Yearender 2018: Egypt – A better business climate in 2018

Nesma Nowar , Monday 31 Dec 2018

Egypt’s business climate improved throughout the year despite being hampered by high interest rates

Power Plant
A view of Beni Suef Power Plant (Photo: Siemens)

Egypt has been working towards bettering the business environment over recent years through a strategy based on pushing forward legislative and institutional reforms, drawing up an integrated investment map, establishing new free investment zones, developing infrastructure, and accelerating procedures for investors.

2018 was no exception to these efforts, with the government continuing the process of improving the country’s business climate.

It saw the passage of Egypt’s first bankruptcy law abolishing prison sentences in bankruptcy cases and limiting sanctions to a monetary fine.

The new law also minimises the need for companies or individuals to resort to the courts and simplifies post-bankruptcy procedures, helping to improve Egypt’s ranking on global business indices.

This ranking has up to now been affected by difficulties exiting the Egyptian market, a matter rectified by the new law.

The year also saw the establishment of new investor services centres that aim to reduce bureaucratic measures and offer electronic services to investors.

The new centres bring together agencies such as the Real East Registration Office, the Commercial Register, the Chambers of Commerce and the Financial Regulatory Authority in one place in order to assist investors.

The main centre is at the Ministry of Investment and International Cooperation in Cairo’s Heliopolis district, with branches to be opened across the country.

Other business-friendly news this year included the imminent introduction of a new customs act that will bring Egypt’s customs legislation into line with international agreements and raise the country’s ranking on global indices.

Such efforts have helped Egypt move up eight places on the World Bank’s 2019 Doing Business Report, which measures the ease of doing business around the world, including the time it takes to open a business, register property, get credit, and protect minority investors, among others concerns.

Egypt came out among the most-improved countries in the report, which noted that it had made starting a business easier by removing the requirement to obtain a bank certificate and establishing a one-stop shop for investors, improving its ranking in the “regulatory complexity” category in 2017/2018.

According to the report, it now takes an average of 11 days and 6.5 steps to start a business in the country.

Investors in Egypt have long complained of lengthy waiting times for obtaining approvals, dragging Egypt’s ranking down in previous editions of the report because of difficulties obtaining permits and licences.

Egypt has also strengthened access to credit by introducing nonpossessory security rights in a single category of movable assets without requiring specific descriptions of collateral. Secured creditors are also given priority over other claims, such as labour and tax, both outside and within bankruptcy proceedings, the report said.

It added that Egypt had strengthened minority investor protections by expanding the shareholders’ role in company management and increasing corporate transparency.

Egypt has made paying taxes easier by extending value-added tax (VAT) cash refunds to manufacturers in cases of capital investment.

The country has made resolving insolvencies easier by introducing reorganisation procedures that can be initiated by debtors and granting creditors greater participation in them, the report said.

Despite these efforts and its improved ranking in the World Bank Report, however, Egypt’s net inflow of foreign direct investment dipped to $7.7 billion in the 2017-2018 fiscal year, down from $7.9 billion the previous year.

Its efforts have been overshadowed by high interest rates, said one economic expert who preferred to remain anonymous.

The Central Bank of Egypt (CBE) has left interest rates unchanged since May 2018 due to inflationary pressures that resulted from subsidy cuts in 2017/2018. The overnight deposit and lending rates were left at 16.75 per cent and 17.75 per cent, respectively.

The expert said that such high interest rates could create a discouraging environment for new foreign investment, due to the high cost of borrowing.

He said that investments that have been injected into Egypt in the recent period were largely directed to the oil and gas sector.

This is lucrative for investment because of factors such as the new terms Egypt had set for gas exploration, newly discovered fields, and Egypt’s strategic location, the expert said.

He added that the sentiment in the local market indicated that some companies were not happy with the business environment because of changes in taxes and customs rules that could make it hard for them to expand.

This was in addition to high inflation rates that had caused a decline in consumer purchasing power, he said. Inflation in Egypt accelerated over recent months on the back of cutting fuel subsidies, but it eased in November to stand at 15.6 per cent, compared to 17.5 per cent in October.

A recent HSBC Bank survey showed that though government reforms have helped improve metrics such as foreign direct investment and exports, only a quarter of the businesses surveyed thought the new regulations had supported competitiveness while a third said they had made doing business more costly.

Challenges such as unemployment and poor education were also concerns for businesses in Egypt.

The survey showed that the majority of Egyptian businesses polled (63 per cent) see themselves as succeeding in the current international trade environment as consumer confidence improves, inflation cools, and the Egyptian pound remains stable against foreign currencies.

The economic expert said that an incentive for investment would be a cut in interest rates. “This is the only thing that can really serve as a stimulus in the market,” he told the Weekly. “If that happened, foreign companies would come, and local ones would expand,” he added.

However, he saw no possibility of interest rate cuts before the second quarter of 2019. In order to stimulate the market, he said, the cuts should be at least three per cent.

Improving the business environment is one of the goals of Egypt’s economic reform programme started in 2014, and it will continue to be on the government’s agenda over the coming years.

Last year, Egypt issued a long-awaited new investment law that offers foreign investors incentives such as tax breaks and rebates. It also deals with bureaucratic problems and promises the simplification of procedures, as well as offering additional guarantees.

*A version of this article appears in print in the 20 December, 2018 edition of Al-Ahram Weekly under the headline: A better business  climate in 2018

Short link: