Before beginning its two-week Eid Al-Fitr recess parliament approved a number of economic, financial and tax laws. On Sunday, MPs approved a 294-article law regulating the Central Bank of Egypt and the banking sector and referred it to the State Council for legal and constitutional review. The law, which has been in the works since 2017, will replace the 2003 banking law. According to a report prepared by parliament's Economic Affairs Committee, the law aims to update banking operations in Egypt in line with the economic reform policies adopted in 2016. CBE Governor Tarek Amer told MPs that the changes will facilitate e-payments and the introduction of fintech services. “A greater array of services has become necessary, especially after the spread of the coronavirus which has led banks to depend more and more on electronic services,” said Amer. “The law also opens the door for the CBE to oversee listing, registration and central depository activities related to government financial securities. “The financial sector is fast changing and laws need to be constantly updated to keep pace,” said Parliament Speaker Ali Abdel-Aal. The law reinforces the CBE's supervisory role in licensing banks and foreign exchange companies, and ensuring their activities are in the national economic interest, said Amer. It allows the CBE to intervene to ensure the loans made by banks are in line with the government's wider economic policy, and positions the CBE as the government's leading financial advisor. The new legislation strengthens cooperation and coordination between the CBE, the government and its financial watchdog institutions, to ensure the integrity and transparency of financial activities, said Abdel-Aal. Article 48 states that a coordinating council will be formed to take charge of formulating the CBE's monetary policy and the government's financial goals. “The council will comprise experienced representatives from the government and the CBE and will meet at least once every three months and submit an annual report on its activities to the president,” reads the law. Articles 64 and 65 outline the CBE's roles in licensing foreign banks and representative offices in Egypt. Article 65 states that for a foreign bank to operate a licensed branch in Egypt, the branch should have a capital of $150 million, be subject to the supervision of the central bank of the country in which its headquarters is located, and agree that its activities in Egypt be overseen by the CBE. It also states that the activities of foreign banks should align with Egypt's national economic interests. “[The foreign bank] should not be involved in monopolistic and anti-competition practices, must have a clear structure of ownership and its capital must come from legal sources,” reads the article. Foreign banks seeking a licence to operate in Egypt will be required to submit a feasibility study showing the nature of the activities and services planned, and how it intends to mobilise and use savings in the local market. The names of foreign banks operating in Egypt should also be easily distinguishable from banks already operating in the local market. The law gives banks already operating in the market a year to adjust to its stipulations. “During this period, the board of the CBE and of all commercial banks operating in Egypt will remain in office. Future boards and chairmen of state-owned banks will be named by the prime minister and after their competency is reviewed by the CBE. “The number of non-executive members of the CBE board will increase… members should be neutral, experienced and have no conflicts of interest,” says the law. The law also regulates the performance of foreign exchange and money transfer companies. The CBE will also take charge of licensing credit risk guarantee companies which must have a minimum of LE50 million in paid-up capital. The law allows the CBE to provide short-term bailout funds to struggling banks, in the form of three-month to one-year loans at an interest rate higher than the market average. Meanwhile, parliament also began discussing government-drafted amendments to the Public Enterprise Law 203/1991 this week. The draft law, approved by the Economic Committee on 12 May, includes amendments to 29 articles. Minister of Public Enterprise Hisham Tawfik told MPs that the public enterprise sector in Egypt includes eight government-owned holding companies with 121 affiliated subsidiaries employing close to 250,000 workers. “Under the amendments no new company, not even a new production line, can be set up unless it is first approved by an investment committee charged with reviewing the economic feasibility of new projects,” said Tawfik. The aim, he said, is to draw a line under the huge losses state-owned companied have been making for almost four decades. “In fiscal year 2017-18, for example, 48 companies affiliated with the public enterprise sector incurred LE16 billion in losses, and racked up LE44 billion in debt,” said Tawfik. “The law seeks to liquidate companies which are haemorrhaging cash from the state treasury.” Tawfik claimed that under the changes, “not a single loss-making company will be allowed to operate” and that Article 6 allows the concerned holding company to establish the criteria under which new companies can be created. “Topping the criteria, which have to be ratified by the minister concerned, is that the new company be economically feasible and add value to the national economy,” said Tawfik. The changes to the public enterprise law faced objections from workers' representatives in parliament. Gibali Al-Maraghi, chair of parliament's Labour Committee, said the changes introduced by Tawfik would undermine the interests of workers and pave the way for privatisation. “After much discussion of the amendments by the committee, members agreed that they were not in the interest of either workers or companies in the industrial sector,” said Al-Maraghi. Committee member and General Egyptian Federation of Trade Unions Secretary-General Mohamed Wahba said the amendments open the way to privatising public sector companies in a way that undermines the interests of thousands of workers. “Article 38 of the newly amended law states that a company incurring losses that exceed half of its capital should be liquidated,” said Wahba. “This means that 40 per cent of companies would have to be wound up. So what will happen to their employees? “Rather than liquidating and selling companies we should be looking at ways to improve their performance,” said Wahba. On Monday MPs also approved a legislative amendment to Law 113/1939 that will extend the suspension of tax on agricultural land for two years. Taxes on agricultural land were suspended since 2017, but the tax holiday had been scheduled to end in June. Minister of Finance Mohamed Maait said an extension was necessary, particularly given the impact of the coronavirus pandemic. “We need to relieve agricultural producers of any unnecessary burdens,” he said. Parliament also discussed changes to nine articles of Law 11/1980 on stamp tax. The amendments will impose a stamp tax of 1.25 per cent on non-resident sellers of financial securities, 1.25 per cent on non-resident buyers, 0.5 per cent on resident sellers, and 0.5 per cent on resident buyers. Changes to three articles of Income Tax Law 91/2005 were also discussed. They aim to regulate capital gains resulting from the transfer of ownership of land affiliated to public enterprise and other companies in which the state owns more than 51 per cent. *A version of this article appears in print in the 21 May, 2020 edition of Al-Ahram Weekly
