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.
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.
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.
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.