for
Pharmaceuticals declared it would produce specific medicines and
sell them below cost, to ensure availability of basic medicines
to the poor. Pharmaceutical companies would also be allowed
to produce other, more expensive medicines to increase
profits.
Other obstacles to investment include excessive bureaucracy, a
shortage of skilled mid-level managers, limited access to credit,
slow and cumbersome customs procedures in some areas, and
non-tariff trade barriers. The Egyptian judicial system,
which generally upholds the sanctity of contracts, is extremely
slow and can take several years to process cases. The
judicial system is also subject, in some cases, to political
influence.
In April 2008, the government stopped construction of a
fertilizer plant after the Canadian company Agrium invested $280
million and four years of planning in the plant. While
local activists raised environmental concerns about its location
along the Mediterranean coast, Agrium noted that it was adjacent
to other industrial plants. Agrium agreed to sell its stake
in the plant in September to a state-owned firm, which does not
plan to resume construction. Egypt's reputation as an attractive
location for foreign direct investment (FDI) risks being affected
because of the dispute.
Conversion and Transfer Policies
Egyptian law allows individuals and businesses to conduct all
normal foreign exchange transactions, including establishing
foreign exchange accounts and transferring foreign exchange in
and out of Egypt. Authorized banks may provide the full
range of foreign exchange transactions, including accepting
deposits, executing transfers, and opening letters of
credit. Foreign currency is available at banks and foreign
exchange bureaus.
The 1992 U.S.-Egypt Bilateral Investment Treaty provides for free
transfer of dividends, royalties, compensation for expropriation,
payments arising out of an investment dispute, contract payments,
and proceeds from sales. Transfers are to be made in a
"freely convertible currency at the prevailing market rate of
exchange on the date of transfer with respect to spot
transactions in the currency to be transferred."
The Investment Incentives Law stipulates that non-Egyptian
employees hired by projects established under the law are
entitled to transfer their earnings abroad. Conversion and
transfer of royalty payments are permitted when a patent,
trademark, or other licensing agreement has been approved under
the Investment Incentives Law.
Banking Law 88 of 2003 regulates the repatriation of profits and
capital. The government has repeatedly emphasized its
commitment to maintaining the profit repatriation system to
encourage foreign investment in Egypt. The current system
for profit repatriation by foreign firms, announced in late June
2002, requires sub-custodian banks to open foreign and local
currency accounts for foreign investors (global custodians),
which are exclusively maintained for stock exchange
transactions. The two accounts serve as a channel through
which foreign investors process their sales, purchases, dividend
collections, and profit repatriation transactions using the
bank’s posted daily exchange rates. The system is designed
to allow for settlement of transactions in less than two days.
Expropriation and Compensation
As noted previously, the Investment Incentives Law provides
guarantees against nationalization or confiscation of investment
projects under the law's domain. The law also provides
guarantees against seizure requisition, blocking, and placing of
assets under custody or sequestration. It also offers
guarantees against full or partial expropriation of real estate
and investment project property. The U.S.-Egypt Bilateral
Investment Treaty also provides protection against
expropriation.
While the national government does not generally expropriate
property, there have been reports of local authorities in one
governorate expropriating land from a private firm. While
the governorate offered compensation, it was below market value
for the land and has yet to be paid, more than 7 years after the
expropriation. Private firms are able to take cases of
expropriation to court, but as noted previously, the judicial
system is very slow and can take several years to resolve a
case.
Dispute Settlement
Although previous administrations had moved very slowly to
resolve investment disputes, the Nazif administration has moved
much more quickly to resolve some investment disputes. The
government resolved the concerns of two major foreign investors
through enactment of new legislation in mid-2005. A number
of disputes with U.S. investors, however, remain
unresolved. These involve widely differing issues, and do
not appear to reflect a pattern or any discrimination against
U.S. investments. The U.S. Embassy recommends that U.S.
companies put clauses specifying binding international
arbitration of disputes in their commercial agreements.
Egypt acceded to the International Convention for the Settlement
of Investment Disputes in 1971 and is a member of the
International Center for the Settlement of Investment Disputes
(ICSID), which provides a framework for arbitration of investment
disputes between the government and foreign investors from
another member state, provided that the parties agree to such
arbitration. Without prejudice to Egyptian courts, the
Investment Incentives Law recognizes the right of investors to
settle disputes within the framework of bilateral agreements, the
ICSID or through arbitration before the Regional Center for
International Commercial Arbitration in Cairo, which applies the
rules of the United Nations Commissions on International Trade
Law. The U.S.-Egypt Bilateral Investment Treaty allows for
the possibility of an investor taking a dispute with a party
directly to binding third-party arbitration. The Egyptian
courts generally endorse international arbitration clauses in
commercial contracts. For example, the Court of Cassation
has, on a number of occasions, confirmed the validity of
arbitration clauses included in contracts between Egyptian and
foreign parties.
Egypt adheres to the 1958 New York Convention on Enforcement of
Arbitrary Awards; the 1965 Washington Convention on the
Settlement of Investment Disputes between States and the
Nationals of Other States; and the 1974 Convention on the
Settlement of Investment Disputes between the Arab States and
Nationals of Other States. An award issued pursuant to an
arbitration that took place outside Egypt may be enforced in
Egypt if it is either covered by one of the international
conventions to which Egypt is party or satisfies the conditions
set out in the Arbitration Law.
Egypt's Dispute Settlement Law 27 of 1994 also provides for the
arbitration of domestic and international commercial disputes and
limited challenges of arbitration awards in the Egyptian judicial
system. The law was amended in 1997 to include disputes
between public enterprises and the private sector. The
Egyptian judicial system functions extremely slowly, and cases
can often remain in the system for several years. Arbitral
awards are made in the original currency of the transaction, via
the competent court in Egypt, usually the Cairo Court of
Appeal. A special order is required to challenge an
arbitration award in an Egyptian court. To enforce
judgments of foreign courts in Egypt, the party seeking to
enforce the judgment must obtain an exequatur. To apply for
an exequatur, the normal procedures for initiating a lawsuit in
Egypt must be satisfied. Moreover, several other conditions
must be satisfied, including ensuring reciprocity between the
Egyptian and foreign country's courts and verifying the
competence of the court rendering the judgment.
Egypt does not have a bankruptcy law per se, but the Commercial
Law 17 of 1999 includes a chapter on bankruptcy. The terms
of the bankruptcy chapter are silent or ambiguous on several key
issues that are crucial to the reduction of settlement risks.
According to the Ministry of Trade and Industry, the government
is planning to amend the bankruptcy provisions of Law 17 of 1999,
but these amendments are still pending.
Performance Requirements and Incentives
Performance requirements: No performance requirements are
specified in the Investment Incentives Law. The ability to
fulfill local content requirements is no longer a prerequisite
for approval to set up assembly projects, but in most cases
assembly industries still must meet a minimum local content
requirement in order to benefit from customs tariff reductions on
imported industrial inputs. Article 6 of Decree 420/2000
allows for the reduction of customs tariffs on intermediate goods
if the final product has a certain percentage of input from local
manufacturers, starting from 30%. As the percentage of
local content rises, so does the tariff reduction. In
certain cases, a ministerial approval can grant tariff
reductions, up to 40%, in advance to certain companies without
waiting to reach a corresponding percentage of local
content. Manufacturers wishing to export under trade
agreements between Egypt and other countries must fulfill
certificate of origin and local content requirements contained
therein. Oil and gas exploration concessions, which do not
fall under the Investment Incentives Law, do have performance
standards, which are specified in each individual agreement and
which generally include the drilling of a specific number of
wells in each phase of the exploration period stipulated in the
agreement. The Labor Law 12 of 2003 requires that foreign
workers account for no more than 10 percent of the total
workforce of a firm. This law's requirements do not apply
to the oil and gas industry, but most or all individual
concession agreements have some sort of requirement on percentage
of local employees.
Tax Incentives: As noted previously, parliament
passed a new personal and corporate income tax law in July
2005. The law eliminated tax incentives for new businesses,
but reduced all taxes by 50 percent. The law also changed
the relationship between the Tax Authority and taxpayers,
requiring taxpayers to do a self-assessment and then submit a tax
return, which can be audited by the Tax Authority. Under
previous legislation, the Tax Authority assessed all taxpayers'
returns and presented a bill, a process that could take several
years. The Minister of Finance has publicly stated that the
new, reduced tax rates and a greater level of trust between
taxpayers and the government will encourage economic actors in
Egypt's large informal sector to register their enterprises and
begin paying taxes. Revenue figures have borne this out, as
tax revenues have been increasing steadily since the new
law. Tax revenue increased from LE 97.7 billion in fiscal
year 2005/2006, to LE 114.3 billion in fiscal year 2006/2007, and
137.2 billion LE in 2007/2008. Domestic and foreign
individuals and businesses are treated equally under the new tax
law. The executive regulations of the new tax law were
issued in late 2005. Amendments to seek to eliminate some
loopholes will be presented in 2009, according to the Finance
Ministry.
Communities Law 3 of 1998: This law establishes a
number of urban communities, built over the past two decades, to
help shift population density out of major cities. All
incentives under this law were removed with the new income tax
law. While no new incentives have been stipulated in the
form of legislation, as is the case with Upper Egypt (Law
719/2007), the government remains committed to provision of
infrastructure and certain facilities in the new
communities. Facilities provided include sale of land to
investors through a closed auction system or on an installment
basis and extension of infrastructure, such as gas, water,
electricity to the new communities.
Pricing and Customs Preferences: By law, the government may
not intervene to set the prices or profits of companies
established under the Investment Incentives Law, except for
pharmaceuticals, as noted previously.
Geographical Areas: There are no formal legal
geographical restrictions on investments. However, due to
congestion in Cairo, the government generally denies approval for
investments in manufacturing facilities in Cairo, unless a
compelling economic rationale exists. The government also
offers incentives to move existing manufacturing facilities out
of Cairo. Upon request, government officials will assist
investors in locating a site for a project, often in one of the
new industrial sites located outside Cairo, and will sometimes
provide necessary infrastructure. In addition to the new
industrial sites outside Cairo, the government has targeted Upper
Egypt for development by private investors. Land in
industrial zones in Upper Egypt is offered free of charge.
The government will also provide hookups to infrastructure
(water, sewer, electricity, and gas) and transfer land titles to
the developer three years after project startup. As noted
above, approval by the security services is generally required
for investments in the Sinai Peninsula.
In July 2007, MOI finalized procedures for granting usufruct
rights (use by an investor of a plot of land for a certain period
of time to establish a project and profit from it, after which
both project and land are given to public ownership) in the
Sinai, with the aim of boosting investment levels in this
region. The procedures include facilitation of real estate
registration; enabling use of real estate as a guarantee for
loans; enabling banks to register pledges on real estate and
foreclose in cases of non-payment. The Ministries of
Investment and Justice and the Central Bank are envisioning a
legal framework for banks to finance projects through the
usufruct system
Research & Development (R&D) Projects:
Large-scale R&D activities in Egypt are relatively
modest. Information released during the World Science Forum
held in Budapest, Hungary in November 2007, indicated that the
Egyptian expenditure on R&D, had increased from 0.3 percent
of the GDP in 1981/1982 to almost one percent in 2006/2007,
reaching a total of LE 4.6 billion. The Economic and Social
Development Plan of the government for 2007/2008 earmarked LE 450
million for spending on research and development, distributed
among the Ministry of Scientific Research, the Scientific
Research Academy and the Science and Technological Development
Fund. . The majority of government-funded R&D
programs are in agriculture, health, and, to a lesser extent in
the manufacturing sector. There are no reports of
discrimination against U.S. or other foreign firms wishing to
participate in R&D programs in Egypt. Most Egyptian
R&D programs are established by government initiative to
target specific problems and/or opportunities. Donor
support plays an important role in Egypt’s R&D activities,
constituting about 15 percent of total R&D spending.
