The Egyptian business community is in no doubt: there needs to be change. And after three years of just that-revolutions, nationwide unrest and military takeovers-the authorities are looking to bring stability and economic recovery to Egypt, whatever the cost.
An amendment to Egypt’s investment law is one of a number of initiatives aimed at attracting much-needed investment back into the country. The draft (drawn up by the investment and justice ministries as well as representatives of the State Council, according to legal sources) would mean third parties would no longer be able to challenge contracts signed between investors and the state.
Activists and lawyers have used the avenue of third party appeals to contracts in the past to challenge the privatization of previously state-owned companies, as well as allegedly corrupt business practices. They are now warning that the new law could leave the door “wide open for corruption” in Egypt.
The new draft-of which Egypt Oil & Gas obtained a copy-states that “parties of [these] contracts and no one else” are able to file complaints or appeals, meaning the government and the foreign (or national) company sitting on the other side of the table.
“The court will automatically refuse any challenge against contracts that come from elsewhere,” the draft goes on. “The [investment] minister is the only one who can file a case or request an investigation.” That means Egypt’s Investment Minister, Mounir Fakhry Abdel-Nour, has the final say.
Some have welcomed the move. Reuters quoted Saudi-based businessman Meshal Alkadeeb, Vice President for strategy and business development at Aujan Coca Cola Beverages Company, in a late February article discussing the investment law. “We have witnessed that the authorities in Egypt are being very flexible when it comes to bringing in investors to the country,” Alkadeeb was quoted as saying, referring to the looming specter of nationalization. “They’re trying to set up a one-stop shop for investors and introducing these new regulations does help greatly.” Messy renationalization cases have left formerly state-owned department store chain Omar Effendi and Tanta Flax tangled in a web of legal battles and governmental wrangling in recent years.
However, Ahmed Moaaz from Sea Dragon Egypt is not concerned about the effect in the petroleum sector. “I don’t think there’s anything particularly wrong with the oil sector,” he says. “The oil sector is safe right now.”
“With Egypt having used the production-sharing formula for years, we’ve passed through the era of nationalization under [former President Gamal Abdel] Nasser back in the 1960s,” Moaaz argues. Indeed, no sector in the Egyptian economy looks at risk from nationalization-at least not from the government or investor’s side-it is just the new law will block other individuals from trying to do the opposite.
In fact, Moaaz welcomes this. “The government would like to find way to privatize companies in the public sector. If they can find a formula where a state-owned company can be put on to the stock market or be privatized, the government would do that.”
He describes the Egyptian public sector as “oversaturated” by overheads and labor. “It would be much better if the government is able to find a way to get these companies into the hands of a very good investor who has several million dollars to get the business moving again.”
Sameh Khodeir is a corporate lawyer with Zaki Hashem & Co. in downtown Cairo. He agrees the investment draft is good news because it will stop “unnecessary” claims filed by people who “misunderstand and misinterpret” the system.
“The government is trying to encourage investments and avoid unnecessary claims,” he explains. “It is a matter of preventing a third party from filing a court case…to prevent complications for investors.”
But Heba Khalil, researcher and deputy director of the Egyptian Centre for Economic and Social Rights (ECESR), warns that without public or civil society involvement, corruption will have a new cover in which to spread.
“Nobody has ever seen cases of corruption being exposed by the government or by the investor, it’s always a third party,” she said. “[Third parties] have no interest in keeping a corrupt contract in place.”
In 2006, ECESR filed a complaint against a deal between the Egyptian government and the Talaat Mostafa Group (TGM) in what became a landmark corruption case: Madinaty. Agricultural land was being sold off at below-market prices to the company, owned by former National Democratic Party member of the Shura Council Hisham Talaat Mostafa, to make way for high-end condos and apartment buildings in New Cairo. Khalil added that the authorities are now “getting rid of the one kind of oversight that ever worked” in Egypt. A third party appeal challenged the deal, which was then revoked in 2010.
“What they’ve done is almost tailored the law to the sort of cases that were being brought to court,” Khalil explained, referring to a series of laws passed under the Supreme Council of the Armed Forces (SCAF) after the 2011 uprising, Mohamed Morsi’s presidency and afterwards. In September, interim President Adly Mansour signed off on amendments to Egyptian procurement law, meaning the amounts ministers can sell off as public assets (a plot of land, for example) through direct orders are now much higher. A direct order is a process through which government bodies can independently set the price for a public asset without opening it up to the usual public auction (or “tender”). Under the new regulations, an Egyptian minister would be able to sell off assets valued at up to EGP 5 million (for movables and services) and EGP 10 million (for jobs contracted out) without offering it up to public tender, according to state-owned newspaper Al-Ahram.
The Madinaty land sales were done through direct order. But now, without the possibility of third party appeals, researchers argue that that kind of corruption could return to Egypt.
Mohamed Nagi, a corporate accountability specialist and executive director of the Habi Center for Environmental Rights, told Egypt Oil & Gas the draft law leaves the “door wide open for corruption.”
“It means that only the minister of investment can legally dispute a contract in the case of a violation of law,” Nagi explained. “It means that not even the prosecutor general, or any other governmental service, can open an investigation to dispute a contract.”
This could prove to be of significance to the petroleum sector, which-in Egypt-is historically affected more than most by corruption. Researcher Mika Minio-Paluello recently co-authored a report with energy expert Dr. Amr Adly for the Egyptian Initiative for Personal Rights (EIPR) on corruption in the petroleum sector.
“I’ve analyzed oil and gas contracts from Uganda, Kazakhstan and Congo, and I’ve never seen a country ripped off this badly,” he said. The report revealed that Egypt lost $ s10 billion in gas revenues between 2005 and 2011, citing landmark deals with Israel, Jordan, and Spain negotiated during the Mubarak era where natural resources were sold off at below-market prices.
Legal sources told Egypt Oil & Gas they expect the new law to be passed within the next couple of weeks. The debate is polarized, and Egypt’s investment law will almost certainly prompt disputes and legal action in the future. Until then, the government may have to play a balancing-act between encouraging sound investment and avoiding a return to the economic malpractices of its predecessors.