The Egyptian government continues to make progress on economic reforms, and while many challenges remain, Egypt’s investment climate is improving. The country has undertaken a number of structural reforms since the flotation of the Egyptian Pound (EGP) in November 2016, and after successfully completing a set of difficult macroeconomic reforms as part of a three-year, $12-billion International Monetary Fund (IMF) program, Egypt was one of the fastest-growing emerging markets prior to the COVID-19 outbreak. Egypt was also the only economy in the Middle East and North Africa to record positive economic growth in 2020, despite the COVID-19 pandemic. Increased investor confidence and the reactivation of Egypt’s interbank foreign exchange (FX) market have attracted foreign portfolio investment and increased foreign reserves. The Government of Egypt (GoE) increasingly understands that attracting foreign direct investment (FDI) is key to addressing many of its economic challenges and has stated its intention to create a more conducive environment for FDI. FDI inflows grew 11 percent between 2018 and 2019, from $8.1 to $9 billion, before falling 39 percent to $5.5 billion in 2020 amid sharp global declines in FDI due to the pandemic, according to data from the Central Bank of Egypt and the United Nations Commission on Trade and Development (UNCTAD). UNCTAD ranked Egypt as the top FDI destination in Africa between 2016 and 2020.
Egypt has passed a number of regulatory reform laws, including a new investment law in 2017; a new companies law and a bankruptcy law in 2018; and a new customs law in 2020. These laws aim to improve Egypt’s investment and business climate and help the economy realize its full potential. The 2017 Investment Law is designed to attract new investment and provides a framework for the government to offer investors more incentives, consolidate investment-related rules, and streamline procedures. The 2020 Customs Law is likewise meant to streamline aspects of import and export procedures, including through a single-window system, electronic payments, and expedited clearances for authorized companies. The GoE is still developing implementation rules for the Customs Law.
The government also hopes to attract investment in several “mega projects,” including the construction of a new national administrative capital, and to promote mineral extraction opportunities. Egypt intends to capitalize on its location bridging the Middle East, Africa, and Europe to become a regional trade and investment gateway and energy hub, and hopes to attract information and communications technology (ICT) sector investments for its digital transformation program.
Egypt is a party to more than 100 bilateral investment treaties, including with the United States. It is a member of the World Trade Organization (WTO), the African Continental Free Trade Agreement (AfCFTA), and the Greater Arab Free Trade Area (GAFTA). In many sectors, there is no legal difference between foreign and domestic investors. Special requirements exist for foreign investment in certain sectors, such as upstream oil and gas as well as real estate, where joint ventures are required.
|TI Corruption Perceptions Index||2020||117 of 180||http://www.transparency.org/research/cpi/overview|
|World Bank’s Doing Business Report||2020||114 of 190||http://www.doingbusiness.org/en/rankings|
|Global Innovation Index||2020||96 of 131||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, on a historical-cost basis||2019||USD 11,000||http://www.bea.gov/international/factsheet/|
|World Bank GNI per capita||2019||USD 2,690||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Egypt’s completion of the three-year, $12-billion IMF Extended Fund Facility between 2016 and 2019, and its associated reform package, helped stabilize Egypt’s macroeconomy, introduced important subsidy and social spending reforms, and helped restore investor confidence in the Egyptian economy. The flotation of the Egyptian Pound (EGP) in November 2016 and the restart of Egypt’s interbank foreign exchange (FX) market as part of this program was the first major step in restoring investor confidence that immediately led to increased portfolio investment and should lead to increased FDI over the long term. Other important reforms have included a new investment law and an industrial licensing law in 2017, a new bankruptcy law in 2018, a new customs law in 2020, and other reforms aimed at reducing regulatory overhang and improving the ease of doing business. Egypt’s government has announced plans to improve its business climate further through investment promotion, facilitation, more efficient business services, and the implementation of investor-friendly policies.
With few exceptions, Egypt does not legally discriminate between Egyptian nationals and foreigners in the formation and operation of private companies. The 1997 Investment Incentives Law was designed to encourage domestic and foreign investment in targeted economic sectors and to promote decentralization of industry away from the Nile Valley. The law allows 100 percent foreign ownership of investment projects and guarantees the right to remit income earned in Egypt and to repatriate capital.
The Tenders Law (Law 89 of 1998) requires the government to consider both price and best value in awarding contracts and to issue an explanation for refusal of a bid. However, the law contains preferences for Egyptian domestic contractors, who are accorded priority if their bids do not exceed the lowest foreign bid by more than 15 percent.
The Capital Markets Law (Law 95 of 1992) and its amendments, including the most recent in February 2018, and relevant regulations govern Egypt’s capital markets. Foreign investors are able to buy shares on the Egyptian Stock Exchange on the same basis as local investors.
The General Authority for Investment and Free Zones (GAFI, http://gafi.gov.eg) is the principal government body that regulates and facilitates foreign investment in Egypt, and reports directly to the Prime Minister.
The Investor Service Center (ISC) is an administrative unit within GAFI that provides “one-stop-shop” services, easing the way for global investors looking for opportunities presented by Egypt’s domestic economy and the nation’s competitive advantages as an export hub for Europe, the Middle East, and Africa. This is in addition to promoting Egypt’s investment opportunities in various sectors.
The ISC provides a start-to-end service to the investor, including assistance related to company incorporation, establishment of company branches, approval of minutes of Board of Directors and General Assemblies, increases of capital, changes of activity, liquidation procedures, and other corporate-related matters. The Center also aims to issue licenses, approvals, and permits required for investment activities within 60 days from the date of request. Other services GAFI provides include:
Advice and support to help in the evaluation of Egypt as a potential investment location;
Identification of suitable locations and site selection options within Egypt;
Assistance in identifying suitable Egyptian partners; and
Aftercare and dispute settlement services.
The ISC plans to establish branches in each of Egypt’s Governorates by the end of 2021. Egypt maintains ongoing communication with investors through formal business roundtables, investment promotion events (conferences and seminars), and one-on-one investment meetings.