Import and Export Policies: Shortly after taking
office in July 2004, the new government cut tariffs sharply and
simplified the customs regime to stimulate trade and economic
development. The government removed GATT-inconsistent
services fees and import surcharges, reduced the number of ad
valorem tariff rates from 27 to 6, dismantled tariff
inconsistencies, including sharp escalation and reverse
progression on tariff rates, and rationalized national
sub-headings above the six-digit level of the Harmonized System
(HS). As a result of this reform, Egypt's number of ad
valorem tariff rates was reduced from 27 to 6 and average
weighted tariff rate fell from 14.6 percent to 9.1 percent.
In February 2007, import tariffs were further reduced by a
presidential decree, in conformity with the government’s adoption
of the World Customs Organization HS – 2007 for classifying
commodities. The changes reduced the average weighted
tariff rate from 9.1 percent to 6.9 percent. In April 2008,
further reductions were introduced to custom tariffs on a score
of items including processed foods, agricultural goods, paper
products, cement and steel and related products and some durable
household goods. Various items became exempt from custom
tariffs. Tariffs on fabric imports were significantly
reduced and tariffs on clothing were finally made consistent with
Egypt's WTO commitments. A BSE-related ban on U.S. beef
imports was lifted in early 2005, and a requirement that beef
imported for direct consumption contain no more than 7 percent
fat content was made voluntary.
In October 2005, new import and export regulations were issued,
which reduced the number of imported goods subject to inspection
by the General Organization for Export and Import Control (GOEIC)
and permitted importers to provide their own certificates of
health and safety conformity from any internationally accredited
laboratory inside or outside of Egypt. The new regulations
also transferred responsibility for issuing and reviewing
certificates of origin from GOEIC to the Egyptian Customs
Authority.
Despite the government's sweeping customs/tariff reform and
easing of import restrictions, significant problems remain.
Egypt adopted the WTO customs valuation system in 2001.
Even though government officials report that Egypt has almost
fully implemented the system, some importers face a confusing mix
of new invoice-based and old reference price-based valuations
depending on the type of imports. Acknowledging these
problems, the Ministry of Finance (MOF) has committed to a
comprehensive reform of Egypt's customs administration and is
working in concert with USAID, which is funding a comprehensive
six-year program to support reform efforts. There has been
some success in reducing the amount of time required for incoming
goods to clear customs. The MOF is currently reviewing a
new customs law to improve the valuation system and otherwise
facilitate trade.
A number of non-tariff barriers or bans continue in force to
protect local producers. Mandatory quality-control
standards make importing certain products into the Egyptian
market difficult. Over 130 categories of imports are still
subject to mandatory quality-control inspections, including
foodstuffs, appliances, electrical products, and auto
parts. Although the government says that the quality
control standards are applied equally to imports and domestically
produced goods, in practice, imports are scrutinized more
rigorously by multiple government agencies. Enforcement
remains inconsistent.
Many U.S. agricultural products also face burdensome import
licensing requirements. Although a ban on whole poultry was
lifted in July 1997, imported poultry parts are still prohibited,
ostensibly because they do not meet halal (religious)
standards. Health food products such as low-calorie foods,
diet pills, and vitamins also face informal barriers to
trade. These products must obtain a special registration
from the Food Institute of the Ministry of Health, which can take
months to process. Products with domestic substitutes have
experienced substantial delays, some as many as six months to one
year. A large shipment of U.S. wheat for human consumption
was denied entry to Egypt in June 2007, ostensibly due to bug
infestation. Although such infestations are common and can
be handled through a simple sanitization process, media reports
circulated claiming the wheat was "cancerous." The Ministry
of Trade and Industry bowed to political pressure and rejected
the wheat, which was re-exported and sold for human consumption
in Spain.
Shelf-life standards also act as an indirect trade barrier.
Egypt sets the shelf life of many imported products using
non-science-based standards that do not recognize quality,
safety, and technological differences between producers. By
government decree, imports (mainly food products) must have 50
percent or more of their shelf life remaining. The
government is reviewing Egypt's shelf life standards to make them
more science-based and WTO-consistent.
The import inspection process remains confusing, despite the
designation of the GOEIC as the coordinator for all import
inspections. The Ministries of Health and Agriculture
maintain their own inspection units and procedures.
Imported refrigerated containers of foodstuffs typically take 25
days to clear customs. While two-month delays were common
in the past, overall customs clearance times are improving, and
import inspections now typically take three to four weeks.
Ministerial Decree 619 of 1998 required a certification of origin
for imports and stipulated that consumer goods (durable and
non-durable) be shipped directly from the country of
origin. The decree was amended in late 1999 to ease
requirements for the certificate of origin and allow shipment of
imported consumer goods from the main branches of the producing
company and its distribution centers. Company invoices
noting the country of origin and bearing the endorsement of an
Egyptian overseas commercial office can now be used as
certificates of origin. Ministerial Decrees 577 and 580 of
1999 require cars to be imported in the year of production.
In 2000 the decrees were amended adding one year after the year
of production to the period during which passenger vehicles can
be imported. Since May 1999, the Central Bank of Egypt has
required 100 percent coverage for credit lines opened for goods
imported by traders for resale purposes.
The Export Promotion Law 155 of 2002 aimed to improve the duty
drawback and temporary admission systems for exporters by
establishing a central unit under the joint supervision of the
Ministries of Finance and Trade and Industry to monitor and
streamline the systems. The duty drawback system requires
full custom duties to be paid on semi-finished imports.
There is a one-year time limit for re-exporting these imports as
part of a final product in order to claim a full rebate of the
duties and taxes paid. In November 2002, the Ministries of
Finance and Trade and Industry jointly inaugurated the first
upgraded temporary-admissions unit at the Port of
Alexandria. With assistance from USAID, three other central
units for temporary admissions are now operational in Suez, Port
Said, and Damietta.
