The Cabinet last week referred the new draft investment law to the State Council prior to forwarding it to the House, meaning that parliament will start discussing the bill in a few days, reopening a topic that has occupied the business community for nearly two years. To recap, since the early 1970s, Egypt has embraced an investment philosophy centered on issuing a special law that gives investors in certain economic fields a set of benefits, exemptions, and incentives and allows them to deal with an administrative agency dedicated to investment. The laws, investment fields, and benefits and incentives changed over 40 years, but the philosophy remained the same. It was only partially abandoned in 2005 when the government decided to end tax incentives going forward. As investment rates declined precipitously in recent years, thought turned to again amending the investment law as a means of resolving investors' problems and granting them benefits and incentives to jump start the economy. The media, too, saw the investment law as the solution. Under these pressures, the previous government unfortunately rushed through far-reaching legal changes on the eve of the Sharm Al-Sheikh economic conference in March 2015, declaring it had turned a new page to resolve investors' problems and eliminate bureaucratic red tape. But the move had a major negative impact on economic legislation because the new investment law didn't fulfill its many promises. Instead it gave rise to more contradictions and conflicts among government agencies. As a result, the investment climate deteriorated and a valuable opportunity to harness the positivity generated by the Sharm al-Sheikh conference was squandered. In an attempt to rectify this error, talk again turned to amending the law or issuing a new statute. To be fair, this time the Ministry of Investment and the General Authority for Investment (GAFI) put up a draft law for debate three months ago. When it was criticized from several directions, a new version was drafted that removed some of the flaws. This is the draft recently approved by the Cabinet, and despite my appreciation of the efforts made, I'm compelled to record my objections to four specific aspects of the bill. First, the idea persists that the solution lies in a law—that passing a new investment law will trigger the hoped-for economic surge. But this doesn't speak to the nature of the current crisis because investors' problems lay elsewhere, mainly in the state's unclear economic and social vision, its competition with the private sector in all fields, the spread of corruption, and clogged, slow courts, as well as security and political conditions. A single new law, no matter how good, can't solve these genuine barriers to investment. Second, the bill reinstates financial exemptions and incentives, thus again putting some of the investment cost on the state, after Egypt had closed this door in 2005. Although the bill restricts these benefits to certain activities under specific conditions, I fear it will create opportunities for corruption and will deprive the national economy of resources needed for development spending. It will needlessly let the state set investment priorities and fields and ignores the negative political message sent by exempting new investors from taxes when taxes and prices for citizens are relentlessly increasing. Third, the new law seeks to make GAFI a one-stop shop for licenses, project approvals, and land allocation for investors. A fine idea, but unworkable I believe, especially within the 90-day period specified by the law. Failure here will create more overlap and conflict among government bodies, which will further erode Egypt's credibility as it did after the March 2015 conference. Four, the bill before the House gives GAFI extremely broad powers and prerogatives in all stages of the life of corporations and investment projects, as well as substantial regulatory authority. This could increase the bureaucratic hurdles and costs that investors already face, especially given the complicated nature of the exemptions and benefits. It also gives the administrative apparatus broad latitude in applying the law. A new investment law is neither positive nor negative in itself. The test is its content. There's no harm in a new law if it's a way to improve the investment climate and encourage economic activity. But in my view, in current conditions the country would do better to focus on investors' real problems and avoid a return to financial incentives and exemptions. We should be wary of making promises we can't keep, to avoid more administrative red tape and overlapping, conflicting authorities.
*The writer holds a PhD in financial law from the London School of Economics. He is former deputy prime minister, former chairman of the Egyptian Financial Supervisory Authority and former chairman of the General Authority for Investment. A version of this article was published in Arabic in El-Shorouq newspaper on Monday, 16 January.
