Egypt needs large sustained increases in investment in every economic sector. Robust investment activity is necessary to improve sectoral performance and efficiency in the production and delivery of goods and services to both the domestic market and the export one. Investment expansion is needed just as urgently to fuel broad-based development that keeps up with the demographic challenges and to sop up the country’s high unemployment rates. This is all exciting – there is a lot of useful work to do in Egypt to make living conditions better.
On their part, investors consider several factors when deciding on a project’s feasibility and evaluating expected rates of return. Domestic security, rule of law, market size, sourcing costs, the need for and ease of importation, exchange rates and applicable laws are among the fundamental factors.
And just as sound monetary and financial policies are crucial to investor confidence, it is important that legislators and the private sector work together on the regulatory framework for investment.
The government of Egypt showed boldness in that direction when it amended this regulatory framework in March.
Some of the amendments merit attention because they reflect the weight officials have placed on certain long-term development priorities, and because they include clear incentives to make investment in Egypt more appealing.
A basic but important modification has been the creation of a one-stop shop for business licensing. Simplifying an overcomplicated process notorious for discouraging investment removed a significant hurdle.
The law designates the general authority for investment and free zones, a public economic agency, as the exclusive authority for regulating investment activities in Egypt.
The amendments address another concern by combining the approach to personal liability for private-sector management with accepted principles of civil and criminal law. This means that supervisors’ personal liability is no longer inseparable from that of the legal entity.
Ownership of business property is no longer restricted by nationality, place of residence or capital contribution to or stake in a partnership.
State and investor rights and responsibilities have also been delineated for cases in which land is disposed of instead of some form of monetary compensation.
Not only can the new regulations on land allocation relieve serious investors of huge start-up costs – or at least defer them – but they also allow the government to put idle land to uses that could generate local socio-economic benefits. These regulations must be applied with due diligence and transparency on the government’s part to maximise the return for development – which reinforces conditions underlying sound investments’ viability – and to contribute to investments’ potential long-term stability.
The government provided a mix of incentives and non-tax exemptions for ventures with characteristics of national concern. These include labour-intensive enterprises and those that source materials locally.
They also include enterprises investing in logistics, renewable energy, and trade, and those located in disadvantaged areas of Egypt.
The fact that the changes grant government a degree of flexibility with extendable incentives and non-tax exemptions could make it more effective. It should pave a way forward for important enterprises that would otherwise face uphill battles to start and sustain their operations.
The regulatory framework for investment is a pivotal piece in a puzzle that the government must continuously solve. Maintaining sound economic and social policies that support a stable environment for long-term investment and development are prerequisites for the remaining pieces to fall into place.
Amal Kandeel is an economist and director of Pioneers International, a US-based services company specialising in the Middle East.
business@thenational.ae
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