Limits on Foreign Control and Right to Private Ownership and Establishment
The Egyptian Companies Law does not set any limitation on the number of foreigners, neither as shareholders nor as managers/board members, except for Limited Liability Companies where the only restriction is that one of the managers must be an Egyptian national. In addition, companies are required to obtain a commercial and tax license, and pass a security clearance process. Companies are able to operate while undergoing the often lengthy security screening process. However, if the firm is rejected, it must cease operations and may undergo a lengthy appeals process. Businesses have cited instances where Egyptian clients were hesitant to conclude long-term business contracts with foreign businesses that have yet to receive a security clearance. They have also expressed concern about seemingly arbitrary refusals, a lack of explanation when a security clearance is not issued, and the lengthy appeals process. Although the Government of Egypt has made progress streamlining the business registration process at GAFI, inconsistent treatment by banks and other government officials has in some cases led to registration delays.
Sector-specific limitations to investment include restrictions on foreign shareholding of companies owning lands in the Sinai Peninsula. Likewise, the Import-Export Law requires companies wishing to register in the Import Registry to be 51 percent owned and managed by Egyptians. Nevertheless, the new Investment Law does allow wholly foreign companies investing in Egypt to import goods and materials. In January 2021 the Egyptian government removed the 20-percent foreign ownership cap for international and private schools in Egypt.
The ownership of land by foreigners is complicated, in that it is governed by three laws: Law 15 of 1963, Law 143 of 1981, and Law 230 of 1996. Land/Real Estate Law 15 of 1963 explicitly prohibits foreign individual or corporation ownership of agricultural land (defined as traditional agricultural land in the Nile Valley, Delta and Oases). Law 15/1963 stipulates that no foreigners, whether natural or juristic persons, may acquire agricultural land. Law 143/1981 governs the acquisition and ownership of desert land. Certain limits are placed on the number of feddans (one feddan is approximately equal to one acre) that may be owned by individuals, families, cooperatives, partnerships, and corporations regardless of nationality. Partnerships are permitted to own 10,000 feddans. Joint stock companies are permitted to own 50,000 feddans.
Under Law 230/1986, non-Egyptians are allowed to own real estate (vacant or built) only under the following conditions:
- Ownership is limited to two real estate properties in Egypt that serve as accommodation for the owner and his family (spouses and minors) in addition to the right to own real estate needed for activities licensed by the Egyptian Government.
- The area of each real estate property does not exceed 4,000 m².
- The real estate is not considered a historical site.
Exemption from the first and second conditions is subject to the approval of the Prime Minister. Ownership in tourist areas and new communities is subject to conditions established by the Cabinet of Ministers. Non-Egyptians owning vacant real estate in Egypt must build within a period of five years from the date their ownership is registered by a notary public. Non-Egyptians cannot sell their real estate for five years after registration of ownership, unless the Prime Minister consents to an exemption.
Other Investment Policy Reviews
In December 2020, the World Bank published a Country Private Sector Diagnostic report for Egypt, which analyzed key structural economic reforms that the Egyptian government should adopt in order to encourage private-sector-led economic growth. The report also included recommendations for the agribusiness, manufacturing, information technology, education, and healthcare sectors. https://www.ifc.org/wps/wcm/connect/publications_ext_content/ifc_external_publication_site/publications_listing_page/cpsd-egypt
The Organization for Economic Cooperation and Development (OECD) signed a declaration with Egypt on International Investment and Multinational Enterprises on July 11, 2007, at which time Egypt became the first Arab and African country to sign the OECD Declaration, marking a new stage in Egypt’s drive to attract more foreign direct investment (FDI). On July 8, 2020, the OECD released an Investment Policy Review for Egypt that highlighted the government’s progress implementing a proactive reform agenda to improve the business climate, attract more foreign and domestic investment, and reap the benefits of openness to FDI and participation in global value chains. https://www.oecd.org/countries/egypt/egypt-continues-to-strengthen-its-institutional-and-legal-framework-for-investment.htm
In January 2018 the World Trade Organization (WTO) published a comprehensive review of the Egyptian Government’s trade policies, including details of the Investment Law’s (Law 72 of 2017) main provisions. https://www.wto.org/english/tratop_e/tpr_e/s367_e.pdf
The United Nations Conference on Trade Development (UNCTAD) published an Information and Communications Technology (ICT) Policy Review for Egypt in 2017, in which it highlighted the potential for investments in the ICT sector to help drive economic growth and recommended specific reforms aimed at strengthening Egypt’s performance in key ICT policy areas. https://unctad.org/en/PublicationsLibrary/dtlstict2017d3_en.pdf
GAFI’s ISC ( https://gafi.gov.eg/English/Howcanwehelp/OneStopShop/Pages/default.aspx ) was launched in February 2018 and provides start-to-end service to the investor, as described above. The Investment Law (Law 72 of 2017) also introduces “Ratification Offices” to facilitate obtaining necessary approvals, permits, and licenses within 10 days of issuing a Ratification Certificate.
Investors may fulfill the technical requirements of obtaining the required licenses through these Ratification Offices, directly through the concerned authority, or through its representatives at the Investment Window at GAFI. The Investor Service Center is required to issue licenses within 60 days from submission. Companies can also register online. GAFI has also launched e-establishment, e-signature, and e-payment services to facilitate establishing companies.
Egypt promotes and incentivizes outward investment. According to the Egyptian government’s FDI Markets database for the period from January 2003 to January 2021, outward investment featured the following:
- Egyptian companies implemented 278 Egyptian FDI projects. The estimated total value of the projects, which employed about 49,000 workers, was $24.26 billion.
- The following countries respectively received the largest amount of Egyptian outward investment in terms of total project value: The United Arab Emirates (UAE), Saudi Arabia, Algeria, Kenya, Jordan, Ethiopia, Germany, Libya, Morocco, and Nigeria.
- The UAE, Saudi Arabia, and Algeria accounted for about 28 percent of the total amount.
- Elsewedy Electric was the largest Egyptian company investing abroad, implementing 21 projects with a total investment estimated to be $2.1 billion.
Egypt does not restrict domestic investors from investing abroad.
3. Legal Regime
Transparency of the Regulatory System
The Egyptian government has made efforts to improve the transparency of government policy and to support a fair, competitive marketplace. Nevertheless, improving government transparency and consistency has proven difficult, and reformers have faced strong resistance from entrenched bureaucratic and private interests. Significant obstacles continue to hinder private investment, including the reportedly arbitrary imposition of bureaucratic impediments and the length of time needed to resolve them. Nevertheless, the impetus for positive change driven by the government reform agenda augurs well for improvement in policy implementation and transparency.
