Economic Update

Egypt’s long-awaited investment law is set to be implemented in the coming months, potentially catalysing further growth in recovering foreign direct investment (FDI).

On June 1 President Abdel Fattah El Sisi signed the new bill into law following months of deliberation, with implementation scheduled for the end of August. The legislation includes a variety of bureaucratic reforms, and outlines new fiscal incentives for potential investors.

New rules, new system

One of its key provisions is to streamline business procedures through an investors’ service centre that will act as a one-stop shop for issuing all licences. The centre will be established by the newly created General Authority for Investment (GAI), previously the General Authority for Investment and Free Zones.

The GAI will also develop an “e-incorporation” system for investment entities that pledges a 24-hour response to all applications. An accreditation office will then support the applicant through the licence and approval process for investment projects, reviewing documents and issuing a certificate.

Measures to ease investment include a “golden licence” that will allow the prime minister to issue a single approval that includes all the required business establishment and operating licences, land allocation and building permits for strategic and national projects deemed key to Egypt’s development.

These changes should lessen the burden investors previously faced in dealing with a range of state agencies, raising Egypt’s rankings in the World Bank’s “Doing Business” report. In the most recent report, for 2017, Egypt already jumped 31 places in the starting a business category, to 70th out of 190 markets, though it slid one place to 63rd for dealing with construction permits.

Incentivised investment

The new law also incorporates tax incentives to draw investors, such as a five-year exemption from stamp duty on all incorporation contracts, as well as facility and mortgage contracts related to an investment project.

The legislation will also give investors tax breaks of 30% across the board, rising to 50% for investments made in so-called underdeveloped zones, a concept that will be clarified in executive regulations to be published in late August.

Under the new legal framework, the Council of Ministers reserves the right to grant further incentives, including allocations of free land on a case-by-case basis, with the conditions also to be confirmed at a later date.

Other measures ensure investor rights and guarantees, such as more robust protection against nationalisation, sequestration and licence revocation. Investors will be allowed to hire foreign employees for up to 10% of the workforce, rising to 20% at a later date.

The council will also retain the right to give foreign investors preferential treatment if deemed economically necessary – allowing them to, for example transfer profits abroad, or import goods without registering as an importer.

Roadblocks to success

The law is seen as an important breakthrough in ongoing government efforts to improve the macroeconomic and investment climate. Those efforts – which look to address a range of structural issues – have been largely supported by partners including development finance institutions and the IMF, which signed a $12bn extended fund facility with Egypt last November.

That month also saw the government push through fiscal measures such as the free float of the Egyptian pound, and a reduction of its sizeable subsidy bill. 

“The currency floatation has to be seen as an uneasy, but necessary, surgery, that typically suffers post-op pain but will eventually guarantee a full cure over time,” Taha M Khaled, chairman of professional services firm BDO, told OBG. “There are difficulties related to inflation and the rising cost of imports, but they come with positive prospects for the overall doing business conditions in Egypt in the middle to long run.”

On solid ground

Despite these growing pains, net FDI inflows rose to $6.9bn in FY 2015/16, up from $6.4bn in FY 2014/15, according to the central bank – the highest level recorded since the January 2011 revolution.

The rise has been driven partly by ongoing large-scale investments in oil and gas, where capital-intensive exploration and development projects have continued despite low prices.

While the energy sector is already regarded as fairly well regulated and stable by investors, the new investment law should open other sectors up to greater FDI. In March Sahar Nasr, minister of investment and international cooperation, said the government aimed to attract another $10bn in FDI next year.