The Export Promotion Law also established an "Export Promotion
Fund," to promote Egyptian exports and increase their share in
foreign markets. The Fund supports a number of sectors,
mainly textiles and food industries, through financial incentive
packages aimed at alleviating initial costs in the export
process. The Fund’s annual budget currently stands at LE 2
billion. To date the fund has not been used to subsidize
exports. Although there are no executive regulations for
the Export Promotion Law, discreet implementing decrees have been
issued. Financial and administrative regulations for the
Export Promotion Fund were also issued and approved by the
Ministry of Trade and Industry and published in the Official
Gazette.
Egypt only rarely provides agricultural export subsidies and does
not impose export performance requirements. Exports of
scrap iron are subject to a levy of LE 225 per ton, cement
exports LE 85 per ton and steel exports LE 160 per ton.
These export levies are intended to ensure sufficient domestic
supply. As noted above, exporting industries, including
Investment Incentives Law projects, are required to pay the full
customs rate on imported inputs but receive a rebate of duties
and taxes when they export finished products. Although
exporters had previously reported lengthy delays in the customs
rebate process, recent rebate transactions have been processed
faster and more efficiently than in the past. The paperwork
process associated with import-export transactions also has been
simplified and updated.
Right to Private Ownership and Establishment
By law, foreign and domestic private firms have the right to establish and own business enterprises and engage in all forms of remunerative activity, except for the restrictions on foreign business noted previously. Private enterprises may freely establish, acquire and dispose of interests in business enterprises. In practice, private firms sometimes find themselves at a disadvantage when competing for resources with state-owned firms. For example, state-owned firms often have easier access to bank credit from the state-dominated banking system than do private firms, whether domestic or foreign. Lack of access to credit is one of the major complaints of the business community in Egypt as the interest rate is high and the banks have restrictive policies on lending. Lack of risk assessment capacity in the banking sector is also a factor in banks' overly cautious lending policies. Also, some companies have experienced difficulties in dissolving companies.
Protection of Property Rights
The Egyptian legal system provides protection for real and
personal property, but laws on real estate ownership are complex
and titles to real property may be difficult to establish and
trace. Reforms in 2007 simplified the registration process
for residential construction in new urban areas built on the
outskirts of Cairo and Alexandria. The new procedures will
be introduced in older areas of the two cities and in other
Egyptian cities over the next few years. A National Title
Registration Program was introduced by the Ministry of State for
Administrative Development and was implemented in 5 areas within
Cairo. This program aims at simplifying the registration
procedure, which in turn facilitates easier mortgage
financing. There are price controls on older residential
and commercial real estate property resulting in apartment rents
as low as $10 per month. However, these rent controls do
not apply to real estate put into service in recent years.
There are no restrictions on foreign ownership and rental of
non-agricultural real estate in Egypt although specific
procedures are required in some cases depending on the
geographical location and building codes in different
governorates.
The mortgage market is still in its infancy in Egypt, though the
MOI has made it a priority. The Real Estate Mortgage Law of
2001 established the Mortgage Finance Authority (MFA), and
authorized both banks and non-bank mortgage companies to issue
mortgages. The law also provides procedures for foreclosure
on property of defaulting debtors and amendments passed in June
2004 allow for the issuance of mortgage-backed securities.
Currently about 10 to 12 banks, 6 mortgage finance companies
offer mortgages. The total value of the mortgage market as
of 2007 stands at LE 2 billion ($366 million), with LE 1.5
billion financed by banks and LE 500 million financed by mortgage
companies. In 2007 the MFA set new regulations in order to
allow mortgage finance companies to offer financing in foreign
currency, with a ceiling of 65% of the value of the
property. The funding will be from the foreign currency
portion of the company’s capital.
In 2006, a mortgage refinancing company began operation, with a
paid-in capital of LE 200 million, and a license for up to LE 1
billion. The company plays the role of a market maker by
providing long term finance to banks and mortgage financing
companies. The World Bank and IFC have supported the new facility
and commercial banks are the principal shareholders.
Despite the efforts to foster a mortgage market, the concept of
mortgage-based purchases remains new and is still a largely
underutilized in Egyptian society.
Real estate registration fees, long considered a major impediment
to development of the real estate sector, were capped in May 2006
at no more than LE 2000, irrespective of the contract
value. In August 2006, MOI issued the new schedule of
property registration as follows: LE 500 for areas up to
100 square meters, LE 1000 for up to 200 sq. meters, LE 1500 for
up to 300 sq. meters and LE 2000 for areas over 300 sq.
meters.
Law No. 83 for 2006, issued in June 2006, amended certain
provisions pertaining to notarization fees, which remain high,
and the Land Register Law. In June 2008, the Egyptian
parliament approved a new real estate tax law. The new law
dramatically reduces the tax rate to 10 percent on properties
with market values above LE 500,000. Properties worth less
than LE 500,000 are exempt from taxation, as are rental incomes
below LE 6000 per annum. However, the amendments end many
of the exceptions which had enabled most homeowners to avoid
property taxes. Property values are to be re-assessed every
5 years by an evaluation committee, with caps of 30 percent and
45 percent on residential and non-residential properties,
respectively. Maintenance expenses up to 30% and 32% per
annum for residential and non-residential units, respectively,
are deductible. The law exempts all state-owned property,
public service facilities and religious facilities from real
estate taxes. The new real estate tax is expected to be
implemented starting January 2009.
For information on protecting your Intellectual Property Rights,
see Chapter 3 Protecting Your Intellectual Property.1
Transparency of Regulatory Rights
The Egyptian government has made considerable effort to improve
the transparency of government policy. The process has
proven difficult, however, given the extremely opaque policies in
place prior to 2004 and resistance from entrenched bureaucratic
interests. Significant obstacles continue to hinder private
sector investment, including the often-arbitrary imposition of
bureaucratic impediments and the length of time needed to resolve
them. In October 2005, new import and export regulations
were issued, completely replacing all prior regulations.