Enactment of laws is the purview of the Parliament, while executive regulations are the domain of line ministries. Under the Constitution, the president, the cabinet, and any member of parliament can present draft legislation. After submission, parliamentary committees review and approve, including any amendments. Upon parliamentary approval, a judicial body reviews the constitutionality of any legislation before referring it to the president for his approval.
Although notice and full drafts of legislation are typically printed in the Official Gazette (similar to the Federal Register in the United States), there is no centralized online location where the government publishes comprehensive details about regulatory decisions or their summaries, and in practice consultation with the public is limited. In recent years, the Ministry of Trade and other government bodies have circulated draft legislation among concerned parties, including business associations and labor unions. This has been a welcome change from previous practice, but is not yet institutionalized across the government.
While Egyptian parliaments have historically held “social dialogue” sessions with concerned parties and private or civic organizations to discuss proposed legislation, it is unclear to what degree the current Parliament will adopt a more inclusive approach to social dialogue. Many aspects of the 2016 IMF program and related economic reforms stimulated parliament to engage more broadly with the public, marking some progress in this respect.
Accounting, legal, and regulatory procedures are transparent and consistent with international norms. The Financial Regulatory Authority (FRA) supervises and regulates all non-banking financial markets and instruments, including capital markets, futures exchanges, insurance activities, mortgage finance, financial leasing, factoring, securitization, and microfinance. It issues rules that facilitate market efficiency and transparency. FRA has issued legislation and regulatory decisions on non-banking financial laws which govern FRA’s work and the entities under its supervision. ( http://www.fra.gov.eg/jtags/efsa_en/index_en.jsp )
The criteria for awarding government contracts and licenses are made available when bid rounds are announced. The process actually used to award contracts is broadly consistent with the procedural requirements set forth by law. Further, set-aside requirements for small and medium-sized enterprise (SME) participation in GoE procurement are increasingly highlighted. The FRA publishes key laws and regulations to the following website: http://www.fra.gov.eg/content/efsa_en/efsa_pages_en/laws_efsa_en.htm
The Parliament and the independent “Administrative Control Authority” both ensure the government’s commitment to follow administrative processes at all levels of government.
The cabinet develops and submits proposed regulations to the president following discussion and consultation with the relevant ministry and informal consultation with other interest groups. Based on the recommendations provided in the proposal, including recommendations by the presidential advisors, the president issues “Presidential Decrees” that function as implementing regulations. Presidential decrees are published in the Official Gazette for enforcement.
The degree to which ministries and government agencies responsible for drafting, implementing, or enforcing a given regulation coordinate with other stakeholders varies widely. Although some government entities may attempt to analyze and debate proposed legislation or rules, there are no laws requiring scientific studies or quantitative regulatory impact analyses prior to finalizing or implementing new laws or regulations. Not all issued regulations are announced online, and not all public comments received by regulators are made public.
The government made its budget documents widely and easily accessible to the general public, including online. Budget documents did not include allocations to military state-owned enterprises, nor allocations to and earnings from state-owned enterprises. Information on government debt obligations was publicly available online, but up-to-date and clear information on state-owned enterprise debt guaranteed by the government was not available. According to information the Central Bank has provided to the World Bank, the lack of information available about publicly guaranteed private-sector debt meant that this debt was generally recorded as private-sector non-guaranteed debt, thus potentially obscuring some contingent debt liabilities.
International Regulatory Considerations
In general, international standards are the main reference for Egyptian standards. According to the Egyptian Organization for Standardization and Quality Control, approximately 7,000 national standards are aligned with international standards in various sectors. In the absence of international standards, Egypt uses other references referred to in Ministerial Decrees No. 180/1996 and No. 291/2003, which stipulate that in the absence of Egyptian standards, the producers and importers may use European standards (EN), U.S. standards (ANSI), or Japanese standards (JIS).
Egypt is a member of the WTO, participates actively in various committees, and notifies technical regulations to the WTO Committee on Technical Barriers to Trade. Egypt ratified the Trade Facilitation Agreement (TFA) in June 2017 (Presidential decree No. 149/2017), and deposited its formal notification to the WTO on June 24, 2019. Egypt notified indicative and definitive dates for implementing Category B and C commitments on June 20, 2019, but to date has not notified dates for implementing Category A commitments. In August 2020 the Egyptian Parliament passed a new Customs Law, Law 207 of 2020, that includes provisions for key TFA reforms, including advance rulings, separation of release, a single-window system, expedited customs procedures for authorized economic operators, post-clearance audits, and e-payments.
Legal System and Judicial Independence
Egypt’s legal system is a civil codified law system based on the French model. If contractual disputes arise, claimants can sue for remedies through the court system or seek resolution through arbitration. Egypt has written commercial and contractual laws. The country has a system of economic courts, specializing in private-sector disputes, which have jurisdiction over cases related to economic and commercial matters, including intellectual property disputes. The judiciary is set up as an independent branch of the government.
Regulations and enforcement actions can be appealed through Egypt’s courts, though appellants often complain about the lengthy judicial process, which can often take years. To enforce judgments of foreign courts in Egypt, the party seeking to enforce the judgment must obtain an exequatur (a legal document issued by governments allowing judgements to be enforced). To apply for an exequatur, the normal procedures for initiating a lawsuit in Egypt must be satisfied. Moreover, several other conditions must be satisfied, including ensuring reciprocity between the Egyptian and foreign country’s courts, and verifying the competence of the court rendering the judgment.
Judges in Egypt enjoy a high degree of public trust, according to Egyptian lawyers and opinion polls, and are the designated monitors for general elections. The Judiciary is proud of its independence and can point to a number of cases where a judge has made surprising decisions that run counter to the desires of the regime. The judge’s ability to interpret the law can sometimes lead to an uneven application of justice.
Laws and Regulations on Foreign Direct Investment
No specialized court exists for foreign investments.
The 2017 Investment Law (Law 72 of 2017) as well as other FDI-related laws and regulations, are published on GAFI’s website, https://gafi.gov.eg/English/StartaBusiness/Laws-and-Regulations/Pages/default.aspx .
