Niveen Wahish speaks with the chairman of the ruling National Democratic Party's economic committee on the two controversial draft laws that promise to change the face of Egypt's economic outlook Two draft laws -- the banking law and the competition law -- have created a stir in economic circles. The banking law, currently being discussed in parliament, and the competition law, coming up next for discussion, have prompted widespread concern regarding their viability. Mahmoud , the chairman of the NDP's economic committee, believes the worries are unfounded. For months now, the draft Unified Banking Law, which governs the Central Bank of Egypt (CBE), the banking system and foreign exchange, has stirred controversy. The law unifies the five main laws presently dealing with banks -- the Banking and Credit Law (Law 163 of 1957), the Central Bank and Banking System Law (Law 120 of 1975), the Secrecy of Banking Accounts Law (Law 205 of 1990), the Handling of Foreign Exchange Law (Law 38 of 1994) and the Law on Private Sector Contributions to the capital of Public Sector Banks (Law 155 of 1998). The law's articles regarding the CBE have been the most contentious. When the draft law was first circulated, it was promoted as a vehicle for granting independence to the CBE. People took that independence to mean that the CBE will be setting monetary policy -- a move that was seen as necessary after the dissolution of the Economy Ministry. But that was a misinterpretation, said. The law only grants the CBE independence in practicing its supervisory powers and setting the prudential regulation for the banking sector, he said. The CBE will not be given the authority to set monetary policy targets, but it will coordinate with the government on what those targets are. "If the economy is not performing well, it is the government that will be held accountable and not the CBE," he said. However, he said, once the targets are set, the CBE's board of directors is the body that chooses the tools to achieve those goals. "And it will be held accountable should its tools fail in achieving the goal," he said. The law also establishes an important body -- the Coordination Council -- which is the mechanism through which monetary policy targets will be agreed on by the government and the CBE. The council will include three ministers from the economic group, the CBE governor, his deputy, along with five independent experts to be appointed by the president. Another positive aspect of the law is that it controls government borrowing from the CBE. "The government can no longer borrow automatically to cover its budget deficit," said. The draft law states that government borrowing must not exceed 10 per cent of the government's average revenue during the preceding three years. Moreover, the government is obliged to borrow at market rate for a specified period. Another important aspect of the draft law are the minimum capital requirements for banks, put in place to overcome current over-banking and under-branching in the Egyptian banking sector. The draft law has set these at LE500 million for Egyptian banks and $50 million for foreign banks. believes that this will have a positive effect on the banks' efficiency and their ability to service all parts of the country and benefit from economies of scale. "In order to meet the new minimum capital requirements, banks should be encouraged to merge," said. The law provides for a transitional period during which banks should make the necessary adjustments. Following in the footsteps of the European Central Bank and the US Federal Reserve, the law clearly states that choosing the country's foreign exchange system is the responsibility of the government, with the CBE left in charge of managing and executing it. Meanwhile, the exchange rate is to be set by demand and supply. "There are no u-turns in the system and any change in the forex system would require changing the law," he said. The draft law also requires foreign bureaus to maintain a minimum capital of LE20 million, a stipulation that has invoked the wrath of forex companies, whose capitals currently do not exceed LE1 million. "Things have changed. At the time forex bureaus were allowed to set up, the dollar was worth LE3. Today, the dollar is worth almost double that number," said. "We need forex companies that are big and that respect the rules. The capital requirement is the most trivial of requirements; the professionalism of these companies is more important." Another law scheduled to be presented for discussion in parliament soon and that is no less controversial than the banking law is the competition law. Although it was first conceptualised in 1995, thinks there is more need for it today than ever, for a number of reasons. The private sector now plays a greater role in the economy, with its activities representing 70 per cent of total economic activity. There have also been recent concern that monopolies may exist in certain sectors, such as construction and food industries. Many cases of mergers and acquisitions are not being regulated by anti-trust laws, but are rather governed by the capital market law and the companies law. Meanwhile, Egypt's international commitments through agreements with the EU and within the WTO oblige it to have clear regulations to protect competition and prevent anti- competitive practices. Although the draft law might not make it to parliament in its current session, hopes it will be presented next year. The competition law seeks to criminalise non-competitive practices, prevent abuse of dominant positions and regulate mergers and acquisitions. In 's opinion, there are certain misconceptions surrounding this law that are unfounded. Foremost among those is the belief that the law will prevent companies from expanding and benefiting from the economies of scale. "What is important is not the size of any one company, but how it behaves," he said. "A company should not abuse its size to monopolise prices or supply of products, either on its own or in agreement with suppliers, distributors or competitors." explained that having a dominant position is not incriminating, but to use that position to harm the market is not acceptable. The draft competition law provides for the creation of a competition and anti- trust agency that will foresee the execution of the law. As soon as a company reaches a certain size, it will be required to file information about itself with the agency. The agency interferes only if the company commits a violation or is complained against. Certain rules will be set for the agency to operate under. For example, a deadline for approving mergers and acquisitions will be set and a minimum capital of LE50 million will be required of companies who do business through the agency. The agency's board will include three government representatives, as well as a representative from each of the federation of industries, the chambers of commerce, banks and consumer associations. The two laws in question are just the beginning. said that once the competition law is out, there will be a need for a consumer protection act to complement it. More laws are sure to follow as Egypt attempts to lay down the foundations for sound growth.
