The debate over the new investment law has taken a new turn. It is no longer about the law’s content only, but speaks to the generally confused state of legislation in Egypt at present, and raises the question of how to fix statutory errors once they are enshrined in law.
The investment law predicament
Friday ,22 May 2015
Work on the law, which amends Law 8/1997 on investment, began last September and ended in March of this year when the law was issued one day before the Sharm El-Sheikh economic conference. But despite the extensive time involved and the input from numerous bodies, the final version is fundamentally flawed, largely due to the lack of a clearly defined purpose, the conflicting priorities of those who contributed to it, and the insistence on completing the law before the Sharm El-Sheikh conference. The major weaknesses of the law can be summarised in four points:
Firstly, the law was presented to investors as a solution to the convoluted process of obtaining operating approvals and licenses. In fact, this issue cannot be resolved without major changes to the licensing regime itself and the prerogatives of local councils.
Secondly, the law excludes the distribution of state-owned lands for private ownership from the purview of the tender law and creates a new system — a lottery for competing firms — to allocate them. It even gives the General Authority for Investment (GAFI) authority to give away the lands for free, even when various investors are competing for ownership. This creates fertile ground for corruption and favouritism to thrive and will cast the entire process of land distribution into doubt once more.
Thirdly, the law gives GAFI unprecedented oversight and punitive authorities that conflict with its primary mission of promoting investment and supporting investors. It turns GAFI into a new regulatory body, though it does not possess the sectoral competencies to play this role.
And fourthly there are various inconsistencies and ambiguities in the law regarding free zones, procedures for the establishment of businesses, and workers’ rights. These will create further predicaments in the future and undermine the clarity and certainty that potential investors seek.
So how can we rectify the situation? On the positive side, numerous voices have been heard in past weeks calling for a reconsideration of the law. Even officials and members of bodies that helped to draft it have recently expressed their dissatisfaction with the final version and urged revisions.
Unfortunately, however, the cabinet secretariat on 5 May 2015 published a “correction” in the Official Gazette that fixed a serious flaw in the law related to the establishment of firms. (It was Dr Salama Fares who first pointed to the problem in his Al-Masry Al-Youm column on 4 April.) While correcting one’s mistakes is generally laudable, in this instance, the way it was done sets a dangerous precedent and diverges sharply from established legislative precepts and constitutional principles.
Currently, pending the election of a parliament, legislative authority rests exclusively with the president, who has the sole right to issue, repeal or amend laws. The cabinet secretariat thus has no authority to issue such a correction to a law that has entered into force. Furthermore, while corrections have been issued in the past to correct minor typographical errors, it is unheard of to use them to make substantive changes to particular article in a law.
The question, then, is no longer whether the investment law should be revised. The question is will it be done with the requisite transparency, or will attempts to shirk responsibility for mistakes and quash the truth continue?
I suspect decision makers feel that revising the law would embarrass the state, giving the impression of irresoluteness and ineptitude, and that flaws can be fixed with additional “corrections," or by simply ignoring the matter until it’s forgotten. But this would be the worst possible course of action.
Regardless of the embarrassment revising the law may bring, it will inflict the least cost on the national economy. It is also much less damaging for investment than clinging to errors and infringing legal and constitutional precepts to save face. There is still the chance to amend the law openly and without hesitation. So will decision makers make the right choice?
The writer holds a PhD in financial law from the London School of Economics. He is former deputy prime minister, former chairman of the Egyptian Financial Supervisory Authority and former chairman of the General Authority for Investment.