Egypt needs to revise its bilateral trade agreements and contracts with foreign extraction firms in order to restore policy freedom and maximise state revenue, experts said at the launch of the 2014 Trade and Development Report of the United Nations Conference on Trade and Development on Wednesday.
The report explains that bilateral and regional free trade agreements are increasingly putting governments at the mercy of international tribunals capable of adjudicating on investment disputes which are biased towards investors.
Such agreements also put restrictions on governments' freedom to adopt new policies, while not being obviously effective in attracting foreign direct investment (FDI), claims UNCTAD.
"When most such agreements were being concluded in the 1990s, any loss of policy space was seen as a small price to pay for an expected increase in FDI inflows," the report said, adding that "this perception began to change in the early 2000s, as it became apparent that investment rules could obstruct a wide range of public policies, including those aimed at improving the impact of FDI on the economy."
Egypt has over a hundred bilateral investment agreements with different nations, said Mahmoud El-Khafif, UNCTAD Coordinator of the Division on Globalisation and Development Strategies.
This limits the government's "policy space," such as the state's right, according to the International Monetary Fund, to take measures against capital flight in exceptional circumstances, such as during Egypt's 2011 revolution, which saw the country's foreign exchange reserves plunge.
The UNCTAD suggests "progressive and piecemeal reforms through the creation of new agreements based on investment principles that foster sustainable development" and "the creation of a centralised, permanent investment tribunal" as well as "a retreat from investment treaties and reverting to national law."
Egypt also needs to revise the terms by which foreign firms exploit natural resources, including rent and royalties, said speakers.
"In many developing countries, collecting higher public revenues through rents from natural resources – and particularly from the extractive industries – is of particular importance for the financing of development," states the UNCTAD report.
Egypt is paying too high a price for its lack of know-how, by granting preferential terms to foreign extraction firms, said Ahmed El-Sayed El-Naggar, CEO of Al-Ahram, which was hosting the conference.
El-Naggar gave the example of London-listed gold miner Centamin, which owns mining rights to Sukari, Egypt's only gold mine, under a concession agreement which entitles the government to a 3 percent royalty fee from the gold sales as well as a 50 percent share in net profits after PGM recovers all its operational expenses and exploitation capital costs.
"This is how we waste our natural resources as a price for technological backwardness," concluded El-Naggar.
In June, Egypt's Mineral Resources Authority (EMRA) submitted a draft law to the petroleum ministry to raise the rental value for mines by nearly 20,000 percent, and royalties to 10 percent.
UNCTAD also warned against growing tax evasion methods, such as tax havens and trade mispricing among multinational firms.
"If the intracompany or intragroup price does not reflect the price that would be paid in a market where each participant acts independently in its own interest, profits within a company group can be effectively shifted to low-tax or no-tax jurisdictions, while losses and deductions are shifted to high-tax jurisdictions," explains the report.
Developing countries lose an annual $160 billion in revenues from corporation taxes due to transfer mispricing and falsified invoicing in international trade, says the report.
Finance-led globalisation has led to the proliferations of tax havens and secrecy jurisdictions which by conservative estimates have led to the loss of $66-84 billion a year in tax revenues for developing countries, warns the UNCTAD.
Increased multinational cooperation on taxes is needed to avoid a "race to the bottom" and bolster sovereign rights, advocates the UNCTAD.
Overall the report describes growth in the world economy as having experienced a "modest improvement in 2014," with the global rate projected to increase from 2.3 percent in 2013 to 2.5-3 percent, a figure "significantly below its pre-crisis highs."