In 2017 the Parliament also passed the Industrial Permits Act, which reduced the time it takes to license a new factory by mandating that the Industrial Development Authority (IDA) respond to a request for a license within 30 days of the request being filed. As of February 2020, new regulations allow IDA regional branch directors or their designees to grant conditional licenses to industrial investors until other registration requirements are complete.
In 2016, the Import-Export Law was revised to allow companies wishing to register in the Import Registry to be 51 percent owned and managed by Egyptians; formerly the law required 100 percent Egyptian ownership and management. In November 2016, the inter-ministerial Supreme Investment Council also announced seventeen presidential decrees designed to spur investment or resolve longstanding issues. These include:
- Forming a “National Payments Council” that will work to restrict the handling of FX outside the banking sector;
- Producers of agricultural crops that Egypt imports or exports will get tax exemptions;
- Five-year tax exemptions for manufacturers of “strategic” goods that Egypt imports or exports;
- Five-year tax exemptions for agriculture and industrial investments in Upper Egypt; and
- Begin tendering land with utilities for industry in Upper Egypt for free as outlined by the Industrial Development Authority.
Competition and Anti-Trust Laws
The Egyptian Competition Law (ECL), Law 3 of 2005, provides the framework for the government’s competition rules and anti-trust policies. The ECL prohibits the abuse of dominant market positions, which it defines as a situation in which a company’s market share exceeds 25 percent and in which the company is able to influence market prices or volumes regardless of competitors’ actions. The ECL prohibits vertical agreements or contracts between purchasers and suppliers that are intended to restrict competition, and also forbids agreements among competitors such as price collusion, production-restriction agreements, market sharing, and anti-competitive arrangements in the tendering process. The ECL applies to all types of persons or enterprises carrying out economic activities, but includes exemptions for some government-controlled public utilities. In early 2019, the Egyptian Parliament endorsed a number of amendments to the ECL, including controls on price hikes and prices of essential products and higher penalties for violations.
In addition to the ECL, other laws cover various aspects of competition policy. The Companies Law (Law 159/1981) contains provisions on mergers and acquisitions; the Law of Supplies and Commerce (Law 17 of 1999) forbids competition-reducing activities such as collusion and hoarding; and the Telecommunications Law (Law 10 of 2003), the Intellectual Property Law (Law 82 of 2002), and the Insurance Supervision and Control Law (Law 10 of 1981) also include provisions on competition.
The Egyptian Competition Authority (ECA) is responsible for protecting competition and prohibiting the monopolistic practices defined within the ECL. The ECA has the authority to receive and investigate complaints, initiate its own investigations, and take decisions and necessary steps to stop anti-competitive practices. The ECA’s enforcement powers include conducting raids; using search warrants; requesting data and documentation; and imposing “cease and desist orders” on violators of the ECL. The ECA’s enforcement activities against government entities are limited to requesting data and documentation, as well as advocacy.
Expropriation and Compensation
Egypt’s Investment Incentives Law provides guarantees against nationalization or confiscation of investment projects under the law’s domain. The law also provides guarantees against seizure, requisition, blocking, and placing of assets under custody or sequestration. It offers guarantees against full or partial expropriation of real estate and investment project property. The U.S.-Egypt Bilateral Investment Treaty also provides protection against expropriation. Private firms are able to take cases of alleged expropriation to court, but the judicial system can take several years to resolve a case.
ICSID Convention and New York Convention
Egypt acceded to the International Convention for the Settlement of Investment Disputes (ICSID) in 1971 and is a member of the International Center for the Settlement of Investment Disputes, which provides a framework for the arbitration of investment disputes between the government and foreign investors from another member state, provided the parties agree to such arbitration. Without prejudice to Egyptian courts, the Investment Incentives Law recognizes the right of investors to settle disputes within the framework of bilateral agreements, the ICSID, or through arbitration before the Regional Center for International Commercial Arbitration in Cairo, which applies the rules of the United Nations Commissions on International Trade Law.
Egypt adheres to the 1958 New York Convention on the Enforcement of Arbitral Awards; the 1965 Washington Convention on the Settlement of Investment Disputes between States and the Nationals of Other States; and the 1974 Convention on the Settlement of Investment Disputes between the Arab States and Nationals of Other States. An award issued pursuant to arbitration that took place outside Egypt may be enforced in Egypt if it is either covered by one of the international conventions to which Egypt is party or it satisfies the conditions set out in Egypt’s Dispute Settlement Law 27 of 1994, which provides for the arbitration of domestic and international commercial disputes and limited challenges of arbitration awards in the Egyptian judicial system. The Dispute Settlement Law was amended in 1997 to include disputes between public enterprises and the private sector.
To enforce judgments of foreign courts in Egypt, the party seeking to enforce the judgment must obtain an exequatur. To apply for an exequatur, the normal procedures for initiating a lawsuit in Egypt and several other conditions must be satisfied, including ensuring reciprocity between the Egyptian and foreign country’s courts and verifying the competence of the court rendering the judgment.
Egypt has a system of economic courts specializing in private-sector disputes that have jurisdiction over cases related to economic and commercial matters, including intellectual property disputes. Despite these provisions, business and investors in Egypt’s renewable energy projects have reported significant problems resolving disputes with the Government of Egypt.
Investor-State Dispute Settlement
The U.S.-Egypt Bilateral Investment Treaty allows an investor to take a dispute directly to binding third-party arbitration. The Egyptian courts generally endorse international arbitration clauses in commercial contracts. For example, the Court of Cassation has, on a number of occasions, confirmed the validity of arbitration clauses included in contracts between Egyptian and foreign parties.
A new mechanism for simplified settlement of investment disputes aimed at avoiding the court system altogether has been established. In particular, the law established a Ministerial Committee on Investment Contract Disputes, responsible for the settlement of disputes arising from investment contracts to which the State, or a public or private body affiliated therewith, is a party. This is in addition to establishing a Complaint Committee to consider challenges connected to the implementation of Egypt’s Investment Law. Finally, the decree established a Committee for Resolution of Investment Disputes, which will review complaints or disputes between investors and the government related to the implementation of the Investment Law. In practice, Egypt’s dispute resolution mechanisms are time-consuming but broadly effective. Businesses have, however, reported difficulty collecting payment from the government when awarded a monetary settlement.
