To lure investors, level playing field for private sector, MPs pass set of economic bills

The House of Representatives gave final approval on Wednesday to a series of amendments to the investment law, a government priority amid plans to mitigate the country’s foreign currency drought by incentivizing private sector inflows.

In a parallel step to reduce friction between the public and private sectors and promote a more equal playing field, a law to erase long-standing tax exemptions on the economic activities of state bodies was also passed Wednesday.

The steps represent part of an ongoing policy effort to establish routes for foreign currency inflows other than borrowing, and more reliable than the established inflows from tourism and remittances, as three years of economic turmoil have left Egypt facing a major balance of payments deficit and a hefty debt repayment schedule.

The efforts to attract investors also come amid external pressure from the International Monetary Fund, whose conditions upon the $3-billion loan program agreed upon last October reiterated calls for the state to reduce its footprint in the economy.

The investment law was not passed without pushback, with two sessions over the week witnessing commentary from some MPs who criticized the amendments as insufficient to improve Egypt’s investment climate. 

Once ratified by the president, the new amendments will allow projects established before the law was introduced in 2017 to benefit from the investment incentives it offers. These include broadening the variety of companies allowed to claim a unified certificate —called the golden license— to establish, operate and manage projects, a change geared toward facilitating larger, one-off investments.

The amendments also expanded the range of projects which will be allowed to set up shop in coastal free zones. These will now include petroleum manufacturers, fertilizer industries, iron and steel manufacturers, natural gas liquefaction and transportation firms and other energy-intensive industries.

Other tweaks include offering investors a cashback incentive of 35 to 55 percent of the taxes paid on the income generated from industrial projects, provided at least 50 percent of their capital is in foreign currency.

Before gaining approval in the House, the package of amendments faced criticism on Sunday from MPs who support the turn towards attracting more private sector investments, but found the legislation insufficient to tackle the hurdles facing the investment market in Egypt.

Referring to the persistence of red-tape hindering inflows, independent MP Ahmed Farghali argued that “the investor does not want new incentives, removing obstacles is more important.”

Farghali also suggested that the state’s stance on sectoral planning for the economy is also not clear enough to make it an inviting environment for prospective projects, noting that the government is yet to share the final version of the State Ownership Document, a blueprint intended to define how the public sector will participate in the domestic economy of which a draft version was released in May last year.

Identifying the valuation of the Egyptian pound as another deterrent to investment, Justice Party MP Abdel Moneim Imam, secretary of the Budget and Planning Committee, said that, “investors will not be attracted to a country that has two prices for the dollar.”

Imam argued that the amendments will not be as effective given what he described as more prior policy decisions, in particular the central bank’s ongoing intervention to fix the exchange value of the Egyptian pound. He also criticized the law’s facilitating the granting of contracts by direct order, which was met with concerns that it could legalize preferential treatment in choosing investment partners.

Imam’s comments come in line with the position of the IMF, which has recommended that Egypt take prompt steps to allow the pound’s exchange value to be determined by market forces and leave entire economic sectors to the forces of the market.