2017 Investment Climate Statements: Egypt

Policies Towards Foreign Direct Investment

The floatation of the Egyptian Pound (EGP) in November 2016 and the reestablishment of Egypt’s interbank foreign exchange (FX) market as part of the IMF program was the first major step in restoring investor confidence that immediately led to increased portfolio investment and may lead to increased FDI over the long term. As the government continues its economic reform agenda, a more stable macro-economic outlook should allow Egypt to focus on the structural reforms necessary to support strong economic growth. The next phase of reform will include a new investment law, a bankruptcy law and other reforms to reduce regulatory overhang and improve the ease of doing business. Successful implementation of these reforms should give greater confidence to foreign investors leading to increased FDI. Egypt’s government has announced plans to improve its business climate through investment promotion, facilitation, efficient business services and advocacy of investor friendly policies.

With a few exceptions, Egypt does not legally discriminate between nationals and foreign individuals in the formation and operation of private companies. The 1997 Investment Incentives Law was designed to encourage domestic and foreign investment in targeted economic sectors and to promote decentralization of industry away from the Nile Valley. The law allows 100 percent foreign ownership of investment projects and guarantees the right to remit income earned in Egypt and to repatriate capital. Despite this guarantee, companies have experienced difficulty remitting earned income.

The Tenders Law (law 89 of 1998) requires the government to consider both price and best value in awarding contracts and to issue an explanation for refusal of a bid. However, the law contains preferences for Egyptian domestic contractors, who are accorded priority if their bids do not exceed the lowest foreign bid by more than 15 percent.

The Capital Markets Law (law 95 of 1992) and its amendments and regulations govern Egypt’s capital markets. Foreign investors can buy shares on the Egyptian Stock Exchange on the same basis as local investors. Foreign investors, both institutional and private, have reported difficulties obtaining hard currency for profit repatriation.

The General Authority for Investment (GAFI) is Egypt’s investment promotion agency to facilitate foreign investment. GAFI is an affiliate of the Ministry of Investment (MOI) and the principal government body regulating and facilitating investment in Egypt. Although GAFI retains its traditional regulatory powers, today it is attempting to act as an effective, proactive investment promotion agency with promotion, facilitation, business matchmaking, organizing events for Egyptian expatriates, investor aftercare, and research and market intelligence functions.

GAFI has developed a “One-Stop Shop” (OSS), designed to be Egypt’s one-stop shop for investment, easing the way for global investors looking for opportunities presented by Egypt’s domestic economy and the nation’s competitive advantages as an export hub for Europe, the Arab world and Africa. In addition to promoting Egypt’s investment opportunities in various sectors, GAFI has announced new initiatives aimed at promoting the investment climate in Egypt including the adoption of new investment regimes (investment zones and special economic zones) and the establishment of the SME Entrepreneurial Center and Fund (Bedaya).

GAFI’s OSS was established to help investors obtain regulatory approval to facilitate start-up operations in Egypt. It has a mandate to coordinate with the 47 ministries and government agencies who control the issuance of the licenses and approvals required for the establishment of businesses in Egypt. Services offered through the OSS include: establishment services, legal services, technical services, governmental services, publication in Investment Gazette, and tax exemption services. Other services GAFI provides include:

• Advice and support to help in the evaluation of Egypt as a potential investment location;
• Identification of suitable locations and site selection options within Egypt;
• Assistance in identifying suitable Egyptian partners through the organization of business forums;
• Aftercare and dispute settlement services.

There are five OSS Branches, including Cairo (the main center), Alexandria, Ismailia, Asyut, and 10th of Ramadan City.

Egypt maintains ongoing communication with investors through formal business roundtables, investment promotion events (conferences and seminars), one-on-one investment meetings, and through the public GAFI website .

Limits on Foreign Control and Right to Private Ownership and Establishment

The Egyptian Companies Law does not set any limitation on foreigners, neither as shareholders nor as managers/board members, except for Limited Liability Companies where the only restriction is that one of the managers should be an Egyptian national. In addition, all companies, both foreign and domestic, are required to acquire a commercial and tax license. All foreign companies must pass a security clearance process. Although companies are able to operate while undergoing this often lengthy security screening, if it is rejected they must cease operations and undergo a lengthy appeals process. Businesses have cited instances where Egyptian clients were hesitant to engage in protracted business contracts with foreign businesses that have not yet received security clearance, and have expressed concern about seemingly arbitrary refusals, a lack of explanation when a security clearance is not issued, and a lengthy appeals process. Although the Government of Egypt has made progress streamlining the business registration process at the General Authority for Investment, lack of familiarity or experience working with foreigners has sometimes led to inconsistent and questionable treatment by banks and government officials, delaying registration.

Sector-specific limitations to investment include restrictions on foreign shareholding of companies owning lands in the Sinai Peninsula. Likewise, the Import-Export Law requires companies wishing to register in the Import Registry to be 51 percent owned and managed by Egyptians (the percent ownership was reduced from 100 to 51 percent by Presidential decree). In 2016, the Ministry of Trade prepared an amendment to the law allowing the registration of importing companies owned by foreign shareholders; as of April 2017, the law had not yet been submitted to Parliament.

Land/Real Estate Law 15 of 1963 explicitly prohibits foreign individual or corporate ownership of agricultural land (defined as traditional agricultural land in the Nile Valley, Delta and Oases). The ownership of land by foreigners is governed by three laws: Law No. 15 of 1963, Law No. 143 of 1981, and Law No. 230 of 1996. Law No. 15 stipulates that no foreigners, whether natural or juristic persons, may acquire agricultural land. Law No. 143 governs the acquisition and ownership of desert land. Certain limits are placed on the number of feddans (one feddan is equal to approximately one hectare) that may be owned by individuals, families, cooperatives, partnerships and corporations. Partnerships are permitted to own 10,000 feddans. Joint stock companies are permitted to own 50,000 feddans.

Under Law No. 230 non-Egyptians are allowed to own real estate (vacant or built) only under the following conditions:

• Ownership is limited to two real estate properties in Egypt that serve as accommodation for the owner and his family (spouses and minors) in addition to the right to own real estate needed for activities licensed by the Egyptian Government.
• The area of each real estate property does not exceed 4,000 m².
• The real estate is not considered a historical site.

Exemption from first and second conditions is subject to the approval of the Prime Minister. Ownership in tourist areas and new communities is subject to conditions established by the Cabinet of Ministers. Non-Egyptians owning vacant real estate in Egypt must build within a period of five years from the date their ownership is registered by a notary public. Non-Egyptians cannot sell their real estate for five years after registration of ownership, unless the consent of the Prime Minister for an exemption is obtained. Additional information is available online .

Other Investment Policy Reviews

Neither the Organization for Economic Cooperation and Development nor the World Trade Organization nor the United Nations Conference on Trade Development has conducted an investment policy review of Egypt in the past three years.

Business Facilitation

The World Bank ranks Egypt among the easiest countries in the Middle East and North Africa in which to establish a business, although there are often significant delays obtaining required licenses, approvals, and permissions to engage in business after establishment. According to the World Bank, a business can be started in 8 days, compared to a regional average of 19 and a global average of 42. Business registration is unavailable online and must be done in person at the General Authority for Investment (GAFI), located in Nasr City, Cairo, or at GAFI’s branch offices in Ismailia, Assyutt, and Alexandria. In addition to administrative processes at GAFI, new business founders must open a company file and register employees at the National Authority of Social Insurance and obtain a bank certificate from an authorized bank in order to open a bank account. Businesses have reported registration times anywhere from 1-10 weeks. In addition to registering, businesses must obtain licenses authorizing business activity. Businesses have reported the time required to obtain business licenses ranges from 3-12 months.

The government seeks to facilitate the creation and operation of small and medium-sized enterprises (SME) in order to support job creation and entrepreneurship in Egypt. To support this government priority, the Central Bank of Egypt has directed banks present in Egypt to lend 20 percent of their loan portfolio to Egyptian SME’s by the year 2020. In addition, microfinance institutions are now licensed and regulated by Egypt’s non-bank financial regulator, the Egyptian Financial Services Authority (EFSA), in accordance with a new law to support lending to Egypt’s smallest firms. The government defines small and medium-sized enterprises as follows: Enterprises with paid-up capital of less than 50,000 EGP and fewer than ten employees are classified as micro enterprises. Enterprises with paid-up capital between 50,000 and 5 million EGP (for industrial establishments) or 50,000 and 3 million EGP (for non-industrial establishments) and fewer than 200 employees are classified as small enterprises. Enterprises with paid-up capital between 5 million and 10 million EGP (for industrial establishments) or 3 million and 5 million EGP (for non-industrial establishments) and fewer than 200 employees are classified as medium-size enterprises.

GAFI has an Arabic registration page on its website. Investors can create a username and password and interact with the Authority’s staff to proceed with initial registration. Then, the investor must appear in person at GAFI to pay fees and receive incorporation documents. Additional information is available on the GAFI website .

Outward Investment

Egypt promotes and incentivizes outward investment. According to the FDI Markets database for the period from January 2003 to May 2015, outward investment featured the following:

64 Egyptian FDI projects were implemented by Egyptian companies. Estimated total value of projects, which employed some 41 thousand workers, was $19.8 billion.

Algeria, Saudi Arabia, United States, Georgia, Jordan, United Arab Emirates, Pakistan, Iraq, Sudan and Indonesia, respectively, received the largest sum of Egyptian outward investment in terms of total project value. Algeria, Saudi Arabia and the United States accounted for about 49 percent.

The Orascom Group was the largest Egyptian company investing abroad, implementing 31 projects with total investment estimated to be $9.5 billion.

The host country does not restrict domestic investors from investing abroad.

Egypt has signed almost 100 bilateral investment agreements, including with 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 United States. The full list can be found at http://investmentpolicyhub.unctad.org/IIA. 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 bilateral 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). In June 2001, Egypt signed an Association Agreement with the European Union (EU) which entered into force on June 1, 2004. The agreement provided immediate duty free access of Egyptian products into EU markets, while duty free access for EU products was phased in over a 12-year period ending in 2016. In 2010, Egypt and the EU completed an agricultural annex to their FTA, liberalizing trade in over 90 percent of agricultural goods.

Egypt is also a member of the Greater Arab Free Trade Agreement (GAFTA), and a member of the Agadir Agreement with Jordan, Morocco, and Tunisia, which relaxes rules of origin requirements on products jointly manufactured by the countries for export to Europe. Egypt also has an FTA with Turkey, in force since March 2007, and an FTA with the Mercosur bloc of Latin American nations, which Egypt ratified in January 2013, but which is not yet in force.
In 2004, Egypt and Israel signed an agreement to take advantage of the U.S. Government’s Qualifying Industrial Zone (QIZ) program. The purpose of the QIZ program is to promote stronger ties between the region’s peace partners, as well as to generate employment and higher incomes, by granting duty-free access to goods produced in QIZs in Egypt using a specified percentage of Israeli and local input. Under Egypt’s QIZ agreement, Egypt’s exports to the United States produced in certain industrial areas are eligible for duty-free treatment if they contain a minimum 10.5 percent Israeli content.

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, Port Said, and other specified areas in Upper Egypt. Egyptian exports to the United States through the QIZ program have mostly been ready-made garments and processed foods. The value of the Egyptian QIZ exports to the United States was approximately $851 million in 2015.

Egypt has a bilateral tax treaty with the United States. Egypt also has tax agreements with 59 other countries.

The Egyptian parliament passed and the government has implemented a value added tax (VAT) in late 2016, which took the place of the General Sales Tax, as part of the IMF loan and economic reform program. However, the Government decided to postpone the “Stock Market Capital Gains Tax” for three years as of early 2017. In 2016 there were a number of tax disputes between foreign investors and the government, but most of them were resolved through the Tax Department and the Economic Court.

Transparency of the Regulatory System

The Egyptian government has made efforts to improve the transparency of government policy and support a fair, competitive marketplace. However, improving government transparency and consistency has proven difficult and reformers have faced strong resistance from entrenched bureaucratic and private interests. Significant obstacles continue to hinder private investment, including the often arbitrary imposition of bureaucratic impediments and the length of time needed to resolve them. The impetus for positive change that the government reform agenda, strongly supported by the IMF loan program, is necessitating augurs well for improvement in policy implementation and transparency.

Enactment of laws is the purview of the parliament while executive regulations are the domain of line ministries. Under the Constitution, draft legislation can be presented by the President, the Cabinet, and any Member of Parliament. After submission, Parliamentary committees review and approve, including any amendments. Upon parliamentary approval, a judicial body reviews the legislation for constitutionality before referring it to the President for his approval. Although notice and full drafts of legislation are typically printed in the Official Gazette (similar to the Federal Register in the United States), in practice consultation with the public is limited. In recent years, the Ministry of Trade and other government bodies have circulated draft legislation among concerned parties, including business associations and labor unions. This has been a welcome change from previous practice, but is not yet institutionalized across the government.

While Egyptian parliaments have, historically held “social dialogue” sessions with concerned parties and private or civic organizations to discuss proposed legislation, it is unclear to which degree the current parliament, seated in January 2016, will adopt a more inclusive approach to social dialogue. Many aspects of the 2016 IMF program and related economic reforms stimulated parliament to engage more broadly with the public, marking some progress in this respect.

Accounting, legal and regulatory procedures are transparent and consistent with international norms. Egyptian Financial Supervisory Authority (EFSA) supervises & regulates all non-banking financial markets and instruments, including capital markets, futures exchanges, insurance activities, mortgage finance, financial leasing, factoring, securitization and microfinance. It issues rules that facilitate market efficiency and transparency. EFSA has issued legislation and regulatory decisions on non-banking financial laws “encyclopedia” which govern EFSA’s work and the entities under its supervision, with additional information available on EFSA’s website .

The criteria for awarding government contracts and licenses are made available when bid rounds are announced and the process actually used to award contracts is broadly consistent with the procedural requirements set forth by law. Further, set-aside requirements for SME participation in GOE procurement are increasingly highlighted. There is a centralized online website  where key regulations and laws are published.

The parliament, seated in early 2016, and the independent “Administrative Monitoring Authority” both ensure the government’s commitment to follow administrative processes at all levels of government. Egypt does not have an online equivalent of the U.S. Federal Register and there is no centralized online location for key regulatory actions or their summaries.

No new regulatory system including enforcement reforms have been announced since the last ICS. In the time period covered by this report, Post is not aware of the full implementation any regulatory reform effort announced in prior years.

The Cabinet develops and submits proposed regulations to the President following discussion and consultation with the relevant ministry and informal consultation with other interest groups. Based on the recommendations provided in the proposal, including recommendations by the presidential advisors, the president issues “Presidential Decrees” that function as implementing regulations. Presidential decrees are published in the “Official Gazette” for enforcement.

