Economic Update

Published 04 Aug 2016

The government’s drive to boost foreign capital flows has moved forward with the launch of a new foreign direct investment (FDI) council, although there is still room for further improvements.

On July 2 President Abdel Fattah El Sisi announced he had accepted the government’s suggestion to establish a Higher Council for Investment, according to a press statement.

Chaired by the president, the council is tasked with facilitating FDI and will be vested with executive power to make decisions on legislation pertaining to investment.

According to press reports, the council is expected to include the Prime Minister, the governor of the central bank, as well as representatives from a wide range of ministries, government agencies and non-governmental bodies, and the private sector.

On a July visit to China, Dalia Khorshid, minister of investment, said that the council would review all investment laws and procedures with a view to improving the investment environment substantially, as part of the government’s economy-led programme.

The decision to form the council comes after meetings between President El Sisi, Prime Minster Sherif Ismail, and Khorshid, and follows on from Egypt’s new Investment Law.

Investment incentives

Approved last year, the new Investment Law and its subsequent executive regulations aim to make it easier to invest in the country, creating a one-stop-shop for investors and rolling out a range of new incentives.

The law allows for incorporation procedures to be implemented through a single government agency, the General Authority for Investments and Free Zones, and introduces a number of fiscal amendments, including a decrease in the Customs rate for imported tools, equipment, and machinery from 5% to 2%.

Meanwhile, other incentives include reduced energy prices; the possibility of partial reimbursement on costs of utilities, technical training, and social security charges; and free or reduced cost land.

To qualify for these benefits, investment projects must meet specific regulations, including a requirement that they employ 250 Egyptians or more, and target certain sectors or areas of the country deemed high priority.

Room for improvement

The new law and the Higher Council For Investment should help burnish Egypt’s ability to attract inbound investment, although the country’s business environment still presents challenges to potential investors.

Overall, Egypt ranked 131 out of 189 economies in the World Bank’s “Doing Business 2016” report, down five places from 2015.

The headline change masks some improvements: the country ranks higher for getting credit (79) and starting a business (73), for example, but performs poorly on measures including enforcing contracts (155) and trading across borders (157).  

However, the government has made substantial progress in protecting minority investors over the past year, rising 11 places to 122nd due to reform efforts, according to the World Bank report.

The new investment law and related legislation should go some way to further strengthen Egypt’s performance, particularly regarding trading across borders as a result of easing Customs fees, and starting a business through the establishment of the one-stop shop.

Opportunities on the horizon

There has been some encouraging momentum in recent months, which should lend credence to Egypt’s reform efforts.

A recent report released in June 2016 by UNCTAD found that Egypt was one of the top five destinations for inbound FDI in Africa, receiving $6.9bn in 2015, an increase of nearly 50% from 2014.

More recently, in July Russia’s ministry of trade announced that a number of Russian companies were planning to invest $4.6bn in a new industrial park in East Port Said, with construction slated to begin in 2018.

Much of the investment is expected to come from the private sector, with energy companies Gazprom and Inter RAO among those interested, according to press reports. The park will also offer an attractive tax regime for foreign firms, including a 10% income tax and no sales tax, according to press reports.

The Egyptian government’s General Authority for the Suez Canal Economic Zone will be responsible for financing and providing water and electricity, while a Russian-appointed developer will be responsible for infrastructure within the 2-sq-km zone.

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