The amended New Investment Law: Were real problems and FDI-obstacles addressed?

(Photo courtesy of Khaled Meshaal and the Ministry of Investment and International Cooperation’s Facebook page)

In 2017, Minister of Investment and International Cooperation Sahar Nasr introduced the New Investment Law No. 72 of 2017, which was passed by Parliament. The law aimed at encouraging investors to look at Egypt as a fruitful and easy investment destination. Red tape was cut, terms became more lenient and foreigners were treated equally, in a bid to attract more foreign direct investments (FDI).

Between July 2016 and March 2017, FDI reached $10.8 billion, according to the Balance of Payments Report by the Central Bank of Egypt (CBE). In the same period a year later, and after the new law was passed, FDI stood at $10.2 billion, decreasing 5.56%. In the first nine months of the current fiscal year, the number stabilized at $10.2 billion. Hence, the increase in FDI that the law was aiming to achieve did not seem to bear much fruit.

Moreover, Egypt’s non-oil FDI declined by around $400 million during the first quarter of 2019, dropping extraordinarily by 137% from the previous quarter, according to Reuters.

Accordingly, last week, the Egyptian Parliament approved amendments to the New Investment Law.

“The amendments are pivotal to attracting more FDI to Egypt amid global competition,” house speaker Ali Abdel Aal said.

What was changed?
The adjusted articles include providing incentives to international investors present in Egypt who inject more investments in the neediest areas in the country. Although no details were provided about the type of incentives, Nasr explained that companies who will put effort into diversifying resources for nationwide growth will benefit the most from the amendments.

Companies will only benefit from those inducements when they launch new production lines or contribute in increasing employment opportunities nationwide, according to amendments to articles 11 and 13.

Pre-amendments, the law had stipulated a tax reduction of 50% of investment costs in geographic locations that are most in need of development.

Additionally, the Egyptian residence of foreigners was divided into three categories, as opposed to the deposit residence status that was promised to investors: special, normal or temporary residence. Furthermore, amendments allow the Prime Minister to grant foreign investors the Egyptian nationality if they bought property, set up an investment project or deposited a certain amount of foreign currency in a local bank or the CBE, according to Zawya.

A new article was also added allowing the General Authority for Investment and Free Zones (GAFI) to calculate the amount of incoming FDI inflows to be able to produce accurate figures in regards to investment volumes.

With companies previously facing challenges in increasing their capital due to limitless and unfixed project contract registration fees, the law now stipulates a maximum limit to those fees.

Were actual problems addressed?
Rejection towards the amendments mainly came from parliament members who believed that the Egyptian nationality should not be so easily given to investors. However, among lawyers and economists, the issues lay elsewhere.

In 2017, some experts pinpointed a few obstacles in the new law which were not necessarily addressed in the amendments.

After the passing of the New Investment Law in 2017, senior partner at Shalakany Law Office Aly Shalakany had told Business Forward that the law was “a band-aid, not a cure, since it is not dealing with the root causes.”

A report by the Egyptian Institute for Studies suggests that a foreign investor needs a stable business environment, clear tax policies and fixed low interest rates in order to come to Egypt. Hence, it is not only about amending the law, but rather about aligning the efforts of different governmental entities and authorities towards creating an “investor-friendly” environment. These include the Tax Authority, the CBE and the ministries responsible for building and enhancing the country’s infrastructure.

In reference to the law’s shape before it was recently amended, cofounder and partner of Levari law firm Mohamed Raslan had told Business Forward that “investors want facilities, opportunities and, most of all, flexibility – not just incentives.” The law in its recent form is “not up to international standards and not as competitive as laws in other markets in the region,” he added.

Economist and former deputy prime minister Ziad Bahaa Eddine previously told Mada Masr that the new investment law passes up incentives to investors through providing tax exemptions with problems that outweigh their benefits such as the state bearing a loss in potential revenue generated from those taxes.

What is promised?
The ministry promises to acknowledge investment problems without condoning any stakeholder in the Egyptian market; nevertheless, the presence of strong operational local investments is needed to incur substantial amounts of FDI inflows, according to the report by the Egyptian Institute for Studies.

As the amendments unfold into effect, both the ministry and GAFI continue to work hand in hand to improve the regulatory investment framework that comply with international standards, eradicating any obstacles in investors’ paths, according to Nasr.

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