The government agency responsible for enforcing the regulation leverages other departments for implementation across the government. Not all issued regulations are announced online. Theoretically, the enforcement process is legally reviewable.

Before a regulation is implemented, there is an attempt to properly analyze and thoroughly debate proposed legislation and rules using available scientific data. But there are no laws requiring scientific studies or quantitative analysis of impacts of regulations. Not all public comments received by regulators are made public.

International Regulatory Considerations

Egypt is not part of any regional economic block. Egypt follows its own norms and regulatory standards that have been influenced by its traditional trading partners including the United States and Europe. As part of its free trade agreement with the European Union, Egypt has recognized EU standards for imported goods. Egypt recognizes other international standards for certain imported products. For example, food and drugs imports are restricted to goods that have been approved by the following regulatory agencies: FDA, EMA, MHRA, Health Canada and TGA.

Egypt is a member of the WTO. The government has not always notified draft technical regulations to the WTO Committee on Technical Barriers to Trade. For example, the implementation date for controversial Decree 43/2016 did not leave adequate time for Egypt to receive and review comments or make any necessary changes to the measure. The comment period ended on April 1, 2016—two weeks after the decree’s implementation.

Legal System and Judicial Independence

Egypt’s legal system is a civil codified law system based on the French model. If contractual disputes arise, claimants can sue for remedies through the court system or to seek resolution through arbitration. Egypt has written commercial and contractual laws. The country has a system of economic courts, specializing in private sector disputes that have jurisdiction over cases related to economic and commercial matters, including intellectual property disputes. The judiciary is an independent branch of the government.

Regulations and enforcement actions can be appealed through Egypt’s courts, though appellants often complain about the very lengthy judicial process, which can often take years. To enforce judgments of foreign courts in Egypt, the party seeking to enforce the judgment must obtain an exequatur (a legal document issued by governments allowing judgements to be enforced). 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.

Laws and Regulations on Foreign Direct Investment

Egypt’s legal system is a civil codified law system. No specialized court exists for foreign investments.

In 2016, the Import-Export Law was revised to allow companies wishing to register in the Import Registry to be 51 percent owned and managed by Egyptians; formerly the law required 100 percent Egyptian ownership and management. In November 2016, the Supreme Investment Council also announced seventeen presidential decrees designed to spur investment or resolve longstanding issues. These include:

• Forming a “National Payments Council” that will work to restrict the handling of FX outside the banking sector;
• A decision to postpone for three years the capital gains tax on stock market transactions;
• Producers of agricultural crops that Egypt imports or exports will get tax exemptions;
• Five-year tax exemptions for manufacturers of “strategic” goods that Egypt imports or exports;
• Five-year tax exemptions for agriculture and industrial investments in Upper Egypt;
• Begin tendering land with utilities for industry in Upper Egypt for free as outlined by the Industrial Development Authority.

The Ministry of Investment has drafted a new Investment Law that has been discussed extensively with all stakeholders and is still under study. Drafts of new laws regarding Bankruptcy, Commercial Registration, and Companies’ Law are also under discussion.

Egypt’s investment law stipulates the establishment of a One-Stop-Shop (OSS) for investors at GAFI. The OSS’s main functions are to (a) facilitate the procurement of business licenses, (b) offer technical advice and information to clients, (c) introduce a transparent and reasonable fee structure, and (d) improve the quality and timeliness of government related processes.

http://www.gafi.gov.eg/English/MediaCenter/PressReleases/Pages/default.aspx 

Competition and Anti-Trust Laws

The Egyptian Competition Authority (ECA) is the body tasked with ensuring free competition in the market and preventing anticompetitive practices. The Authority operates under the Egyptian Competition Law, which covers three categories of violations: (1) cartels; (2) abuse of dominance; and (3) vertical restraints. The ECA monitors the market, detects anti-competitive practices that are considered violations to the law, and takes measures to stop such violations. The Anti-Trust and Competition Protection Council (ACPC) monitors business practices of companies to ensure that they comply with the standards of the free market. The main challenges to competition in Egypt include a regulatory system that protects established companies and large companies, a significant informal sector, and the lack of availability of reliable information.

Expropriation and Compensation

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 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. Private firms are able to take cases of alleged expropriation to court, but the judicial system can take several years to resolve a case.

Dispute Settlement

ICSID Convention and New York Convention

Egypt acceded to the International Convention for the Settlement of Investment Disputes (ICSID) in 1971 and is a member of the International Center for the Settlement of Investment Disputes, which provides a framework for the 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.

Egypt adheres to the 1958 New York Convention on the Enforcement of Arbitral 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 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 it satisfies the conditions set out in Egypt’s Dispute Settlement Law 27 of 1994, which provides for the arbitration of domestic and international commercial disputes and limited challenges of arbitration awards in the Egyptian judicial system. The Dispute Settlement Law was amended in 1997 to include disputes between public enterprises and the private sector.

Egypt’s legal system is a civil codified law system. The judiciary is an independent branch of the government. 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, and 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 has a system of economic courts specializing in private sector disputes that have jurisdiction over cases related to economic and commercial matters, including intellectual property disputes. Despite these provisions, business and investors in Egypt’s renewable energy projects have reported significant problems resolving disputes with the Government of Egypt.

Investor-State Dispute Settlement

The U.S.-Egypt Bilateral Investment Treaty allows an investor to take a dispute 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. There have been some claims by U.S. investors under this agreement.

Presidential Decree law No. 17 of 2015 added a new mechanism for simplified settlement of investment disputes aimed at avoiding the court system altogether. In particular, the law established a Ministerial Committee on Investment Contract Disputes, responsible for the settlement of disputes arising from investment contracts to which the State, or a public or private body affiliated therewith, is a party. The decree also established a Complaint Committee to consider challenges connected to the implementation of Egypt’s Investment Law. Finally, the decree established a Committee for Resolution of Investment Disputes that will review complaints or disputes between investors and the government related to the implementation of the Investment Law. In practice, Egypt’s dispute resolution mechanisms are time-consuming but broadly effective. Businesses have, however, reported difficulty collecting payment from the government when awarded a monetary settlement.

Over the past 10 years, there have been several investment disputes that involved both U.S. persons and foreign investors. Most of the cases have been settled, though no definitive number is available. Local courts in Egypt recognize and enforce foreign arbitral awards issued against the government. There are no known extrajudicial actions against foreign investors in Egypt during the period of this report.

International Commercial Arbitration and Foreign Courts

Egypt allows mediation as a mechanism for alternative dispute resolution (ADR), a structured negotiation process in which an independent person known as a mediator assists the parties to identify and assess options and negotiate an agreement to resolve their dispute. GAFI has an Investment Disputes Settlement Center which uses mediation as an ADR.

The Economic Court recognizes and enforces arbitral awards. Judgments of foreign courts may be recognized and enforceable under local courts under limited conditions.

In most cases, domestic courts have found in favor of SOEs involved in investment disputes. In such disputes, non-government parties have often complained about the delays and discrimination in court processes.

There has been at least one reported instance of corruption within Egypt’s arbitration system leading to a sham “award” and judicial procedures against a U.S. company. Delays in this case impeded swift resolution. The U.S. Embassy normally recommends that U.S. companies employ contractual clauses that specify binding international (not local) arbitration of disputes in their commercial agreements.