The new regulations have reportedly sped up import and export
clearance processes, but Customs officials still have significant
flexibility in classifying goods. Enforcement of health and
safety regulations remains uneven and is complicated by a
multiplicity of laws, agencies, and opinions. For example,
at least four ministries regulate the operation of
restaurants.
Law 89 of 1998 amended the Tenders and Bidding Law 9 of 1983 to
improve equality and transparency in government
procurement. Key provisions of the law include: a
prohibition on reopening negotiations after final bids have been
received; more transparency in the criteria for bid acceptance
and rejection; equality among bidders, contractors, and
government agencies; more weight given to the technical aspects
of a tender or bid; protection of contractor rights; reduction of
insurance fees; immediate return of deposits once the government
announces bid or tender results; and the establishment of a
Central Office for Complaint Resolution in the Ministry of
Finance.
In January 2005, parliament passed the Law on Protection of
Competition and Prohibition of Monopolistic Practices. A
new agency, the Egyptian Competition Authority, began operating
in 2006 to implement the law. Funding for the new agency
comes from direct government appropriations and/or donations from
professional or academic bodies. The MOI also issued
corporate governance guidelines as Ministerial Decree No. 332 in
October 2005. The non-binding guidelines – formulated along
the lines of OECD principles – apply to private sector
share-holding and limited liability companies, in addition to
brokerages. In July 2006, corporate governance guidelines
for public sector companies were also issued by MOI.
Accounting standards in government entities are still not fully
consistent with international norms, although efforts are
underway to bring standards into conformity with International
Financial Reporting Standards (IFRS). The MOI issued a
directive in September 2006 with new accounting standards for all
companies listed on the Egyptian stock exchange, including public
entities. The new standards, which came into effect in
January 2007, are close, but not identical to IFRS. Over
the last two years the Ministry of Finance has also adjusted its
own budget classification system according to the Government
Finance Statistics Manual for 2001 of the IMF.
Egyptian law does not require that proposed legislation be
published prior to consideration in parliament. In
practice, however, proposed legislation is occasionally
circulated among concerned parties such as business associations
and labor unions. Responsiveness on the part of legislators
to feedback received from concerned parties is
questionable. After approval by parliament, new legislation
is published in the Official Gazette.
Efficient Capital Markets and Portfolio Investment
The government has taken steps to streamline capital markets and
overcome years of stagnation in the banking system, which had
hampered economic growth. Credit in the banking system is
increasingly allocated on market principles and policy interest
rates are now more market-determined than before. Although
foreign investors have equal access to credit, the business
community consistently cites lack of credit as a continuing
impediment to economic growth. The public sector also still
absorbs a significant portion of the available credit, although
the ratios are falling as the private banks slowly capture a
greater percentage of the market.
The Capital Market Law 95 of 1992, along with the Banking Law of
2003, constitutes the primary regulatory framework for the
financial sector. The law grants foreigners full access to
capital markets, and authorizes establishment of Egyptian and
foreign companies to provide underwriting of subscriptions,
brokerage services, securities and mutual funds management,
clearance and settlement of security transactions, and venture
capital activities. The law also authorizes the issuance of
corporate bonds and bearer shares, and makes income from most
stocks and bonds non-taxable. The law specifies mechanisms
for arbitration and legal dispute resolution and prohibits unfair
market practices. The law also established the CMA as an
independent supervisor for the securities industry. The CMA
is currently under the authority of the MOI. The CMA and
the CASE regularly publish reports on trading and market
conditions in Egypt.
The Central Securities Depository and Registration Law and its
executive regulations, issued in 2000, eased registration and
deposit of securities. Settlement of transactions now takes
one day for treasury bonds, two days for dematerialized issues,
four days for materialized issues and same day for 62 active
stocks that are not bound by the 5 percent daily price movement
ceiling. Thirty three brokerage companies have the license to
deal in same day trading among 157 companies.
Although Egyptian law and regulations allow companies to adopt
bylaws limiting or prohibiting foreign ownership of shares, only
four companies listed on the stock exchange have such
restrictions. A significant number of the companies listed
on the exchange are family-owned or dominated conglomerates, and
free trading of shares in many of these ventures, while
increasing, remains limited. However, stocks are de-listed
from the exchange if not traded for six months.
In 2002, the then Minister of Foreign Trade added an additional
chapter to the executive regulations of the Capital Market Law to
allow margin trading to increase liquidity and trading in the
market through brokerage firms and financially solvent licensed
companies. In April 2003, the U.S. Securities and Exchange
Commission included the CASE in its list of accredited stock
exchanges, allowing U.S. financial institutions to invest in the
Egyptian stock market without undertaking the cumbersome
procedures previously required. In May 2006, the CMA issued
Decree No. 50 for 2006, organizing online trading on the
CASE. The decree allows brokerage companies to receive
requests for buying/selling of shares by clients via the
Internet. The decree also mandates infrastructure
requirements, mainly web security provisions, which brokerage
firms must meet in order to provide online services. To
date, seventy companies have obtained online trading
licenses.
Leasing Law 95 of 1995 allows for the leasing of capital assets
and real estate and was designed to reduce the high start-up
costs faced by new investors. Notably, the law specifically
allowed for the purchase of real estate assets through leasing
mechanisms. The Leasing Law was amended in 2001 to make
leasing more attractive for investors by exempting financial
leasing activities from sales taxes and fees; specifying
financial standards that leasing companies must adhere to;
increasing the control, organization and efficiency of the
leasing activities; and incorporating clear guarantees for the
parties involved.
The profitability of public sector banks remains weak, partly due
to high provisioning requirements that have absorbed more than 50
percent of pre-provision profits in the past few years,
reflecting the banks’ poor asset quality. The banking
sector as a whole, but particularly the public banks, face
problems with non-performing loans (NPLs) granted to loss-making
state-owned enterprises and private businesses. According
to Central Bank government estimates, NPLs account for roughly 20
percent of total loans outstanding, but some outside analysts put
it even higher. The 2006 IMF's Financial Sector Stability
Assessment puts the number 24.7%. Despite the increases in
provisioning, most analysts believe the state-owned banks are
still significantly under-provisioned.
