As you know, Zaki Hashem and Partners held an event in collaboration with the French Chamber of Commerce to discuss the new Investment law. From our perspective, this event was successful because the legal and business communities had a chance to hear and to take into consideration an understanding of the strategies employed by the new CEO of the General Authority for Investment (GAFI), Mr. Mohamed Khodeir.
Mr. Mohamed Khodeir managed to successfully explain the rationale behind the passing of a new Investment law, along with the practical considerations relating to this reform.
The first priority is GAFI’s internal restructuring when it comes to the services it provides for investors, its human resources, and the process of investment development it will undertake within the international market.
Mr. Mohamed Khodeir was clear in his explanation; he touched upon the major problems that investors are suffering from when it comes to, for example, the length of time needed for ratification of the Minutes of the Board of Directors or General Meeting of the Shareholders, along with processes related to the General Department of Economic Appraisal. He has therefore initiated resolutions to establish some procedures to overcome delays.
In the meantime, he aimed to clarify that there is a distinct philosophy within the new law. He showed great consideration of important points, reflecting this new philosophy. He also clarified the internal efforts that have been undertaken on the management side, following a process of reflection with the investors.
He admitted, and I confirm, that we are a country with a long history of bureaucracy, though a lot of people forget or deny this. To be successful, we must identify and admit our problems first and I feel that doing this in a public place, at an event, was very brave. Egypt has lived within a culture of bureaucracy for 6000 years but this can and shall be changed.
Generally speaking, there is some misunderstanding about GAFI’s role. We have beside the current investment law different pieces of legislation related to investment activities, and the new Investment law certainly doesn’t take the job of determining all legislation; it is focused on facilitating how to overcome obstacles. Mr. Mohamed Khodeir further talked about the drive towards computerisation and making administrative services automated inside GAFI itself, which will leave less room for human error or interference; it will facilitate the process of getting the job done effectively. Many people who communicate with the Investment Authority are unfortunately not trained nor do they have sufficient knowledge regarding the processes that need to be undertaken. Many employees working at companies established under the existing Investment law don’t have the necessary experience to know how to comply with the procedures required. Obviously lawyers have the experience to work closely with GAFI, but not all investors use lawyers to follow these processes; a lot of companies will use their own employees and perhaps send a clerk who does not have the background, experience or preparation to get the job done. I have seen many examples of this.
Mr. Mohamed Khodeir mentioned a scientific and important step, that of organising training inside GAFI. The process of finalising the new Investment law and issuing its Executive Regulations is taking some time, as it addresses concepts drafted after conducting research, identifying problems and creating solutions; all of this takes time.
So speaking generally about this event and about the new Investment law as a whole, I have to say that the strategic vision presented by Mr. Mohamed Khodeir was both clear and straightforward. It is uncommon and impressive to find someone in his position talking about internal problems and how they have been or will be solved.
The new law has mentioned guarantees and incentives. One major guarantee is that the state should respect and put into force the contracts that it signs and if there is an incident of cessation or confiscation of projects the government has to pay fair compensation in advance. The new law guarantees that no issued licence for a project can be cancelled unless there is a clear violation of the law. It states that government bodies should be guided by GAFI’s judgement to determine whether or not such licences can be cancelled. This necessitates GAFI’s practical regulatory rule over other governmental authorities in order to secure investments.
The law mentions that no additional financial obligations may be added by administrative decree; if there are any additional financial obligations they should be enshrined in law – currently, municipalities sometimes impose duty or arbitrarily add extra fees to be paid; the new law is designed to prevent this. If there will be additional service charges added, or an increase in fees, this should be first submitted to GAFI’s Board of Directors and the Cabinet should approve it as well.
The law guarantees that investors have the right to repatriate their profits – they may liquidate their project and transfer the net value of liquidation abroad without any restrictions. It also guarantees the right of the project to import raw materials, whatever is needed for production from abroad without obtaining particular licences, once all investment licences have been acquired. The investors will have the right to import spare parts required for production.