Over the past 10 years, there have been several investment disputes involving both U.S. persons and foreign investors. Most of the cases have been settled, though no definitive number is available. Local courts in Egypt recognize and enforce foreign arbitral awards issued against the government. There are no known extrajudicial actions against foreign investors in Egypt during the period of this report.
International Commercial Arbitration and Foreign Courts
Egypt allows mediation as a mechanism for alternative dispute resolution (ADR), a structured negotiation process in which an independent person known as a mediator assists the parties to identify and assess options, and negotiate an agreement to resolve their dispute. GAFI has an Investment Disputes Settlement Center, which uses mediation as an ADR.
The Economic Court recognizes and enforces arbitral awards. Judgments of foreign courts may be recognized and enforceable under local courts under limited conditions.
In most cases, domestic courts have found in favor of state-owned enterprises (SOEs) involved in investment disputes. In such disputes, non-government parties have often complained about the delays and discrimination in court processes.
Many foreign investors employ clauses that specify that U.S. companies employ contractual clauses that specify binding international (not local) arbitration of disputes in their commercial agreements.
Egypt passed a Bankruptcy Law (Law 11 of 2018) in January 2018, which was designed to speed up the restructuring of troubled companies and settlement of their accounts. It also replaced the threat of imprisonment with fines in cases of bankruptcy. As of July 2020, the Egyptian government was considering but had not yet implemented amendments to the 2018 law that would allow debtors to file for bankruptcy protection, and would give creditors the ability to determine whether debtors could continue operating, be placed under administrative control, or be forced to liquidate their assets.
In practice, the paperwork involved in liquidating a business remains convoluted and protracted; starting a business is much easier than shutting one down. Bankruptcy is frowned upon in Egyptian culture, and many businesspeople still believe they may be found criminally liable if they declare bankruptcy.
4. Industrial Policies
The Investment Law 72/2017 gives multiple incentives to investors as described below. In August 2019, President Sisi ratified amendments to the Investment Law that allow its incentive programs to apply to expansions of existing investment projects in addition to new investments.
- All investment projects subject to the provisions of the new law enjoy the general incentives provided by it.
- Investors are exempted from the stamp tax, notary fees, registration of the Memorandum of Incorporation of the companies, credit facilities, and mortgage contracts associated with their business for five years from the date of registration in the Commercial Registry, in addition to the registration contracts of the lands required for a company’s establishment.
- If the establishment is under the provisions of the new investment law, it will benefit from a two-percent unified custom tax over all imported machinery, equipment, and devices required for the set-up of such a company.
Special Incentive Programs:
- Investment projects established within three years of the date of the issuance of the Investment Law (Law 72 of 2017) will enjoy a perpetual deduction from their net profit subject to the income tax;
- 50 percent deduction of depreciated investment costs from taxes, infrastructure fees, and cost of lands for projects in regions the government has identified as most in need of development, as well as designated projects in Suez Canal Special Economic Zone and the “Golden Triangle” along the Red Sea between the cities of Safaga, Qena, and El Quseer; or
- 30 percent deduction of depreciated investment costs from taxes, infrastructure fees, and land costs for projects elsewhere in Egypt; and
- Provided that such deduction shall not exceed 80 percent of the paid-up capital of the company, the incentive could be utilized over a maximum of seven years.
Additional Incentive Program:
The Cabinet of Ministers may decide to grant additional incentives for investment projects in accordance with specific rules and regulations as follows:
- The establishment of special customs ports for exports and imports of the investment projects.
- The state may incur part of the costs of the technical training for workers.
- Free allocation of land for a few strategic activities may apply.
- The government may bear in full or in part the costs incurred by the investor to invest in utility connections for the investment project.
- The government may refund half the price of the land allocated to industrial projects in the event of starting production within two years from receiving the land.
Other Incentives related to Free Zones according to Investment Law 72/2017:
- Exemption from all taxes and customs duties.
- Exemption from all import/export regulations.
- The option to sell a certain percentage of production domestically if customs duties are paid.
- Limited exemptions from labor provisions.
- All equipment, machinery, and essential means of transport (excluding sedan cars) necessary for business operations are exempted from all customs, import duties, and sales taxes.
- All licensing procedures are handled by GAFI. To remain eligible for benefits, investors operating inside the free zones must export more than 50 percent of their total production.
- Manufacturing or assembly projects pay an annual charge of one percent of the total value of their products excluding all raw materials. Storage facilities are to pay one percent of the value of goods entering the free zones, while service projects pay one percent of total annual revenue.
- Goods in transit to specific destinations are exempt from any charges.
Other Incentives related to the Suez Canal Economic Zone (SCZone): 100 percent foreign ownership of companies allowed.
- 100 percent foreign ownership of companies allowed.
- 100 percent foreign control of import/export activities allowed.
- Imports are exempted from customs duties and sales tax.
- Customs duties on exports to Egypt imposed on imported components only, not the final product.
- Fast-track visa services.
- A full service one-stop shop for registration and licensing.
- Allowing enterprises access to the domestic market; duties on sales to domestic market will be assessed on the value of imported inputs only.
The Tenders Law (Law 89/1998) requires the government to consider both price and best value in awarding contracts and to issue an explanation for refusal of a bid. However, the law contains preferences for Egyptian domestic contractors, who are accorded priority if their bids do not exceed the lowest foreign bid by more than 15 percent.
The Ministry of Industry & Foreign Trade and the Ministry of Finance’s Decree No. 719/2007 provides incentives for industrial projects in the governorates of Upper Egypt (Upper Egypt refers to governorates in southern Egypt). The decree provides an incentive of 15,000 EGP (approx. $940) for each job opportunity created by the project, on the condition that the investment costs of the project exceed 15 million EGP (approx. $940,000). The decree can be implemented on both new and ongoing projects.