Political Violence
Egypt suffered a number of terrorist attacks in the past few
years, in Taba in October 2004, Cairo in April 2005, Sharm el
Sheikh in July 2005 and Dahab in April 2006. These
incidents appear to be aimed at undermining government authority
via the tourism sector. The incidents were not directed at
foreign investors or their property, though they targeted hotels
and areas frequented by foreign tourists. Although tourist
numbers decreased somewhat in the immediate aftermath of these
events, the decrease was temporary and the inflow of tourists
continues to increase steadily. The government has
increased security in tourist areas following these incidents;
all Americans are urged to be vigilant and exercise good security
practices while in Egypt.
Recent reforms have fostered a more open public debate regarding
Egypt's political future. This debate has generated
frequent public demonstrations, most of which have remained
peaceful. There have been incidents involving violence,
however, but the violence was not directed toward foreigners or
foreign investment
Corruption
While U.S. investors have reported corruption by lower-level
government officials, they have not identified corruption as a
leading obstacle to foreign investment. Corruption in Egypt
is a crime. Two agencies oversee enforcement of corruption
laws in the public sector – the Administrative Control Authority
(ACA) under the authority of the Cabinet of Ministers and the
Illicit Gain Office under the authority of the Public Funds
Prosecution of the Ministry of Interior. In the private
sector, there are two types of corruption cases, commercial and
civil. Commercial cases are subject to the Commercial Law
and the Dispute Settlement Law. The district attorney’s
office and the civil courts adjudicate civil cases. The ACA
may intervene when corruption occurs in the private sector if
public money and/or public interests are involved.
Giving and accepting bribes are criminal acts in Egypt.
Penalties include pecuniary fines and imprisonment. Bribing
foreign officials is also a crime in Egypt. High-profile
corruption cases since 2002 have resulted in lengthy trials, and
convictions in some instances, for several former government
officials, including a former Minister of Finance, former head of
the Egyptian Customs Authority, and the former Governor of Giza
Province. Several businessmen and prominent bankers also
have been charged (and some convicted) for alleged corruption
related to non-payment of loans. Enforcement of corruption
laws does not appear to be disproportional against foreigners,
but evidence indicates that cases brought to court are often
politically motivated, i.e., cases tend to be brought against
individuals who have fallen out of favor with the
government.
Egypt is a signatory to the UN Convention Against Corruption, but
has not signed the OECD Convention on Combating Bribery or any
other regional anti-corruption convention. Transparency
International’s Corruption Perceptions Index ranked Egypt 105 out
of 179 surveyed countries in its 2007 survey. In 2006,
Egypt was ranked 70th out of 163 surveyed countries on
perceptions of corruption.
Bilateral Investment Agreements
Egypt has signed investment agreements with over 40 other
countries, including Armenia, Belgium, China, Finland, France,
Germany, Greece, Italy, Japan, Libya, Luxembourg, Morocco, the
Netherlands, Romania, Singapore, Sudan, Sweden, Switzerland,
Thailand, Tunisia, the United Kingdom and the U.S. The
U.S-Egypt Bilateral Investment Treaty provides for fair,
equitable, and nondiscriminatory treatment for investors of both
nations. The treaty includes provisions for international
legal standards on expropriation and compensation; free financial
transfers; and procedures for the settlement of investment
disputes, including international arbitration.
In addition to specific investment agreements, Egypt is also a
signatory to a wide variety of agreements covering trade
issues. Egypt joined the Common Market for Eastern and
Southern Africa (COMESA) in June 1998. In July 1999, Egypt
and the United States signed a Trade and Investment Framework
Agreement (TIFA), a step toward creating freer trade and
increasing investment flows between the U.S. and Egypt. In
June 2001, Egypt signed an Association Agreement with the
European Union (EU). Egypt’s parliament ratified the
agreement in March 2003, and it entered into force on June 1,
2004. The agreement provides for immediate duty free access
of Egyptian products into EU markets, while duty free access for
EU products will be phased in over a twelve-year period.
In recent years Egypt has worked on reaching agreements with 11
Arab League members in connection with the Arab Common Market
Treaty of the 1960's. In February 2004, Egypt signed a free
trade agreement with Jordan, Morocco and Tunisia. The
Agadir Agreement, as it is known, committed the parties to
removing substantially all tariffs on trade between them by
January 1, 2006, and to intensifying economic cooperation through
harmonization of standards and customs procedures.
Ratification was completed and the agreement entered into force
in 2006.
On December 14, 2004, Egypt and Israel signed an agreement to
take advantage of the U.S. government Qualifying Industrial Zone
(QIZ) program. The purpose of the QIZ program is to promote
stronger ties between the region's peace partners by granting
duty-free access to goods produced in QIZs in Egypt and Jordan
using a specified percentage of Israeli input. Under the
2004 QIZ agreement, the US agreed to waive duties on imports from
Egypt if they include 10.5% of Israeli components. At
present, 689 Egyptian companies have registered to export under
this program. The industrial areas currently included in
the QIZ program are Alexandria, areas in Greater Cairo such as
Sixth of October, Tenth of Ramadan, Fifteenth of May, South of
Giza, Shobra El-Khema, Nasr City and Obour, areas in the Delta
governorates such as Dakahleya, Damietta, Monofeya and Gharbeya,
and areas in the Suez Canal such as Suez, Ismailia, and Port
Said. In 2007 a request was submitted to the U.S. Trade
Representative's office to designate eight new QIZ areas in Upper
Egypt. Egyptian exports to the U.S., textiles in
particular, have risen rapidly since the QIZ system was
introduced in December 2004. Total value of the Egyptian
QIZ exports to the U.S. amounted for $688 million in
2007.
In July 2007, Egypt signed the Declaration on International
Investment and Multinational Enterprises with the Organization
for Economic Cooperation and Development (OECD). The
declaration implies a policy commitment to improve the investment
climate in the country and encourage further contribution of
foreign investors and multinational companies.