The law also gives investors the right to use foreigners in their project with a ratio of 10% of the total employees in the project. Moreover, it gives an exemption – investors may increase this number over 10% to a ceiling of 20%.
The incentives within the new Investment law may be classified into two kinds – general and additional. All investment projects will enjoy general incentives, which include no stamp tax and no duty of notarisation applicable on the contracts of these projects for five years, starting from the date of issuance of the project’s commercial registration, even if the project was established prior to the issuance of the law. Also no tax nor duty shall apply to the land registration of the project.
The company will enjoy customs tax at a general flat rate of 2%, in connection with all imports required for it to start performing its activities.
When it comes to private investment, new companies that will be established within a three year period following the date of issuance of the Executive Regulations will be given private incentives based on the geographic location of their project activities. Certain industries will be eligible for the reimbursement of some initial investment costs for their projects, with a ceiling of 80% of the costs from the amount of paid capital.
The additional incentives are also significant. A special customs area might be established, especially for the export and import needed for the investors’ projects. The government will pay the cost of facilities for public utilities catering to areas where project operations are considerable. There will be the possibility of reimbursement for up to 50% of the value of land for industrial projects in the case of starting production within two years of the date of the handover of land. There will also be a certain amount of free land allocation for strategic industries.
GAFI will facilitate problems investors may face with regard to licences. This highlights their role as a regulatory body, playing the role of organiser in a broader sense.
For the sake of facilitating work and the processes that need to take place to ensure investment, there will be special offices established, to oversee the process of licencing. All of this will be ratified by GAFI and clarified in the Executive Regulations of the law. One of the important issues is that in the case of disputes regarding different provisions of different laws, the matter should be clarified or understood in light of GAFI’s targets regarding investment and the principles of inclusivity. It is part of the law’s philosophy to crystallise major issues to serve as a reference point for the future.
Article Four in the new Investment law states that in case of dispute or conflict, GAFI will secure the interest of the investors and put limitations upon other government departments. To be clear, it is the understanding of a number of people that GAFI will issue all licences – this is not the case. However, it does seek to establish a one-stop shop, whereby there will now be clear connections to all relevant government departments. According to the new Investment law, instead of going to each department, an investor will go to one place to submit all required documentation; all procedures will be handled through GAFI. However, I still maintain that people dealing on behalf of the investors should be educated to have a minimum level of knowledge to know how to deal with these departments.
This law represents a break from a long-established tradition. The first commercial code in Egypt was issued in 1882 and Egypt has had an active legislative department since the beginning of the 20th Century. It’s a fact that the government started fixing prices during the 1940s and this was enforced by the King of Egypt. A lot of people think that this started during the 1960s because of Nasser changing the policy towards the Soviet Union, but in fact this is not the case.
In my opinion, the proposed new law has in principal been organised properly and logically, however this law does not regulate the establishment of new private free zones. Many private free zones are currently voicing their objection to this, although many of them are running successfully as well. The point of evaluation, from a government standpoint, is whether to keep these or not. If they decide to continue with these private free zones it will mean that the law needs to regulate or clarify this situation through discussions in Parliament. Currently no new private free zones will be established for the time being – what is already there will continue until the end of the term of the company or the project. The Executive Regulations should create a clear, precise, applicable mechanism, securing the huge investments launched in private free zones for industrial projects. This is one of points that needs to be handled most carefully.
In conclusion, I see the proposed new Investment law as being more clear and organised than the previous Investment law. It has been drafted in a logical way so as to be more digestible for foreigners, who of course constitute a large number of the investors being targeted. This law has made clear references to related laws that govern project activities within the field of investment – the 73 laws to which I have already referred. Such a comprehensive overview did not exist in other laws. Above all, the conceptual purpose behind issuing a new law is eminently logical. As a lawyer, it is more logical for me to issue a new law that can help to promote the legislative environment than to amend the current one. We are starting a new time and a new spirit in our country.
No wonder we have the need for new legislation to comply with the current time we are living in as well as the needs of the future.