Bankruptcy Regulations

As of April 2017, Egypt did not have a bankruptcy law per se, although Commercial Law 17 of 1999 includes a chapter on bankruptcy. The terms of the bankruptcy chapter are silent or ambiguous on several key issues crucial to the reduction of settlement risks. The Egyptian government has identified the lack of a functioning bankruptcy code as a significant impediment to investment. In 2015, in an attempt to help accelerate the bankruptcy process, the government amended Egypt’s 1997 Investment Law, stipulating that if a company under liquidation has not received a statement of liquidation from the relevant administrative authorities within 120 days of the liquidator submitting the application, the company will be discharged from its liabilities. On January 4, 2017, the GOE Cabinet approved and submitted a draft bankruptcy bill to the parliament. When enacted, the law will speed up the restructuring and settlement of troubled companies. It will also replace the threat of imprisonment with fines in cases of bankruptcy.

In practice, the paperwork involved in liquidating a business remains convoluted and extremely protracted; starting a business is much easier than shutting one down. Bankruptcy is frowned upon in Egyptian culture and many businesspeople believe they may be found criminally liable if they declare bankruptcy.

Investment Incentives

Foreign investors can avail themselves of certain incentives under the 1997 Investment Incentives Law, which provides several guarantees and protections.

The 1997 Investment Incentives Law was designed to encourage domestic and foreign investment in targeted economic sectors and to promote decentralization of industry away from the Nile Valley. The law allows 100 percent foreign ownership of investment projects and guarantees the right to remit income earned in Egypt and to repatriate capital. Despite this guarantee, companies have experienced difficulty remitting earned income due to currency controls. Other key provisions include: guarantees against confiscation, sequestration, and nationalization; the right to own land; the right to maintain foreign-currency bank accounts; freedom from administrative attachment; the right to repatriate capital and profits; and equal treatment regardless of nationality. Companies eligible to benefit from incentives provided under the Investment Incentives Law must operate in certain targeted sectors, including: infrastructure; manufacturing and mining; transport; software development; medical services; certain financial services; oil field services; agriculture; reclamation of desert land; hotels; and tourism. Other incentives for projects falling within the scope of this law include:

• Projects are exempted from certain labor requirements of the Egyptian Companies Law and the Labor Law.
• Foreign experts’ salaries are exempted from income tax if their stay in Egypt is shorter than one year.
• Projects are subject to a flat rate of 5 percent in customs duties on imported equipment and machinery.
• Projects are exempt from stamp duties and notarization fees for 3 years from the date of registration with the commercial register.
• Projects are exempt from all registration and notarization charges normally levied.

The Tenders Law (Law 89//1998) requires the government to consider both price and best value in awarding contracts and to issue an explanation for refusal of a bid. However, the law contains preferences for Egyptian domestic contractors, who are accorded priority if their bids do not exceed the lowest foreign bid by more than 15 percent.

Decree No. 719//2007 by the Ministry of Industry and Foreign Trade and Ministry of Finance provides incentives for industrial projects in the governorates of Upper Egypt (Upper Egypt refers to governorates in southern Egypt). The decree provides an incentive of LE 15,000 (approx. US$850) for each job opportunity created by the project, on the condition that the investment costs of the project exceed LE 15 million (approx. US$850,000). The decree can be implemented on both new and on-going projects.

Foreign Trade Zones/Free Ports/Trade Facilitation

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 by foreign or domestic investors. Companies operating in free zones are exempted from sales taxes or taxes and fees on capital assets and intermediate goods. The Legislative Package for the Stimulation of Investment, issued in 2015, stipulated a 1 percent duty paid on the value of commodities upon entry for storage projects and a 1 percent duty upon exit for manufacturing and assembly projects.

There are currently 10 public free zones in operation in the following locations: Alexandria, Damietta, East Port Said Port Zone, Ismailia, Qeft, Media Production City, Nasr City, Port Said, Shebin el Kom, and Suez. Private free zones may also be established with a decree by GAFI but are usually limited to a single project. Export-oriented industrial projects are given priority. There is no restriction on foreign ownership of capital in private free zones.

In 2015, limits were introduced on energy-related free zone investments, and licenses will not be granted in free zones for projects in the following sectors: fertilizers; oil and steel; petroleum; natural gas production, liquefaction and transport; or other energy intensive industries.

The Special Economic Zones (SEZ) Law 83//2002 allows 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 first SEZ was established in the northwest Gulf of Suez.

Law 19//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.

Progress is continuing on establishing the Suez Canal Economy Zone, originally announced by the Government of Egypt in 2014. The zone, a major industrial and logistics services hub built along the Suez Canal, is expected to include upgrades and renovations to ports located along the Suez Canal corridor, including West and East Port Said, Ismailia, Suez, Adabiya, and Ain Sokhna. The government has invited foreign investors to take part in the project, which is expected to be built in several stages, the first of which is scheduled to be completed by 2020. Reported areas for investment include maritime services like ship repair services, bunkering, vessel scrapping and recycling; industrial projects, including pharmaceuticals, food processing, automotive production, consumer electronics, textiles, and petrochemicals; IT services such as research and development and software development; renewable energy; and mixed use, residential, logistics, and commercial developments. Website for the Suez Canal Development Project: http://www.sczone.com.eg/English/Pages/default.aspx 

Performance and Data Localization Requirements

Egypt does have rules on national percentages of employment. Egypt also has onerous visa and work permit issues that in this reporting period has led to at least one large foreign investor to move its MENA headquarters and 600 expat staff to a third country in the region. Application of these provisions that restrict access to foreign worker visas has been inconsistent. The government plans to phase out visas for unskilled workers, but as yet has not. For most other jobs, employers may hire foreign workers on a temporary six-month basis, but must also hire two Egyptians to be trained to do the job during that period. Only jobs where it is not possible for Egyptians to acquire the requisite skills will remain open to foreign workers. Application of these regulations is inconsistent. The Labor Law allows Ministers to set the maximum percentage of foreign workers that may work in companies in a given sector. There are no such sector-wide maximums for the oil and gas industry, but individual concession agreements may contain language establishing limits or procedures regarding the proportion of foreign and local employees.

No performance requirements are specified in the Investment Incentives Law, and the ability to fulfill local content requirements is not a prerequisite for approval to set up assembly projects. In many cases, however, assembly industries still must meet a minimum local content requirement in order to benefit from customs tariff reductions on imported industrial inputs.

Decree 184//2013 allows for the reduction of customs tariffs on intermediate goods if the final product has a certain percentage of input from local manufacturers, beginning at 30 percent local content. As the percentage of local content rises, so does the tariff reduction, reaching up to 90 percent if the amount of local input is 60 percent or above. In certain cases, a minister can grant tariff reductions of up to 40 percent in advance to certain companies without waiting to reach a corresponding percentage of local content. In 2010, Egypt revised its export rebate system to provide exporters with additional subsidies if they used a greater portion of local raw materials.

Manufacturers wishing to export under trade agreements between Egypt and other countries must complete certificates 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.

Egypt does not impose localization barriers on IT firms. Egypt does not make local production a requirement for market access, does not have local content requirements, and does not impose forced technology or IP transfers as a condition of market access. But there are exceptions where the government tries to impose controls by requesting access to a company’s servers located offshore, or request servers to be located in Egypt and thus under the government’s control. Companies not complying with such requests have found it impossible to continue operations.

Real Property

The Egyptian legal system provides protection for real and personal property. Laws on real estate ownership are complex and titles to real property may be difficult to establish and trace. According to the World Bank’s 2016 Doing Business Report, Egypt ranks 111 of 189 for ease of registering property. Additional information is available on the World Bank website .

