Mohamad Talaat, Co-Managing Partner, Helmy, Hamza & Partners, on laying the legal groundwork for continued economic expansion: Viewpoint

 Mohamad Talaat, Co-Managing Partner, Helmy, Hamza & Partners

Egypt has undergone a series of dramatic political developments, leaving the country with various economic challenges to address. While the uprisings lifted the country from stagnation, they also interrupted commerce, leading to a prolonged closure of the stock market and a marked drop in tourism.

In recent decades, the focus has been on providing greater incentives for investments. The Companies Law No. 159 of 1981, passed during the Sadat administration, flung open the door to domestic and foreign investors, removing the stifling effect of prior statutes and reviving free enterprise. One of the most important features of the law was its allowance for 100% foreign ownership of legal entities in Egypt, with the exception of companies in strategic areas such as the Sinai Peninsula, where a minimum level of Egyptian participation is compulsory. An amendment to the law in 2009 abolished minimum capital requirements to establish limited liability companies.

Since the early 1990s the financial system and its three main sectors – capital markets, banking and insurance – have undergone legislative reform to encourage greater competition. The government is focused on reactivating the country’s bond market in particular, building crucial links with international financial institutions, as illustrated by the issuance of Law No. 10 of 2013 on financial instruments.

Earlier efforts were made to divest state ownership of joint ventures, public banks and insurance firms, as well as increasing private sector involvement in the financial sector. Full private ownership – including by foreigners – is permitted in the banking and insurance sectors. As a result, several financial intermediaries, representing large international financial institutions operating in the areas of commercial banking, mutual funds, insurance, investment banking and securities trading, are now operating in Egypt.

In terms of privatisation, the Public Enterprise Law No. 203 of 1991 was the first step in the direction of privatising public sector organisations in Egypt. The law paved the way for transforming public sector organisations and the companies they controlled into holding firms and subsidiaries (or affiliate companies). Most importantly, the shares of public subsidiary companies can be traded on the Egyptian stock exchange – a measure that many view as central to facilitating the country’s privatisation programme.

Reforms to Egypt’s privatisation laws have successfully increased both local and foreign private investment in the public sector. Unfortunately, privatisation is experiencing a setback due to the de-privatisation of some firms in response to recent judgments by the Council of State. Even so, in line with the strategy to promote and increase the private sector’s involvement in the economy, the government has taken the initiative to introduce public-private partnerships (PPPs) through the promulgation of the PPP Law No. 67 of 2010 and its associated regulations, which came into force on January 24, 2011.

This form of partnership is, in essence, a method of public service provision whereby the government contracts a reliable private sector company to finance, build and operate an infrastructure project for its own use and whereby, at the conclusion of the contract, the ownership title passes to the government, thereby increasing the stock of public assets.

Trade has played a significant role in Egypt’s economic development. The country has progressively liberalised its economy, and particular progress has been made to reduce administrative and other non-tariff trade barriers. Alongside this, Egypt has been engaged in legislative reforms to bring domestic legislation into compliance with its expanded network of international, regional and bilateral agreements. Therefore, we can confidently say that the years leading up to the popular uprisings were a period of growth, and that the current government maintains a legal framework conducive to reform.

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The Report: Egypt 2016

Legal Framework chapter from The Report: Egypt 2016

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