|Mohamed Khodeir||Zeinab Shohdy|
Egypt has suffered major turmoil over the past five years, but has at least fared better than some of its neighbours. It will not be an easy job for the government to achieve the calls for social justice and to confront the various challenges that Egypt is facing including: bureaucracy, the need for economic reform, healthcare, education, and so on. The government, however, has taken firm steps forward towards a better Egypt simply by identifying all the major challenges.
The legislative amendments on the agenda require a change in the culture surrounding their enactment, mainly by attracting more investment to fuel economic growth and finding a way out of the existing maze of legislation.
Though not sufficient, at least a good starting point has been created on which to build through several pieces of legalisation.
Investment regime amendments
At the same time as Egypt's Economic Development Conference in Sharm El Sheikh in March 2015, Law 17 of 2015 was promulgated to amend certain provisions regulating investment in Egypt to help promote investment into the country.
The changes attempted to touch on the World Bank's ease of doing business criteria and to address bureaucratic requirements engaging investors in an intensive process for obtaining the approvals necessary for their projects. The law proposed a one-stop unit of approval and the easing of the allocation of land procedures, while also awarding certain investment incentives and opening windows for further special treatment in the future.
Movables Security Law
The urge to provide a more secured granting of facilities by financial institutions especially to small and medium size enterprises (SMEs), which in most cases lack sufficient collateral (that is, real estate and other immovable assets) to obtain those facilities, was the primary motivation in promulgating Law number 115 of 2015. This law regulates the granting of bank loans against movable securities, and is known as the Movables Security Law (MSL).
The MSL is a step forward towards encouraging and expanding SMEs and micro financing through allowing non-possessory pledges to be arranged over movable assets, which will be registered in a special electronic registry to be established specifically for this purpose.
Under the new law, all kinds of movable assets can be used as collateral, including intangible movables, plus future movables that the borrower or guarantor is expected to possess in the ordinary course of business. The immovable assets registry will include sufficient information so as to allow the financing bank or institution to trace immovable assets and undertake enforcement procedures in cases of disposal by the borrower or guarantor. The MSL is expected to boost the granting of facilities to emerging SMEs and the development of the micro-financing climate.
New import regulations
The Egyptian government has combined with the Central Bank of Egypt (CBE) to adopt a new currency-support strategy that aims at minimising the import of unnecessary or luxury finished products and lifting the pressure on the Egyptian pound.
The strategy was first implemented by virtue of Resolution number 992 of 2015 issued on December 31 2015 requiring foreign exporters of certain products to Egypt to register their plants in Egypt in order for these products to be cleared for trading within Egypt.
This resolution was misperceived as a ban on importing, but its aim is to provide a more regulated import climate, where the importing of trivial or unnecessary goods can be controlled.
The above resolution was issued simultaneously with successive CBE circulars that regulate the financing of import transactions and the provision of documentary credit services. This strategy is aimed at allowing the CBE to control the transfer of foreign currency by importers that are not sufficiently solvent, or who are importing goods that are not necessary in the existing economic climate.
The CBE subsequently eased deposit and withdrawal restrictions on foreign currency, which was followed by a historic devaluation of the Egyptian pound which occurred contemporaneously with the offering of attractive dollar and Egyptian pound investments at local banks.
Although Egypt has made several legislative improvements, much more is needed to: increase the speed of doing business and resolving disputes; and, abolish bureaucracy and improve the capabilities of public servants to meet international standards.
These improvements will require further changes by parliament. In our view, it is difficult to see a way forward for social justice unless three controversial topics are addressed:
- a strong civil service system based on qualitative measures, and therefore a law that takes advantage of the merits of the system;
- attracting more foreign investment by abolishing the impact of the existing bureaucracy; and,
- increasing the number of judges, setting time barriers on resolving disputes, as well as introducing cost measures.
Mohamed Khodeir and Zeinab Shohdy