A National Title Registration Program introduced by the Ministry of State for Administrative Development has been implemented in nine areas within Cairo. This program is intended to simplify property registration and facilitate easier mortgage financing. Real estate registration fees, long considered a major impediment to development of the real estate sector, are capped at no more than EGP 2000 EGP (US$110), irrespective of the property value. In November 2012, the government postponed implementation of an enacted overhaul to the real estate tax and as of April 2017 no action has been taken.

Foreigners are limited to ownership of two residences in Egypt and specific procedures are required for purchasing real estate in certain geographical areas.

The mortgage market is still undeveloped in Egypt, and in practice most purchases are still conducted in cash. Real Estate Finance Law 148//2001 authorized both banks and non-bank mortgage companies to issue mortgages. The law provides procedures for foreclosure on property of defaulting debtors, and amendments passed in 2004 allow for the issuance of mortgage-backed securities. According to the regulations, banks can offer financing in foreign currency of up to 80 percent of the value of a property.

Presidential Decree 17/2015 permitted the government to provide land free of charge, in certain regions only, to investors meeting certain technical and financial requirements. This provision expires on April 1, 2020 and the company must provide cash collateral for five years following commencement of either production (for industrial projects) or operation (for all other projects).

The ownership of land by foreigners is governed by three laws: Law 15//1963, Law. 143//1981, and Law230//1996. Law No. 15 stipulates that no foreigners, whether natural or juristic persons, may acquire agricultural land. Law No. 143 governs the acquisition and ownership of desert land. Certain limits are placed on the number of feddans (one feddan is equal to approximately one hectare) that may be owned by individuals, families, cooperatives, partnerships and corporations. Partnerships are permitted to own up to 10,000 feddans. Joint stock companies are permitted to own up to 50,000 feddans.

Partnerships and joint stock companies may own desert land within these limits, even if foreign partners or shareholders are involved, provided that at least 51 per cent of the capital is owned by Egyptians. Upon liquidation of the company, however, the land must revert to Egyptian ownership. Law 143 defines desert land as the land lying two kilometers outside city borders. Furthermore, non-Egyptians owning non-improved real estate in Egypt must build within a period of five years from the date their ownership is registered by a notary public. Non-Egyptians may only sell their real estate five years after registration of ownership, unless the consent of the Prime Minister for an exemption is obtained.

Intellectual Property Rights

Egypt was on the Special 301 Watch List in 2016 and has been recommended for Watch List status in 2017 (Note: The annual Special 301 Report is published in late April and can be found at: https://ustr.gov/issue-areas/intellectual-property/Special-301).Egypt’s IPR legislation generally meets international standards, but is weakly enforced, which is a major hurdle to direct investment. Shortcomings in the IPR environment include infringements to copyrights and patents, particularly in the pharmaceuticals sector.

Book, music, and entertainment software piracy is prevalent in Egypt, and a significant portion of the piracy takes place online. American film studios represented by the Motion Pictures Association of America are concerned about the illegal distribution of American movies on regional satellite channels, whose signal is widely stolen.

Multinational pharmaceutical companies complain that local generic drug-producing companies infringe on their patents. Delays and inefficiencies in processing patent applications by the Egyptian Patent Office compound the difficulties pharmaceutical companies face in introducing new drugs to the local market. The Egyptian government’s convoluted bureaucratic structure represents a third barrier that must be overcome by pharmaceutical companies seeking to do business in Egypt. For example, the Ministry of Health has the power to issue permits for the sale of drugs, but generally issues these permits without cross-checking patent filings. The result is that a company which does not hold patent rights to a certain drug can be given the right to sell that drug in Egypt.

Law 82/2002 reflects the provisions of the TRIPs Agreement. Article 69 of Egypt’s 2014 constitution mandates that a “specialized body” be established to ensure IPR protection; however, such a body meets only on an ad hoc basis. The Egyptian Customs Authority (ECA) handles IPR enforcement at the national border and the Ministry of Interior’s Department of Investigation handles domestic cases of illegal production. The ECA cannot act unless the trademark owner files a complaint. Moreover, Egypt’s Economic Courts often take years to reach a decision on IPR infringement cases.

ECA’s customs enforcement also tends to focus on protecting Egyptian goods and trademarks. The ECA is taking steps to adopt the World Customs Organization’s (WCO) Interface Public-Members platform, which allows customs officers to detect counterfeit goods by scanning a product’s barcode and checking the WCO trademark database system.

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://wipo.int/directory/en/ .

Contact at U.S. Embassy Cairo:
Joon Lee, Economic Officer
+20-2-2797-3300
LeeCJ1@state.gov

Capital Markets and Portfolio Investment

The Egyptian Stock Exchange (EGX) is Egypt’s registered securities exchange. By the end of 2016, more than 270 companies were listed on the EGX with well over 500 billion EGP in in total valuation. There are more than 500,000 investors registered to trade on the exchange. Stock ownership is open to foreign and domestic individuals and entities. The government of Egypt issues dollar-denominated and Egyptian pound-denominated debt instruments. Ownership is open to foreign and domestic individuals and entities. The government has developed a positive outlook toward foreign portfolio investment, recognizing the need to attract foreign capital to help develop the Egyptian economy.

The Capital Market Law 95//1992, along with the Banking Law of 2003, constitutes the primary regulatory frameworks 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 specifies mechanisms for arbitration and legal dispute resolution and prohibits unfair market practices. Law/2009 created the Egyptian Financial Supervisory Authority (EFSA) and brought the regulation of all non-banking financial services under its authority.

Settlement of transactions takes one day for treasury bonds and two days for stocks. Although Egyptian law and regulations allow companies to adopt bylaws limiting or prohibiting foreign ownership of shares, virtually no listed stocks 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. Companies are de-listed from the exchange if not traded for six months.

The Higher Investment Council extended the suspension of capital gains tax for three years, until 2020 as part of efforts to draw investors back. In March 2017, the government announced plans to impose a stamp duty on all stock transactions with a duty of 0.125 percent on all buyers and sellers starting in May 2017, followed by an increase to 0.150 percent in the second year and 0.175 percent thereafter. Egypt’s new stamp duty on stock exchange transactions will include for the first time a 0.3 percent levy for investors acquiring more than a third of a company’s stocks.

Foreign investors can access Egypt’s banking system by opening accounts with local banks and buying and selling all marketable securities with brokerages. The government has repeatedly emphasized its commitment to maintaining the profit repatriation system to encourage foreign investment in Egypt, especially since the pound floatation and implementation of the IMF loan program in November 2016. The current system for profit repatriation by foreign firms 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 fewer than two days, though in practice some firms have reported significant delays in repatriating profits due to problems with availability. Foreign firms and individuals continue to report delays in repatriating funds and problems accessing hard currency for the purpose of repatriating profits.

The Egyptian credit market, open to foreigners, is vibrant and active. Repatriation of investment profits is still difficult, as there is not always enough available hard currency to execute FX trades. But the floatation of the Pound has made trading easier, given the re-establishment of the interbank foreign currency trading system.