OPIC and Other Investment Insurance Programs
In July 1999, Egypt and the U.S. signed an updated investment
agreement to facilitate the U.S. Overseas Private Investment
Corporation (OPIC)'s provision of political risk insurance for
U.S. private investment as well as for bid, performance, and
advance payments, and customs bonds and guarantees issued on
behalf of U.S. suppliers and contractors in Egypt.
Egypt is included in a plan by OPIC to offer financing for
construction of low cost housing in several countries in the
Middle East and North Africa. OPIC is also currently
considering a direct loan to a private financial entity in Egypt
to issue low cost, long term mortgages.
Egypt is also a member of the World Bank's Multilateral
Investment Guarantee Agency (MIGA).
Labor
Egypt's labor force has grown steadily in recent years, with
upwards of 600,000 new entrants into the labor market each
year. As of June 2007, official statistics put the labor
force at 23.9 million, with 21.7 million employed.
Unemployment officially stood at 8.9 percent in 2007.
According to more detailed data for fiscal year 2006/2007, 5.5
million were government sector employees and 14 million were
private sector employees. According to the Egypt Labor
Market Panel Survey of 2006, informal employment increased from
7.5 million in 1998 to 12.2 million in 2006. Among wage and
salary workers, the size of informal employment increased from
3.8 million in 1998 to 5.3 million in 2006.
There is universal agreement that the government bureaucracy and
public sector enterprise are substantially over-staffed compared
to private sector business. Skilled labor in most
professions is in short supply, despite high numbers of
university graduates in those fields, and foreign companies
frequently pay internationally competitive salaries to attract
workers with valuable skills. Millions of Egyptians
continue to seek employment abroad on both a temporary and
permanent basis, and the government is considering establishing
an office to assist workers overseas.
The Unified Labor Law 12 of 2003 provides comprehensive
guidelines on individual labor relations, including organization
of recruitment, work and termination of employees, vocational
guidance, training, health, and safety. The law established
a qualified right of employees to strike, as well as rules and
guidelines governing mediation, arbitration, and collective
bargaining between employees and employers.
Non-discrimination clauses are also included, and the law
complies with labor-related International Labor Organization
(ILO) conventions regulating the employment and training of women
and eligible children (Egypt ratified ILO Convention 182 on
Combating the Worst Forms of Child Labor in April 2002).
The law also created a national committee to formulate general
labor policies and the National Wage Council, which discusses
wage-related issues and national minimum-wage policy. Over
the past year, the National Wage Council conducted several
meetings to discuss raising the minimum wage level in light of
rising inflation. Law No. 53 for the year 1984 set the
minimum wage at LE 35 per month. The National Wage Council
will reportedly recommend amendment of the 1984 law to set a new
minimum wage of LE 250 per month.
Under the Unified Labor law, workers may join trade unions but
are not required to do so. A trade union or workers’
committee may be formed if 50 employees in an entity express a
desire to organize. Most union members, about 27 percent of
the labor force, are employed by state-owned enterprises.
All trade unions are required to belong to the Egyptian Trade
Union Federation. The ILO's Committee of Experts has
emphasized repeatedly that a law requiring all trade unions to
belong to a single federation infringes on the freedom of
association, but the government has not changed the law.
Regarding the right to strike, workers have the right to strike
peacefully, provided the trade union organizes the strike in
defense of vocational, economic, and social interests and
announces it at least ten days in advance. Strikers must
also notify the employer and concerned administrative officials
of the reasons and time frame of the strike. The law
prohibits strikes in strategic or vital establishments in which
the interruption of work could result in disturbing national
security or basic services provided to citizens.
Collective negotiation is allowed between trade union
organizations and employers or their organizations when
attempting to improve labor terms, conditions, and employment
provisions; cooperating between labor parties to achieve social
development for workers of an establishment; and settling
disputes between workers and employers. Agreements reached
through negotiations are recorded in collective agreements
regulated by the Unified Labor law.
The Ministry of Manpower and Migration sets worker health and
safety standards, which also apply in public and private free
zones and the Special Economic Zones (see below).
Enforcement and inspection, however, are uneven. The
Unified Labor law prohibits employers from maintaining hazardous
working conditions, and workers have the right to remove
themselves from hazardous conditions without risking loss of
employment.
The labor laws allow employers to fully or partially close down
or downsize their firms for economic reasons. The
unemployment insurance law, also known as the Emergency Subsidy
Fund Law No. 156 of 2002, sets a fund to compensate employees
whose wages are suspended due to partial or complete closure of
their firm or due to its downsizing. The Fund allocates
financial resources that will come from a 1 percent deduction
from the base salaries of government, public enterprise, and
private sector employees.
According to foreign investors, certain aspects of Egypt's labor
policies are significant business impediments, particularly the
difficulty of dismissing employees. The Unified Labor Law
is somewhat more flexible in this area than the previous one,
allowing employers and employees to terminate employment
contracts under specific circumstances, but the process is still
not easy. The privatization program in some cases also
requires a company's new owner to retain all workers. The
government has, however, used privatization proceeds to offer
early retirement and/or other separation incentive packages to
workers in some privatized companies.
Foreign Trade Zones/Free Ports
Public and private free zones are authorized under the Investment
Incentive Law and are established by a decree from GAFI.
Free zones are located within the national territory but are
considered to be outside Egypt’s customs boundaries, granting
firms doing business within them more freedom on transactions and
exchanges. Companies producing largely for export (normally
80 percent or more of total production) may be established in
free zones and operate in foreign currency. Free zones are
open to investment in any sector, by foreign or domestic
investors. Companies operating in free zones are exempted
from customs duties, sales taxes or taxes and fees on capital
assets and intermediate goods.
As part of a set of revenue-generating measures to offset a 30
percent public sector wage increase, the government announced in
May 2008 that companies operating in free zones would be taxed on
natural gas obtained at concessionary rates from the
government. Warehouse companies are also subject to an
annual fee of 1 percent on the imported product's value, and
production and assembly profits are subject to an annual fee of 1
percent on the value added of the final product.
