Parliament approves Saudi investment protection agreement to regulate international arbitration, capital transfers

The House of Representatives approved the Saudi-Egyptian agreement to promote and protect investments on Monday, one week after Saudi Arabia’s Cabinet gave its approval.

Parliamentary approval of the agreement could encourage Saudi private-sector investments in the Egyptian market, though it is unlikely to lead to large-scale government investments similar to those made by the United Arab Emirates, House Budget and Planning committee member Mohamed Badrawy and a financial analyst at an investment firm told Mada Masr

The most that can be expected from the Saudi government is the conversion of part of Saudi Arabia’s deposits at the Central Bank of Egypt, around US$5 billion, to investments, according to an informed Egyptian investor in Saudi Arabia who spoke to Mada Masr. 

Mada Masr obtained both a copy of the agreement and an explanatory memorandum prepared by Foreign Minister Badr Abdel Atty.

The agreement regulates several demands from Saudi investors, including access to international arbitration, capital transfers — such as profits, fees and other financial dealings — and transactions that are exempt from its provisions, according to an explanatory memorandum.

On the issue of international arbitration, the agreement imposes several restrictions. 

Foreign investors can only resort to arbitration after meeting several conditions, including an 18-month waiting period from the time a dispute is referred to settlement committees, under Egypt’s investment laws, without a resolution. International arbitration is also contingent on the absence of penalties or compensations in local rulings. A foreign investor can only resort to international arbitration if they first withdraw all lawsuits filed in local courts or if they have been unable to initiate legal proceedings.

Under Article 31, according to the memorandum, all of the agreement’s terms will not apply to any past disputes, even if new developments arise after the agreement takes effect. 

The agreement allows the host state to delay or suspend capital transfers in certain “exceptional cases,” if they threaten “the balance of payments, monetary policies or exchange rates.” However, such measures must be temporary, non-discriminatory and gradually lifted, with restrictions kept to the “limit necessary to address these circumstances,” according to the agreement. 

Sources previously told Mada Masr that the agreement was requested by Saudi Arabia due to challenges faced by its investors in Egypt, particularly obstacles in transferring profits abroad, expressing anger that Emirati investors hadn’t faced the same barriers. At the time, outstanding profit transfers from Saudi investments were estimated at $5 billion.

The agreement exempts seven types of investment-related transactions from its provisions, including government debt restructuring and investments made by Saudi Arabia’s Public Investment Fund (PIF) or any body in which the Saudi sovereign fund holds at least a 50 percent stake, according to the agreement.

An example of debt restructuring would be converting part of Saudi Arabia’s $11 billion worth of deposits into investments, as these funds predate the agreement, Badrawy said. 

The exemption for the PIF is attributed to the fact that these investments take place under a separate bilateral agreement with exclusive authority, signed in March 2022, according to Badrawy. 

Egypt and Saudi Arabia signed the bilateral investment protection agreement five months earlier, during Saudi Crown Prince Mohamed bin Salman’s visit to Cairo in October.

During his visit to Riyadh in September, Prime Minister Mostafa Madbuly stated that the agreement would facilitate investment through procedural incentives and streamline dispute resolution mechanisms. He added that it would address all issues facing Saudi investors, attributing these challenges to the “bureaucracy we inherited from colonialism and passed on to you.”

Following Madbuly’s visit, the Egyptian government announced $5 billion in Saudi investments through the PIF as a first phase. These funds have yet to arrive.

In recent months, domestic and regional media outlets have published reports on talks concerning Saudi investments in land acquisitions along Egypt’s Red Sea coast, such as in Ras Banas, though no official announcements have been made so far.