Money and Banking System

Benefitting from the nation’s increasing economic stability over the past year, Egypt’s banks have enjoyed both ratings upgrades and continued profitability. Thanks to economic reform, a new floating exchange system and talk of new investment legislation, the project finance pipeline is recovering after a period of lower activity. Banking competition is improving to serve a largely untapped retail segment and the nation’s challenging, but potentially rewarding, small and medium-sized enterprise (SME) segment. The Central Bank of Egypt (CBE) has mandated that 20 percent of bank loans go to SMEs within the next four years. Also, with only 14 percent of Egypt’s adult population owning or sharing an account at a formal financial institution (according to a 2014 survey by the World Bank and Gallup), the banking sector has potential for growth and higher inclusion, which the government and banks discuss frequently. A low median income plays a part in modest banking penetration.

Egypt’s banking sector is generally regarded as healthy and well-capitalized, due in part to its deposit-based funding structure and ample liquidity. Analysts estimate that approximately 8 percent of the banking sector’s loans are non-performing. However, since 2011, a high level of exposure to government debt, accounting for over 40 percent of banking system assets, at the expense of private sector lending, has reduced the diversity of bank balance sheets and crowded out domestic investment. Given the floatation of the pound and restart of the interbank trading system, Moody’s and S&P have upgraded the outlook of Egypt’s banking system to stable from negative to reflect improving macroeconomic conditions and ongoing commitment to reform.

Forty banks operate in Egypt, including several foreign banks. The CBE has not issued a new commercial banking license since 1979. The only way for a new commercial bank, whether foreign or domestic, to enter the market (except as a representative office) is to purchase an existing bank. To this end, in 2013, QNB Group acquired National Société Générale Bank Egypt (NSGB). That same year, Emirates NBD, Dubai’s largest bank, bought the Egypt unit of BNP Paribas. In 2015, Citibank sold its retail banking division to CIB Bank. In 2016, Egypt indicated a desire to partially (less than 50 percent) privatize at least two of state-owned banks and other firms through listings on the Egypt Stock Exchange, though no action has been taken as of early 2017.

According to the CBE, banks operating in Egypt held EGP 2.485 trillion in total assets at the end of 2016, of which approximately EGP 1.481 trillion in assets were held by the largest five banks (the National Bank of Egypt, Banque Misr, the Commercial International Bank, Qatar National Bank Al-Ahli, and the Banque Du Caire). Egypt’s three state-owned banks (Banque Misr, Banque du Caire, and National Bank of Egypt) control nearly 40 percent of banking sector assets.

Foreign Exchange and Remittances

Foreign Exchange

Despite progress in accessing hard currency due to the floatation of the pound and re-establishment of the interbank currency trading system in November 2016, businesses operating in Egypt continue to have difficulty obtaining hard currency for business purposes, such as importing inputs, and repatriating profits. In early 2016, the Central Bank lifted dollar deposit limits on households and firms importing priority goods which had been in place since early 2015. Businesses, including foreign-owned firms, which are not operating in priority sectors, continue to encounter difficulty accessing currency, as have importers. But the backlog for demand for foreign currency is declining and wait times to access hard currency is decreasing.

Funds associated with investment can be freely converted into any world currency, depending on the availability of that currency in the local market. Many firms and individuals report the process taking weeks to months with restrictions, even subsequent to the pound’s floatation. But the interbank trading system works in general and currency is increasingly available as the foreign exchange markets reacts positively to the floating exchange system, still maturing after only being in operation since November 2016.

The floating exchange rate operates on the principle of market supply and demand; the exchange rate is dictated by availability of currency and demand by firms and individuals. While there is some reported informal Central Bank window guidance, the rate generally fluctuates depending on market conditions, without direct market intervention by authorities. In general, the EGP has stabilized within an acceptable exchange rate range, which has increased the foreign exchange market’s liquidity, though it is still difficult to access dollars in a truly “free” manner on demand.

Remittance Policies

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. In practice, large corporations have been unable to repatriate local earnings for months at a time. Even after the pound’s November 2016 devaluation, repatriation has remained difficult, depending on currency availability and CBE window guidance on currency allocation.

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 88/2003 regulates the repatriation of profits and capital. The current system for profit repatriation by foreign firms 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 fewer than two days, though in practice some firms have reported significant delays in repatriating profits due to problems with availability.

Sovereign Wealth Funds

Egypt does not have a sovereign wealth fund.

State-owned enterprises and military-owned companies compete directly with private companies in many sectors of the Egyptian economy. According to Public Sector Law 203 of 1991, state-owned enterprises should not receive preferential treatment from the government, nor should they be accorded any exemption from legal requirements applicable to private companies. In addition to the state-owned enterprises groups above, 40 percent of the banking sector’s assets are controlled by three state-owned banks (Banque Misr, Banque du Caire, and National Bank of Egypt). In March 2014 the government announced that nine public holding companies will be placed under an independent sovereign fund. As of early 2017 this has not yet occurred.

In an attempt to encourage growth of the private sector, privatization of state-owned enterprises and state-owned banks accelerated under an economic reform program that took place from 1991 to 2008. Following the 2011 revolution, third parties have brought cases in court to reverse privatization deals, and in a number of these cases, Egyptian courts have ruled to reverse the privatization of several former public companies. Most of these cases are still under appeal.

The state-owned telephone company, Telecom Egypt, lost its legal monopoly on the local, long-distance and international telecommunication sectors in 2005. Nevertheless, Telecom Egypt held a de facto monopoly until late 2016 because the National Telecommunications Regulatory Authority (NTRA) had not issued additional licenses to compete in these sectors. But NTRA implemented a unified license regime that now allows a company to offer both fixed line and mobile networks, a deal finalized in October 2016. The agreement allows Telecom Egypt to enter the mobile market and the three existing mobile companies to enter the fixed line market. The introduction of Telecom Egypt as a new mobile operator in the Egyptian market will increase competition among operators, which will benefit users by raising the bar on quality of services as well as improving prices.

Egypt is not a party to the World Trade Organization’s Government Procurement Agreement.

OECD Guidelines on Corporate Governance of SOEs

SOEs in Egypt are structured as individual companies controlled by boards of directors and grouped under government holding companies that are arranged by industry, including Petroleum Products & Gas, Spinning & Weaving; Metallurgical Industries; Chemical Industries; Pharmaceuticals; Food Industries; Building & Construction; Tourism, Hotels & Cinema; Maritime & Inland Transport; Aviation; and Insurance. The holding companies are headed by boards of directors appointed by the Prime Minister with input from the relevant Minister.

Privatization Program

Egypt has not concluded significant privatizations of state-owned enterprises since 2008. Efforts to continue privatization since then have stalled. In March 2016, Prime Minister Sherif Ismail declared that the government would cease efforts to privatize the public sector, saying state-owned enterprises needed to be reformed instead. This statement followed the reestablishment of a Ministry of Public Enterprises in the same month.

Egypt’s privatization program was based on Public Enterprise Law 203//1991, which permitted the sale of state enterprises to foreign entities. In 1991, Egypt began a privatization program for the sale of several hundred wholly or partially state-owned enterprises and all public shares of at least 660 joint venture companies (joint venture is defined as mixed state and private ownership, whether foreign or domestic). Bidding criteria for privatizations were generally clear and transparent.

In 2014, the President signed a law limiting appeal rights on state-concluded contracts to reduce third-party challenges to prior government privatization deals. The law was intended to reassure investors concerned by legal challenges brought against privatization deals and land sales dating back to the pre-2008 period. Ongoing court cases had put many of these now-private firms, many of which are foreign-owned, in legal limbo over concerns that they may be returned to state ownership.

