Last month Egypt’s House of Representatives passed the long-awaited Investment Bill, designed to reposition the country as a place for international investors to do business and encourage them back following their withdrawal in the wake of the Arab Spring of 2011.  Whilst the new investment law’s focus on cutting red tape and offering tax and customs incentives for foreign investors is sure to boost their appetite for Egyptian opportunities, these investment reforms could have gone so much further. I would go so far as to say the new investment law has been a missed opportunity to consider the creation of an independent international jurisdiction along the lines of the Dubai International Financial Centre (DIFC) and court system. 

Independent

The DIFC provides an independent legal and regulatory framework for civil and commercial (although not criminal) matters.  This means foreign investors can operate independently of most local laws, a characteristic that has been instrumental in establishing Dubai as the central hub for foreign businesses eyeing up Middle Eastern opportunity. If Egypt is serious about repositioning itself as an ideal place for foreign investors, and luring them back following their departure after the 2011 uprising, then following the DIFC model and establishing a zone with an independent legislative framework based on international standards and principles of common law, could have taken Egypt so much further forward than we find ourselves today.

Inward investment

The new Egyptian investment law will undoubtedly provide a boost to inward foreign investment.  My issue is that it does not go far enough.  The focus of the new legislation is on simplifying the administrative process for foreign investors by creating a central one-stop-shop service point called the “investment window”, requiring foreign investors to deal with a single body, and by giving the authorities a 60-day deadline for providing investors with the necessary authorisations.  The incentives brought in by the new law include tax exemptions of up to 50% for those investing in Egypt’s poorest areas, and other incentives designed to drive investment in certain key sectors in dire need of it, such as electricity and renewable energy.  There is also a provision for returning to investors the price they pay for acquiring land for industrial projects, if they start production within two years. All these developments are welcome, so to that end it is a matter of “so far, so good”. Anything that smooths the path for foreign investors and offers them incentives is bound to have a positive impact on the figures.  But my point is, given the Government’s ambition to return to pre-uprising levels of foreign investment, circa $13.2billion, will this impact be big enough? 

Improvement

It is true that foreign investment in Egypt has already improved – up 39 per cent from $6.8billion in the fiscal year ending June 2016, to $4.3billion for the first half only of the next fiscal year, ie up to December 2016 (but a long way off the levels recorded pre-uprising).  Many attribute this recent rise partly to the anticipation of this new investment law; partly to the new Corporate Governance Code introduced last August as part of Egypt’s Anti-Corruption Strategy designed to make the Egyptian marketplace less daunting for outsiders; and partly also to the uncertainty and disarray creeping through Europe as a result of first the debt crisis and now the fear of Brexit contagion, which is making North African investment opportunities look a lot less risky in relative terms. Clearly there is a window of opportunity for Egypt given what is happening elsewhere across the globe. And this follows, of course, the success of last year’s moves by Egypt (November 2016) to restore capital flows by floating the Egyptian pound, plus meeting the International Monetary Fund’s requirements (economic reforms including exchange rate regime liberalisation and the reduction of state subsidies) to secure approval for a $12billion loan from them, the first $2.75billion tranche of which has already been paid.  

Step-change required

Egypt has stepped up to a number of particularly difficult challenges and its future is looking brighter.  This new investment law may be a step forward, but is it truly in the right direction?  If Egypt is to realise its ambition of returning to pre-uprising levels of foreign investment, a step-change is required.  This is where the creation of an independent international jurisdiction in the form of a comprehensive Free Zone could have made all the difference.

Dr Mohamed Bahaa Eldin Abou Shoka is a Cairo-based lawyer at Abou Shoka Law. His firm specialises in crime, white-collar crime anti-corruption and corporate governance law