In line with the state’s goal of facilitating the private sector’s increased participation in economic activity and removing barriers that prevent it from producing and making profits, Egypt held a number of discussions focused on public and private investment issues as part of the economic axis’ sessions of the National Dialogue.
The State Ownership Policy Document (SOPD) was earlier presented for public discussion before its final approval. A further development was the creation of the Supreme Council for Investment (SCI), which was presided over by President Abdel-Fattah Al-Sisi and issued about 22 business-friendly resolutions.
These initiatives have given rise to a number of recommendations for enhancing the business environment in Egypt and raising private sector involvement. It is time for these suggestions to be turned into executive decisions and serious policies that will help reach the desired goal.
Amendments to Investment Legislation
In accordance with the SCI decisions, the Egyptian House of Representatives (EHR) approved a new amendment to the Investment Law on 11 July. These changes included extending the eligibility for public investment incentives contained in Law No. 72 of 2017 promulgating the Investment Law (IL) so that businesses founded before the IL’s implementation could take advantage of them. The amendments also included a nine-year extension of the time frame in which a new business must be established in order to qualify for Special Incentives.
In addition, the scope of additional incentives has been expanded to include land-access fee exemption for a maximum of ten years, commencing with the start of operations. In accordance with the controls to be decided by a decision of the SCI, the Prime Minister may also decide to exempt projects that receive additional incentives from paying toward the costs of establishing infrastructure, public services, and utilities at a rate not exceeding 50 percent. The public treasury may bear no more than 50 percent of the project’s basic utility consumption for a maximum of ten years, In accordance with the controls established by a decision of the SCI.
The investment map mechanism and its associated data were also addressed in the revisions. Furthermore, the golden license has also been extended to cover organizations that were created before the IL went into effect as well as organizations that engage in any investment activities covered by the IL’s rules, not just particular projects. The amendments included expanding the scope of projects eligible for licensing under the Free Zone System (FZS) after obtaining the Supreme Council of Energy’s approval, to include petroleum manufacturing, fertilizer industries, iron and steel production, manufacturing, liquefaction, and transportation of natural gas, and energy-intensive industries.
In addition to amending the IL, the government approved a draft resolution to amend Law No. 7 of 2017 pertaining to an amendment of some provisions of Law No. 121 of 1982 regarding the Importers Register. This will enable foreign investors to be registered in the importers’ register, even if they have not acquired Egyptian nationality, for a period of ten years, enabling them to easily complete the necessary steps to import production supplies and raw materials.
Facilities to the Industrial Sector
In order to revitalize the industrial sector, the amendments to the IL included the addition of an Investment Incentive for industrial activities in the form of a cash refund of 15-55 percent of the value of the tax paid in the tax declaration, payable to the developer or industrial investor within 45 days of the end of the tax reporting deadline. To be eligible for this incentive, the financing of a project or its expansions up to the date of commencement of activity must rely on foreign exchange from abroad for at least fifty percent of its funds, and the operation must commence within six years of the date of implementation of this article, with the Cabinet of Egypt having the authority to extend this period by up to six years. The Cabinet shall issue a decision specifying the industries and zones that are eligible for the Investment Incentive provided for in this article, the maximum time periods for granting the incentive to each of them, as well as the prerequisites, guidelines, and categories for granting the incentive and its payment methods.
On the other hand, a decision was made to allow industrial projects to renew their operating licenses for a period of five years rather than annually. A draft decision was also approved to examine the amendment of certain articles of the IL’s executive regulations to permit the licensing of industrial projects that use natural gas as one of their production inputs to operate within the FZS.
An initiative worth EGP 160 billion was also launched and put into effect to support production sectors, particularly the industrial and agricultural sectors. Under this initiative, 20 industrial sectors and activities are exempt from real estate tax for a period of three years, allowing the state to pay the tax and lessening the burden on the industrial sector.
Applying the Tax Neutrality Principle
In order to promote competition between the public and private sectors, the SOPD placed a strong emphasis on the principle of tax neutrality, which calls for applying the same tax code to all market-active businesses. This implies that all businesses will be subject to identical tax rates and exemptions. Along with debt neutrality, regulatory or legislative neutrality, and neutrality in public procurement, tax neutrality is one of the key axes for achieving competitive neutrality.
Relatedly, the EHR approved a bill to eliminate tax exemptions granted to some state-affiliated businesses and organizations. This preferential treatment was one of the obstacles to the private sector’s market entry and hindered fair competition among the various producers. The new bill will increase the state’s tax and fee revenue, enhance the business climate, draw more domestic and international private investment, and encourage public sector organizations to enhance the quality of their products to increase their revenues in a way that reflects the high costs and ensures their survival in the markets, which is ultimately in the interest of consumers.
Government IPO Status
The State has announced the completion of the government IPO program through its exit from publicly-owned and armed forces-owned companies in an effort to increase the private sector’s participation and generate an estimated $2 billion in proceeds. A number of these deals fell through as a result of the foreign exchange problems and the currency’s depreciation, which had an impact on the IPO program’s ability to achieve its ultimate goal and raised numerous concerns about the State’s ability to carry out the exit strategy.
In July, it was announced that contracts with the local and international private sector totaling $1.9 billion, including $1.6 million in proceeds, had been finalized. This demonstrated the State’s commitment to implementing the exit plan.In conclusion, the current executive actions would undoubtedly strengthen the role of the private sector in economic life, which drives toward increased production, employment, exports, and a decrease in the import bill, particularly if new investment incentives are given to businesses that operate in regions that restrict imports or are focused on exports, in order to achieve the State’s goals regarding increasing exports by 20 percent annually. Importantly, these steps would help the state achieve financial discipline and reduce strains on the general budget while also increasing foreign direct investment by about 10 percent annually, as outlined in the plan to increase the proceeds of dollar revenues. With the issuance of the executive regulations of the IL following its amendment, the Egyptian business climate will be fully improved, particularly in terms of tax incentives, the time it takes to issue licenses and approvals, and the complexity of the land allocation system.