Responsible Business Conduct (RBC) programs have grown in popularity in Egypt over the last ten years. Most programs are limited to multinational and larger domestic companies and take the form of funding and sponsorship for initiatives supporting entrepreneurship and education. Environmental and technology programs are also garnering greater participation. The Ministry of Trade has engaged constructively with corporations promoting RBC programs, supporting corporate social responsibility conferences and providing Cabinet-level representation as a sign of support to businesses promoting RBC programming.

A number of organizations and corporations work to foster the development of RBC in Egypt. The American Chamber of Commerce has an active corporate social responsibility committee, and Apache Corporation was named a finalist in 2013 for the Secretary’s Award for Corporate Excellence for its work building and maintaining village girls’ schools throughout the country. Microsoft was named a finalist in 2012. Several U.S. pharmaceutical companies are actively engaged in RBC programs related to Egypt’s hepatitis-C epidemic. The Egyptian Corporate Responsibility Center, which is the UN Global Compact local network focal point in Egypt, aims to empower businesses to develop sustainable business models as well as improve the national capacity to design, apply, and monitor sustainable responsible business conduct policies. In March 2010, Egypt launched an environmental, social, and governance (ESG) index, the second of its kind in the world after India’s, with training and technical assistance from Standard and Poor’s.

Egypt does not participate in the Extractive Industries Transparency Initiative. Public information about Egypt’s extractive industry remains limited in the government’s annual budget.

Egypt has a set of laws to combat corruption by public officials, including an Anti-Bribery Law (which is contained within the Penal Code), an Illicit Gains Law, and a Governmental Accounting Law, among others. However, corruption laws have not been consistently enforced. Transparency International’s Corruption Perceptions Index ranked Egypt 108 out of 176 in its 2016 survey, a drop of 20 places from its rank of 88 in 2015. Transparency International also found that approximately 50 percent of Egyptians reported paying a bribe in order to obtain a public service.

The Penal Code’s provisions covering bribery apply to public officials. However, bribes are frequently transferred to third parties such as officials’ family members and political parties as a means of ensuring an arms-length distance between the bribers and bribed, according to a 2009 report by the Steering Groups of the Middle East and North Africa-Organization for Economic Cooperation and Development’s Initiative. The law does not regulate or sanction the involvement of third-parties in these corrupt transactions.

There are no rules on conflict of interest in competing for public tenders, according to an October 2012 report on the Commercial Laws of Egypt by the European Bank for Reconstruction and Development. The same report also noted that Egyptian legislation was in “medium compliance” with internationally recognized corporate governance principles and identified concerns regarding non-financial disclosure and transparency, especially in regards to conflict of interest situations.

Some private companies use internal controls, ethics, and compliance programs to detect and prevent bribery of government officials. There is no government requirement for private companies to establish internal codes of conduct to prohibit bribery.

Egypt ratified the United Nations Convention against Corruption in February 2005. It has not acceded to the OECD Convention on Combating Bribery or any other regional anti-corruption conventions.

While NGOs are active in encouraging anti-corruption activities, dialogue between the government and civil society on this issue is almost non-existent, the OECD found in 2009 and a trend that continues today. More broadly and increasingly over the past year, while government officials publicly asserted they shared civil society organizations’ goals, they rarely cooperated with NGOs, and applied relevant laws in a highly restrictive manner against NGOs critical of government practices. Media was also limited in its ability to report on corruption, with Article 188 of the Penal Code mandating heavy fines and penalties for unsubstantiated corruption allegations.

U.S. firms have identified corruption as an obstacle to FDI in Egypt. Companies might encounter corruption in the public sector in the form of requests for bribes, using bribes to facilitate required government approvals or licenses, embezzlement, and tampering with official documents. Corruption and bribery are reported in dealing with public services, customs (import license and import duties), public utilities (water and electrical connection), construction permits, and procurement, as well as in the private sector. Businesses have described a dual system of payment for services, with one formal payment and a secondary, unofficial payment required for services to be rendered.

Resources to Report Corruption

Several agencies within the Egyptian government share responsibility for addressing corruption. Egypt’s primary anticorruption body is the Administrative Control Authority (ACA), which has jurisdiction over state administrative bodies, state-owned enterprises, public associations and institutions, private companies undertaking public work, and organizations to which the state contributes in any form. Observers do not judge the ACA to be sufficiently resourced, and the agency does not actively collaborate with civil society.

In addition to the ACA, the Central Auditing Authority (CAA) acts as an anti-corruption body, stationing monitors at state-owned companies to report corrupt practices. The Ministry of Justice’s Illicit Gains Authority is charged with referring cases in which public officials have used their office for private gain. The Public Prosecution Office’s Public Funds Prosecution Department and the Ministry of Interior’s Public Funds Investigations Office likewise share responsibility for addressing corruption in public expenditures.

Contact at government agency or agencies are responsible for combating corruption:

Minister of Interior
General Directorate of Investigation of Public Funds
Telephone: 02-2792-1395/ 02-2792 1396
Fax: 02-2792-2389

Late 2016 and early 2017 continued to see a decline in the number of small-scale terrorist attacks against security and civilian targets in Cairo and elsewhere in the Nile Valley. Militant groups have been able to commit significant acts of terrorism, however, including the bombing of the Cairo’s Boutrousiya church in December 2016 that killed 29 women and children. In the Sinai Peninsula, militants affiliated with ISIL have conducted terrorist attacks against military installations and personnel, as well as civilians. The United States designated ISIL’s Sinai affiliate as a Foreign Terrorist Organization in April 2014.

Official statistics put Egypt’s labor force at nearly 32 million, with an official 2016 unemployment rate between 12 and 13 percent (depending on sources). More realistic estimates are that unemployment is most likely higher, but this is difficult to determine given the Egypt’s large informal economy. The unemployment rate is significantly higher for women (at least double).

Unemployment is at its highest among educated youth, particularly graduates of vocational secondary education. Limited employment opportunities for youth remain a serious challenge to Egypt’s social cohesion. While Egypt attracts some migrant workers – primarily seasonal agricultural workers from neighboring countries and some domestic laborers from Southeast Asia – it remains a net exporter of labor with millions of Egyptians continuing to seek employment abroad.

The government bureaucracy and public sector enterprises are substantially over-staffed compared to the private sector and other international norms. Egypt has the highest number of government workers per capita in the world. Businesses highlight a mismatch between labor skills and market demand, despite high numbers of university graduates in a variety of fields. Foreign companies frequently pay internationally competitive salaries to attract workers with valuable skills.

The Unified Labor Law 12//2003 provides comprehensive guidelines on labor relations, including hiring, working hours, termination of employees, training, health, and safety. The law grants a qualified right for employees to strike, as well as rules and guidelines governing mediation, arbitration, and collective bargaining between employees and employers. Non-discrimination clauses are 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 Council of Wages, whose mandate is to discuss wage-related issues and national minimum-wage policy, but it has rarely convened.

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. In March 2011, the Minister of Manpower and Migration (MOMM) issued a decree recognizing complete freedom of association and, subsequently, the Ministry of Manpower and Migration registered well over 1,600 independent trade unions without interference. However, the government stopped registering new independent trade unions in September 2015 and, in March 2016, issued a directive not to recognize documentation from any trade union without a stamp from the Egyptian Trade Union Federation (ETUF), the only official representative of trade unions recognized by the state.