There are currently 10 public free zones in operation in the
following locations: Alexandria, Damietta, East Port Said
Port Zone, Ismalia, Koft, Media Production City, Nasr City, Port
Said, Shebin el Kom, and Suez. The Port Said free zone was
initially scheduled to be phased out by 2007, but a presidential
decree issued in late March 2006 extended the time limit until
January 2009. Private free zones may also be established
with a decree from GAFI but are usually limited to a single
project. Priority is given to export-oriented industrial
projects. The investor has the freedom to select his
activity and there is no restriction on foreign ownership of
capital in private free zones.
In May 2002, Parliament approved the Special Economic Zones (SEZ)
Law 83 of 2002, which provided for the establishment of special
zones for industrial, agricultural, or service activities
designed specifically with the export market in mind. The
law allows firms operating in these zones to import capital
equipment, raw materials, and intermediate goods duty free.
Companies established in the SEZs are also exempt from sales and
indirect taxes and can operate under more flexible labor
regulations. The law’s executive regulations were issued in
September 2002 and the first SEZ was established in the northwest
Gulf of Suez, though little development has taken place to
date. In February 2008, a tender process was launched to
attract private developers as partners in the developing,
operation, management, commercialization and marketing of the
SEZ’s 20 square kilometer site in the Ain Sokhna area.
Law No. 19/2007 issued in May 2007 authorized creation of
investment zones, which require Prime Ministerial approval for
establishment. The government regulates these zones through
a board of directors, but the zones are established, built and
operated by the private sector. The government does not
provide any infrastructure or utilities in these zones.
Investment zones enjoy the same benefits as free zones in terms
of facilitation of license-issuance, ease of dealing with other
agencies, etc., but are not granted the incentives and tax/custom
exemptions enjoyed in free zones. Projects in investment
zones pay the same tax/customs duties applied throughout
Egypt. The aim of the law is to assist the private sector
in diversifying its economic activities.
Foreign Direct Investment Statistics
Measurements of foreign direct investment (FDI) in Egypt vary
according to the source and the definitions employed to calculate
the figure. The Ministry of Petroleum keeps statistics on
investment in the oil and gas sector (which accounts for the bulk
of FDI in Egypt), while GAFI keeps statistics on all other
investments. The Central Bank records figures on quarterly
and annual investment flows based on financial records, for
Egypt's balance of payments statistics. There are wide
disparities between the three sources, and none can be considered
definitive in assessing levels of foreign investment.
GAFI's figures are calculated in Egyptian Pounds at the
historical value and rate of exchange, with no allowance for
depreciation and are cumulative starting from 1971. GAFI
statistics indicated that U.S. investors had FDI in Egypt at a
total of $5.8 billion for the period of 1971 - 2008 outside the
oil/gas sector. The U.S. ranked eleventh in terms of FDI in
Egypt, following the UK, Saudi Arabia, Kuwait, Libya, Holland,
Spain, Cayman Islands, Denmark, France and Iraq. In the
oil/gas sector, where both the UK and U.S. are very active, the
overall investment ranking of the two countries is probably the
same. The Ministry of Petroleum estimates that investment
in the oil/gas sector during fiscal year 2006/2007 amounted to
$3.4 billion, largely the result of expansion in gas exploration
and production. The Ministry estimates operation costs at
$1 billion.
The U.S. Department of Commerce calculated the stock of U.S.
foreign direct investment (FDI) in Egypt in 2006 at $5.91
billion. The stock of U.S. FDI in 2005 was $5.3 billion and
$4.6 in 2004, with Apache Corporation the largest single U.S.
investor. In addition to their major role in the energy
sector, U.S. firms are active in a wide range of manufacturing
industries, producing goods for the domestic and export
markets. Examples of U.S. investors include American
Express, AIG, American Standard, Bechtel, Bristol-Myers Squibb,
Citibank, Coca-Cola, Commercial International Bank, Energizer,
ExxonMobil, Eveready, General Motors, GlaxoSmithKline, Guardian
Industries, H.J. Heinz, Johnson and Johnson, Devon Energy,
Microsoft, Procter and Gamble, Pfizer, PepsiCo, Pioneer, and
Xerox. Leading investors from other countries include such
companies as BG, ENI-AGIP, Shell, and Union Fenosa (in the
oil/gas sector), Unilever, the M.A. Kharafi Group (Kuwait), and
the Kingdom Development Company (Saudi Arabia).
INVESTMENT STATISTICS (USD billions)
2000/2001 | 2001/2002 | 2002/2003 | 2003/2004 | 2004/2005 | 2005/2006 | 2006/2007 | |
Foreign Direct Investment | .509 | .428 | .701 | .407 | 3.902 | 6.111 | 11.053 |
(flow) | |||||||
Portfolio Investment | .261 | .999 | -.41 | -.2 | .8 | 2.764 | -.9367 |
(flow) | |||||||
US FDI | 1.998 | 2.557 | 2.6829 | 3.524 |
4.644 |
5.354 | 5.911 |
(stock) |
*
04/05 and 05/06 figures include FDI in the energy sector.
** Provisional.
*** U.S. FDI figures are for calendar year.
Source: The Financial Monthly; U.S. Department of
Commerce
Web Resources
Commercial Service in Egypt: http://www.buyusa.gov/egypt/en/2
U.S. Embassy: http://usembassy.egnet.net3
American Chamber of Commerce in Egypt: http://www.amcham.org.eg/4
Ministry of Investment: http://www.investment.gov.eg/MOI_Portal/5
General Authority for Investment and Free Zones:
http://www.gafinet.org/6
Ministry of Trade and Industry; http://www.mfti.gov.eg/7
OPIC: http://www.opic.gov/8
Capital Markets Authority: http://www.cma.gov.eg/cma/jtags/english/default_en.jsp9
Egyptian Insurance Supervisory Authority: http://www.eisa.com.eg/index.htm10
Ministry of Investment: www.investment.gov.eg11
Ministry of Finance: http://www.mof.gov.eg/english12