Egypt’s busi­ness cli­mate im­prov­ing, chal­lenges re­main: Cap­i­tal Eco­nomics

New In­vest­ment Law is a pos­i­tive step to­wards im­prov­ing the dire busi­ness en­vi­ron­ment, ac­cord­ing to the re­search

The Daily News Egypt - - Business - By El­sayed Soly­man

Egypt’s busi­ness cli­mate is on track to re­vive af­ter years of tur­moil, as the Arab world’s most pop­u­lous coun­try and the big­gest econ­omy in North Africa paved the way to at­tract more for­eign di­rect in­vest­ment through pass­ing a new in­vest­ment law, the Lon­don-based con­sul­tancy Cap­i­tal Eco­nomics said in a re­search note.

“The new In­vest­ment Law is a pos­i­tive step to­wards im­prov­ing the dire busi­ness en­vi­ron­ment. But greater ef­forts, par­tic­u­larly in rais­ing do­mes­tic sav­ings, are needed if in­vest­ment is to reach the lev­els that his­tor­i­cally have sup­ported strong and sus­tained growth in other emerg­ing mar­kets.”

In a bid to im­prove the busi­ness en­vi­ron­ment and en­cour­age in­vest­ment, ear­lier this month the Egyp­tian par­lia­ment passed a long-awaited new in­vest­ment law.

Once ap­proved by Pres­i­dent Ab­del Fat­tah Al-Sisi, the leg­is­la­tion will re­place the pre­vi­ous 1997 law, to which widely crit­i­cised amend­ments were made in 2015.

But Cap­i­tal Eco­nomics doesn’t think that the new in­vest­ment law will go far enough.

“The es­tab­lish­ment of cer­ti­fi­ca­tion of­fices merely masks the bloated bu­reau­cracy, which in­vestors are still likely to come up against. Mean­while, the right to repa­tri­ate profits and es­tab­lish pri­vate free zones merely re­verses pre­vi­ous pol­icy de­ci­sions that pre­vented these.And there are also con­cerns that the new law could fos­ter cor­rup­tion,” the re­search note ex­plained.

Egypt’s new in­vest­ment law sets new “cer­ti­fi­ca­tion of­fices” that will be set up to re­view ap­pli­ca­tions and sup­port­ing doc­u­ments for li­cences, al­low­ing in­vestors to side-step the slow bu­reau­cracy.

The au­thor­i­ties have also granted in­vestors the right to repa­tri­ate profits without re­stric­tion as the for­eign cur­rency crunch that hit the coun­try af­ter float­ing the pound last Novem­ber came to an end.

“In par­tic­u­lar, the abil­ity of the au­thor­i­ties to al­lo­cate free plots of land for‘ strate­gic busi­ness ac­tiv­i­ties’ is a wor­ry­ing hark back to the land deals that—among other things—tainted the Mubarak regime,” the re­search said.

Cap­i­tal Eco­nomics con­sid­ers that low in­vest­ment is a con­cern as it re­sults in poor in­fra­struc­ture, and this means the coun­try is slow at adopt­ing new tech­nolo­gies, all of which hin­der pro­duc­tiv­ity growth and in­creases in liv­ing stan­dards.

“The poor busi­ness en­vi­ron­ment is one fac­tor be­hind the coun­try’s ex­tremely low in­vest­ment rate of just 15% of GDP.”

Egypt is one of the tough­est places in the world to con­duct busi­ness.The coun­try ranked 122 out of 190 in the World Bank’s lat­est “Do­ing Busi­ness” sur­vey.

The Lon­don-based con­sul­tancy also said that Egypt’s in­vest­ment rate is con­strained by the coun­try’s ex­tremely low do­mes­tic sav­ings rate of around 10% of GDP.

“This mat­ter lim­its the pool of re­sources avail­able for in­vest­ment, forc­ing the coun­try to bor­row from abroad to meet its in­vest­ment needs, which has a coun­ter­part in the cur­rent ac­count deficit.”

“The new law may help at­tract more for­eign cap­i­tal in­flows, but if Egypt’s over­all in­vest­ment rate is to rise to the lev­els of 25% of GDP that, his­tor­i­cally, have sup­ported sus­tained rise sin liv­ing stan­dards in other emerg­ing mar­kets, ef­forts to

THE NEW IN­VEST­MENT LAW IS A POS­I­TIVE STEP TO­WARDS IM­PROV­ING THE DIRE BUSI­NESS EN­VI­RON­MENT

Egypt’s new in­vest­ment law sets new “cer­ti­fi­ca­tion of­fices” that will be set up to re­view ap­pli­ca­tions and sup­port­ing doc­u­ments for li­cences

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