Foreign Trade Zones/Free Ports/Trade Facilitation
Public and private free-trade zones are authorized under GAFI’s Investment Incentive Law No. 72 of 2017. Free zones are located within the national territory, but are considered to be outside Egypt’s customs boundaries, granting firms doing business within them more freedom on transactions and exchanges. Companies producing largely for export (normally 80 percent or more of total production) may be established in free-trade zones and operate using foreign currency. Free-trade zones are open to investment by foreign or domestic investors. Companies operating in free-trade zones are exempted from sales taxes or taxes and fees on capital assets and intermediate goods. The Legislative Package for the Stimulation of Investment, issued in 2015, stipulated a one-percent duty paid on the value of commodities upon entry for storage projects and a one-percent duty upon exit for manufacturing and assembly projects.
There are currently nine public free trade zones in operation in the following locations: Alexandria; Damietta; Ismailia; Qeft; Media Production City; Nasr City; Port Said; Shebin el Kom; and Suez. Private free-trade zones may also be established with a decree by GAFI but are usually limited to a single project. Export-oriented industrial projects are given priority. There is no restriction on foreign ownership of capital in private free zones.
The Special Economic Zones (SEZ) Law 83/2002 allows establishment of special zones for industrial, agricultural, or service activities designed specifically with the export market in mind. The law allows firms operating in these zones to import capital equipment, raw materials, and intermediate goods duty free. Companies established in the SEZs are also exempt from sales and indirect taxes and can operate under more flexible labor regulations. The first SEZ was established in the northwest Gulf of Suez.
Investment Law 72 of 2017 authorized creation of investment zones with Prime Ministerial approval. The government regulates these zones through a board of directors, but the zones are established, built, and operated by the private sector. The government does not provide any infrastructure or utilities in these zones. Investment zones enjoy the same benefits as free zones in terms of facilitation of license-issuance, ease of dealing with other agencies, etc., but are not granted the incentives and tax/custom exemptions enjoyed in free zones. Projects in investment zones pay the same tax/customs duties applied throughout Egypt. The aim of the law is to assist the private sector in diversifying its economic activities. There are currently five investment zones located in Cairo, Giza, and Ismailia, and in 2019 GAFI approved the development of an additional 12 investment zones in the Alexandria, Dakhalia, Damietta, Fayoum, Giza, Qalyubia, and Sharkia governorates.
The Suez Canal Economic Zone ( http://www.sczone.com.eg/English/Pages/default.aspx) , a major industrial and logistics services hub announced in 2014, includes upgrades and renovations to ports located along the Suez Canal corridor, including West and East Port Said, Ismailia, Suez, Adabiya, and Ain Sokhna. The Egyptian government has invited foreign investors to take part in the projects, which are expected to be built in several stages, the first of which was scheduled to be completed by mid-2020. Reported areas for investment include maritime services like ship repair services, bunkering, vessel scrapping and recycling; industrial projects, including pharmaceuticals, food processing, automotive production, consumer electronics, textiles, and petrochemicals; IT services such as research and development and software development; renewable energy; and mixed use, residential, logistics, and commercial developments.
Performance and Data Localization Requirements
Egypt has rules on national percentages of employment and difficult visa and work permit procedures. The government plans to phase out visas for unskilled workers, but as yet has not done so. For most other jobs, employers may hire foreign workers on a temporary six-month basis, but must also hire two Egyptians to be trained to do the job during that period. Only jobs where it is not possible for Egyptians to acquire the requisite skills will remain open to foreign workers. The application of these regulations is inconsistent. The Labor Law allows Ministers to set the maximum percentage of foreign workers that may work in companies in a given sector. There are no such sector-wide maximums for the oil and gas industry, but individual concession agreements may contain language establishing limits or procedures regarding the proportion of foreign and local employees.
No performance requirements are specified in the Investment Incentives Law, and the ability to fulfill local content requirements is not a prerequisite for approval to set up assembly projects. In many cases, however, assembly industries still must meet a minimum local content requirement in order to benefit from customs tariff reductions on imported industrial inputs.
Decree 184/2013 allows for the reduction of customs tariffs on intermediate goods if the final product has a certain percentage of input from local manufacturers, beginning at 30 percent local content. As the percentage of local content rises, so does the tariff reduction, reaching up to 90 percent if the amount of local input is 60 percent or above. Exporters receive additional subsidies if they use a greater portion of local raw materials. In certain cases, a minister can grant tariff reductions of up to 40 percent in advance.
Prime Minister issued Decision No. 3053 of 2019 regarding the formation of joint committees in the inspection yards at each customs port. These committees include representatives of the customs authority and the concerned authorities and bodies according to type of goods. The committees are responsible for completing inspection and control procedures for imported or exported goods within a period not exceeding three working days from the date of the customs declaration was registered.
Manufacturers wishing to export under trade agreements between Egypt and other countries must complete certificates of origin and satisfy the local content requirements contained therein. Oil and gas exploration concessions, which do not fall under the Investment Incentives Law, have performance standards specified in each individual agreement, which generally include the drilling of a specific number of wells in each phase of the exploration period stipulated in the agreement.
Egypt does not impose localization barriers on ICT firms. Egypt’s Personal Data Protection Act (Law 151/2020), signed into law in July 2020, will require licenses for cross-border data transfers once the law’s executive regulations are finalized, but it will not impose any data localization requirements. Similarly, Egypt does not make local production a requirement for market access, does not have local content requirements, and does not impose forced technology or intellectual property transfers as a condition of market access. But there are exceptions where the government has attempted to impose controls by requesting access to a company’s servers located offshore, or requested servers to be located in Egypt and thus under the government’s control.
Egypt has a set of laws to combat corruption by public officials, including an Anti-Bribery Law (articles 103 through 111 of Egypt’s Penal Code), an Illicit Gains Law (Law 62/1975 and subsequent amendments in Law 97/2015), and a Governmental Accounting Law (Law 27/1981), among others. Countering corruption remains a long-term focus. However, corruption laws have not been consistently enforced. Transparency International’s Corruption Perceptions Index ranked Egypt 106 out of 198 in its 2019 survey. Transparency International also found that approximately 50 percent of Egyptians reported paying a bribe in order to obtain a public service.
Some private companies use internal controls, ethics, and compliance programs to detect and prevent bribery of government officials. There is no government requirement for private companies to establish internal codes of conduct to prohibit bribery.
Egypt ratified the United Nations Convention against Corruption in 2005. It has not acceded to the OECD Convention on Combating Bribery or any other regional anti-corruption conventions.