The 2014 Constitution stipulates in article 76 that “establishing unions and federations is a right that is guaranteed by the law.” Only courts are allowed to dissolve unions. The constitution maintained past practice in stipulating that “one syndicate is allowed per profession.” The Egyptian constitutional legislation differentiates between white-collar syndicates (for professional workers e.g. doctors, lawyers, journalists) and blue-collar workers (e.g. transportation, food, mining workers). The government has drafted a “right to be collectively organized” law, but as of March 2017, negotiations on draft legislation continued. Employers complain that the incongruence between labor provisions in the 2014 Constitution, the 2011 Ministerial Decree, and the Trade Union Law of 1976 causes uncertainty when dealing with workers’ representatives.

Workers in Egypt have the right to strike peacefully, but strikers are legally obliged to notify the employer and concerned administrative officials of the reasons and time frame of the strike ten days in advance. 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. In practice, however, workers strike often, in all sectors, without following these procedures, but at risk of prosecution by the government. In 2016, for example, 26 leaders of a peaceful labor action in an Alexandria government-owned shipyard faced a closed military trial over alleged disruption of a “national security” facility.

The ILO Committee of Experts has criticized the 1976 Trade Union Law for mandating that only formerly government-controlled Trade Union Federation may organize strikes and that workers must notify employers in advance of strike actions. Strikes – especially in the textile sector – are typically organized and led by workers independently of the Trade Union Federation. For example, over 750 worker-led labor actions in textile mills in the Nile Delta were recorded in 2016 according to an independent NGO report.

Collective negotiation is allowed between trade union organizations and private sector employers or their organizations. Agreements reached through negotiations are recorded in collective agreements regulated by the Unified Labor law and usually registered at MOMM. Collective bargaining is technically not permitted in the public sector, though it exists in practice. The government often intervenes to limit or manage collective bargaining negotiations in all sectors.

MOMM 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.

Egyptian labor laws allow employers to close or downsize for economic reasons. The government, however, has taken steps to halt downsizing in specific cases. The unemployment insurance law, also known as the Emergency Subsidy Fund Law 156//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 one percent deduction from the base salaries of public and private sector employees. According to foreign investors, certain aspects of Egypt’s labor laws and policies are significant business impediments, particularly the difficulty of dismissing employees.

Egypt has a dispute resolution mechanism for workers. If a dispute concerning work conditions, terms, or employment provisions arises, both the employer and the worker have the right to ask the competent administrative authorities to start informal negotiations to settle the dispute. This right can be exercised only within seven days of the dispute. If within ten days from the time administrative authorities were requested to intervene a solution is not found, both the employer and the worker can resort to a judicial committee within forty-five days of the dispute. This committee is comprised of two judges, a representative of MOMM and representatives from the trade union, and one of the employers’ associations. The decision of this committee is provided within sixty days. If the decision of the judicial committee concerns discharging a worker, the sentence is delivered within fifteen days. When the committee decides against an employer’s decision to fire a worker, the employer must reintegrate the latter in his/her job and pay all due salaries. If the employer does not respect the sentence, the worker is entitled to receive compensation for unlawful dismissal.

Labor Law 12//2003 sought to make it easier to terminate an employment contract in the event of difficult economic conditions. The Law allows an employer to close his establishment totally or partially or to reduce its size of activity for economic reasons, following approval from a committee designated by the Prime Minister. In addition, the employer must pay former employees a sum equal to one month of the employee’s total salary for each of his first five years of service and one and a half months of salary for each year of service over and above the first five years. Workers that have been dismissed have the right to appeal. Workers in the public sector enjoy life-long job security as contracts cannot be terminated in this fashion.

The Labor Law allows Ministers to set the maximum percentage of foreign workers that may work in companies in a given sector. There are no such sector-wide maximums for the oil and gas industry, but individual concession agreements may contain language establishing limits or procedures regarding the proportion of foreign and local employees.

Egypt has regulations restricting access for foreigners to Egyptian worker visas, though application of these provisions has been inconsistent. The government plans to phase out Visas for unskilled workers, but as yet has not. For most other jobs, employers may hire foreign workers on a temporary six-month basis, but must also hire two Egyptians to be trained to do the job during that period. Only jobs where it is not possible for Egyptians to acquire the requisite skills will remain open to foreign workers. Application of these regulations is inconsistent.

The Labor Law allows Ministers to set the maximum percentage of foreign workers that may work in companies in a given sector. There are no such sector-wide maximums for the oil and gas industry, but individual concession agreements may contain language establishing limits or procedures regarding the proportion of foreign and local employees.

The MOMM 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.

Egypt has a dispute resolution mechanism for workers. If a dispute concerning work conditions, terms, or employment provisions arises, both the employer and the worker have the right to ask the competent administrative authorities to start informal negotiations to settle the dispute. This right can be exercised only within seven days of the dispute. If within ten days from the time administrative authorities were requested to intervene a solution is not found, both the employer and the worker can resort to a judicial committee within forty-five days of the dispute. This committee is comprised of two judges, a representative of the Ministry of Manpower and Migration (MOMM) and representatives from the trade union, and one of the employers’ associations. The decision of this committee is provided within sixty days. If the decision of the judicial committee concerns discharging a worker, the sentence is delivered within fifteen days. When the committee decides against an employer’s decision to fire a worker, the employer must reintegrate the latter in his/her job and pay all due salaries. If the employer does not respect the sentence, the worker is entitled to receive compensation for unlawful dismissal.

No U.S. company reported that strikes in 2016 posed an investment risk. Negotiations continue on a draft Trade Unions Law, which is being discussed in parliament. The Labor Law also is being revised. As of March 2017, no agreement has been reached on either bill.

The Overseas Private Investment Corporation (OPIC) has approved $500 million in financing to support lending to small businesses in Egypt and Jordan, including the following: (1) $150 million commitment in partnership with Abraaj Capital, a leading private equity group, to enable growth of smaller companies; (2) $150 million investment guaranty with Citibank for a loan to Citadel Capital, the leading private equity firm in the Middle East and Africa, aimed at expanding its subsidiaries working in critical sectors in the MENA region and including $125 million specifically for Egypt; and (3) a $250 million 10 year partnership with Egyptian banks working directly with SMEs. There is an OPIC agreement between Egypt and the United States, signed in 1999.

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

Measurements of foreign direct investment (FDI) in Egypt vary according to the source and the definitions employed to calculate the figure. The Central Bank of Egypt records figures on quarterly and annual investment flows based on financial records for Egypt’s balance of payments statistics. They are reported in the table below. 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 – including re-invested earnings and investment-in-kind. Statistics are not always current. 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.

U.S. firms are active in a wide range of manufacturing industries, producing goods for the domestic and export markets. U.S. investors include American Express, AIG, Ideal Standard, Apache Corporation, Bechtel, Bristol-Myers Squibb, Cargill, Citibank, Coca-Cola, Devon Energy, Dow Chemical, ExxonMobil, Eveready, General Motors, Guardian Industries, H.J. Heinz, Johnson & Johnson, Kellogg’s, Mars, Mondelez, Microsoft, Proctor and Gamble, Pfizer, PepsiCo, Pioneer, and Xerox. Leading investors from other countries include BG, ENI-AGIP, BP, Vodaphone, and Shell (in the oil/gas sector), Unilever, Al-Futtaim, (UAE), the M.A. Kharafi Group (Kuwait), and the Kingdom Development Company (Saudi Arabia).

Table 3: Sources and Destination of FDI

Table 4: Sources of Portfolio Investment

Jeffrey R. Rands
Economic Officer
02-2797-2363
randsjr@state.gov