While NGOs are active in encouraging anti-corruption activities, dialogue between the government and civil society on this issue is almost non-existent, the OECD found in 2009 in a trend that continues to this day. While government officials publicly asserted they shared civil society organizations’ goals, they rarely cooperated with NGOs, and applied relevant laws in a highly restrictive manner against NGOs critical of government practices. Media was also limited in its ability to report on corruption, with Article 188 of the Penal Code mandating heavy fines and penalties for unsubstantiated corruption allegations.
U.S. firms have identified corruption as an obstacle to FDI in Egypt. Companies might encounter corruption in the public sector in the form of requests for bribes, using bribes to facilitate required government approvals or licenses, embezzlement, and tampering with official documents. Corruption and bribery are reported in dealing with public services, customs (import license and import duties), public utilities (water and electrical connection), construction permits, and procurement, as well as in the private sector. Businesses have described a dual system of payment for services, with one formal payment and a secondary, unofficial payment required for services to be rendered.
Resources to Report Corruption
Several agencies within the Egyptian government share responsibility for addressing corruption. Egypt’s primary anticorruption body is the Administrative Control Authority (ACA), which has jurisdiction over state administrative bodies, state-owned enterprises, public associations and institutions, private companies undertaking public work, and organizations to which the state contributes in any form. 2017 amendments to the ACA law grant the organization full technical, financial, and administrative authority to investigate corruption within the public sector (with the exception of military personnel/entities). The ACA appears well funded and well trained when compared with other Egyptian law enforcement organizations. Strong funding and the current ACA leadership’s close relationship with President Sisi reflect the importance of this organization and its mission. However, it is small (roughly 300 agents) and is often tasked with work that would not normally be conducted by a law enforcement agency.
The ACA periodically engages with civil society. For example, it has met with the American Chamber of Commerce in Egypt and other organizations to encourage them to seek it out when corruption issues arise.
In addition to the ACA, the Central Auditing Authority (CAA) acts as an anti-corruption body, stationing monitors at state-owned companies to report corrupt practices. The Ministry of Justice’s Illicit Gains Authority is charged with referring cases in which public officials have used their office for private gain. The Public Prosecution Office’s Public Funds Prosecution Department and the Ministry of Interior’s Public Funds Investigations Office likewise share responsibility for addressing corruption in public expenditures.
Resources to Report Corruption
Minister of Interior
General Directorate of Investigation of Public Funds
Telephone: 02-2792-1395 / 02-2792 1396
10. Political and Security Environment
Stability and economic development remain Egypt’s priorities. The Egyptian government has taken measures to eliminate politically motivated violence while also limiting peaceful protests and political expression. Egypt’s presidential elections in March 2018 and senatorial elections in August 2020 proceeded without incident. Militant groups also committed attacks in the Western Desert and Sinai. The government has been conducting a comprehensive counterterrorism offensive in the Sinai since early 2018 in response to terrorist attacks against military installations and personnel by ISIS-affiliated militant groups. In February 2020, ISIS-affiliated militants claimed responsibility for an attack against a domestic gas pipeline in the northern Sinai. Although the group claimed that the attack targeted the recently opened natural gas pipeline connecting Egypt and Israel, the pipeline itself was undamaged, and the flow of natural gas was not interrupted.
11. Labor Policies and Practices
Official statistics put Egypt’s labor force at approximately 29 million, with an official unemployment rate of 7.3 percent at the end of 2020. Women accounted for 25 percent of those unemployed as of May 2020, according to statistics from Egypt’s Central Agency for Public Mobilization and Statistics (CAPMAS). Accurate figures are difficult to determine and verify given Egypt’s large informal economy, in which some 62 percent of the non-agricultural workforce is engaged, according to International Labor Organization (ILO) estimates.
The government bureaucracy and public sector enterprises are substantially over-staffed compared to the private sector and international norms. According to the World Bank, Egypt has the highest number of government workers per capita in the world. Businesses highlight a mismatch between labor skills and market demand, despite high numbers of university graduates in a variety of fields. Foreign companies frequently pay internationally competitive salaries to attract workers with valuable skills.
The Unified Labor Law 12/2003 provides comprehensive guidelines on labor relations, including hiring, working hours, termination of employees, training, health, and safety. The law grants a qualified right for employees to strike and stipulates rules and guidelines governing mediation, arbitration, and collective bargaining between employees and employers. Non-discrimination clauses are included, and the law complies with labor-related ILO conventions regulating the employment and training of women and eligible children. Egypt ratified ILO Convention 182 on combating the Worst Forms of Child Labor in 2002. In 2018, Egypt launched the first National Action Plan on combating the Worst Forms of Child Labor. The law also created a national committee to formulate general labor policies and the National Council of Wages, whose mandate is to discuss wage-related issues and national minimum-wage policy, but it has rarely convened, and a minimum wage has rarely been enforced in the private sector.
Parliament adopted a new Trade Unions Law (Law 213/2017) in late 2017, replacing a 1976 law, which experts said was out of compliance with Egypt’s commitments to ILO conventions. After a 2016 Ministry of Manpower and Migration (MOMM) directive not to recognize documentation from any trade union without a stamp from the government-affiliated Egyptian Trade Union Federation, the new law established procedures for registering independent trade unions, but some of the unions noted that the directorates of the MOMM did not implement the law and placed restrictions on freedoms of association and organizing for trade union elections. Executive regulations for trade union elections stipulate a very tight deadline of three months for trade union organizations to legalize their status, and one month to hold elections, which, critics said, restricted the ability of unions to legalize their status or to campaign. In 2018, the government registered its first independent trade union in more than two years.
In July 2019 the Egyptian Parliament passed a series of amendments (Law 142/2019) to the 2017 Trade Unions Law that reduced the minimum membership required to form a trade union and abolished prison sentences for violations of the law. The amendments reduced the minimum number of workers required to form a trade union committee from 150 to 50, the number of trade union committees to form a general union from 15 to 10 committees, and the number of workers in a general union from 20,000 to 15,000. The amendments also decreased the number of unions necessary to establish a trade union federation from 10 to 7 and the number of workers in a trade union from 200,000 to 150,000. Under the new law, a trade union or workers’ committee may be formed if 150 employees in an entity express a desire to organize.
Based on the new amendments to the Trade Unions Law and a request from the Egyptian government for assistance implementing them and meeting international labor standards, the International Labor Organization’s and International Finance Corporation’s joint Better Work Program launched in Egypt in March 2020.
The Trade Unions law explicitly bans compulsory membership or the collection of union dues without written consent of the worker and allows members to quit unions. Each union, general union, or federation is registered as an independent legal entity, thereby enabling any such entity to exit any higher-level entity.
The 2014 Constitution stipulated in Article 76 that “establishing unions and federations is a right that is guaranteed by the law.” Only courts are allowed to dissolve unions. The 2014 Constitution maintained past practice in stipulating that “one syndicate is allowed per profession.” The Egyptian constitutional legislation differentiates between white-collar syndicates (e.g. doctors, lawyers, journalists) and blue-collar workers (e.g. transportation, food, mining workers). Workers in Egypt have the right to strike peacefully, but strikers are legally obliged to notify the employer and concerned administrative officials of the reasons and time frame of the strike 10 days in advance. In addition, strike actions are not permitted to take place outside the property of businesses. The law prohibits strikes in strategic or vital establishments in which the interruption of work could result in disturbing national security or basic services provided to citizens. In practice, however, workers strike in all sectors, without following these procedures, but at risk of prosecution by the government.
Collective negotiation is allowed between trade union organizations and private sector employers or their organizations. Agreements reached through negotiations are recorded in collective agreements regulated by the Unified Labor law and usually registered at MOMM. Collective bargaining is technically not permitted in the public sector, though it exists in practice. The government often intervenes to limit or manage collective bargaining negotiations in all sectors.
MOMM sets worker health and safety standards, which also apply in public and private free zones and the Special Economic Zones (see below). Enforcement and inspection, however, are uneven. The Unified Labor Law prohibits employers from maintaining hazardous working conditions, and workers have the right to remove themselves from hazardous conditions without risking loss of employment.
Egyptian labor laws allow employers to close or downsize operations for economic reasons. The government, however, has taken steps to halt downsizing in specific cases. The Unemployment Insurance Law, also known as the Emergency Subsidy Fund Law 156/2002, sets a fund to compensate employees whose wages are suspended due to partial or complete closure of their firm or due to its downsizing. The Fund allocates financial resources that will come from a one percent deduction from the base salaries of public and private sector employees. According to foreign investors, certain aspects of Egypt’s labor laws and policies are significant business impediments, particularly the difficulty of dismissing employees. To overcome these difficulties, companies often hire workers on temporary contracts; some employees remain on a series of one-year contracts for more than 10 years. Employers sometimes also require applicants to sign a “Form 6,” an undated voluntary resignation form which the employer can use at any time, as a condition of their employment. Negotiations on drafting a new Labor Law, which has been under consideration in the Parliament for two years, have included discussion of requiring employers to offer permanent employee status after a certain number of years with the company and declaring Form 6 or any letter of resignation null and void if signed prior to the date of termination.
Egypt has a dispute resolution mechanism for workers. If a dispute concerning work conditions, terms, or employment provisions arises, both the employer and the worker have the right to ask the competent administrative authorities to initiate informal negotiations to settle the dispute. This right can be exercised only within seven days of the beginning of the dispute. If a solution is not found within 10 days from the time administrative authorities were requested, both the employer and the worker can resort to a judicial committee within 45 days of the dispute. This committee comprises two judges, a representative of MOMM, and representatives from the trade union and one of the employers’ associations. The decision of this committee is provided within 60 days. If the decision of the judicial committee concerns discharging a permanent employee, the sentence is delivered within 15 days. When the committee decides against an employer’s decision to fire, the employer must reintegrate the latter in his/her job and pay all due salaries. If the employer does not respect the sentence, the employee is entitled to receive compensation for unlawful dismissal.
Labor Law 12/2003 sought to make it easier to terminate an employment contract in the event of “difficult economic conditions.” The Law allows an employer to close his establishment totally or partially or to reduce its size of activity for economic reasons, following approval from a committee designated by the Prime Minister. In addition, the employer must pay former employees a sum equal to one month of the employee’s total salary for each of his first five years of service and one and a half months of salary for each year of service over and above the first five years. Workers who have been dismissed have the right to appeal. Workers in the public sector enjoy lifelong job security as contracts cannot be terminated in this fashion; however, government salaries have eroded as inflation has outpaced increases.
Egypt has regulations restricting access for foreigners to Egyptian worker visas, though application of these provisions has been inconsistent. The government plans to phase out visas for unskilled workers, but as yet has not done so. For most other jobs, employers may hire foreign workers on a temporary six-month basis, but must also hire two Egyptians to be trained to do the job during that period. Only jobs where it is not possible for Egyptians to acquire the requisite skills will remain open to foreign workers. Application of these regulations is inconsistent.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
|Host Country Statistical source*||USG or international statistical source||USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other|
|Host Country Gross Domestic Product (GDP) ($M USD)||2020||$319,056||2019||$335,175||www.worldbank.org/en/country|
|Foreign Direct Investment||Host Country Statistical source*||USG or international statistical source||USG or international Source of data: BEA; IMF; Eurostat; UNCTAD, Other|
|U.S. FDI in partner country ($M USD, stock positions)||2019||11||2019||$11,000||BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data|
|Host country’s FDI in the United States ($M USD, stock positions)||N/A||N/A||2019||$1||BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data|
|Total inbound stock of FDI as % host GDP||N/A||N/A||2019||41%||UNCTAD data available at https://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Country-Fact-Sheets.aspx|
* Sources for Host Country Data: Central Bank of Egypt; CAPMAS; GAFI
Table 3: Sources and Destination of FDI
Data not available.
|Portfolio Investment Assets|
|Top Five Partners (Millions, US Dollars, 2019)|
|Total||Equity Securities||Total Debt Securities|
|All Countries||985||100%||All Countries||377||100%||All Countries||608||100%|
|United States||242||25%||International Organizations||216||57%||United States||233||38%|
|International Organizations||216||22%||Saudi Arabia||27||7%||Saudi Arabia||92||15%|
|Saudi Arabia||120||12%||Italy||23||6%||United Arab Emirates||56||9%|
|United Arab Emirates||59||6%||Switzerland||17||5%||United Kingdom||46||8%|