Egypt passes a long-promised investment law

EVERY week thousands of Egyptians cram past a narrow, tightly guarded doorway at Uber’s offices a few blocks from Tahrir Square and wait in a small room. Nearly 2,000 of them are signing up as new drivers every week 40% of them previously unemployed. Nearby, Uber’s growing customer-service centre employs 250 locals. The company is earmarking more than $50m to expand operations in Cairo alone.

For Egypt, whose economy relies on aid to stay afloat, such influxes of foreign investment ought to be welcomed. But it does not always seem so. It took six months for Uber’s licensing paperwork to come through, even with a lot of string-pulling. After a year of haggling with nine government ministries, a proper ride-sharing law is unlikely to emerge from parliament any time soon. But Egypt, which ranks a dismal 122nd place on the World Bank’s ease-of-doing-business index, hopes to reform its ways. On May 7th it finally passed an investment law, more than two years overdue, designed to lure foreign investors back. But don’t cheer too soon.

The new law pledges to reduce red tape and offers enticing tax incentives. Instead of a hellish process to obtain permits, often requiring the blessing of more than 70 government agencies, a one-stop shop will manage all the paperwork. Any requests not dealt with within 60 days will be automatically approved. Companies setting up in underdeveloped areas or special sectors can get between 30% and 70% off their tax bills for seven years. The new law also brings back private-sector “free zones”, areas exempt from taxes and customs duties.

But reform in Egypt tends to be easy to promise and much harder to deliver. Once the bill becomes law, the administrative details are expected to take many more months to iron out. Duelling ministries will have to settle competing claims on the land that will be made available at discounted rates to investing firms. Low-level bureaucrats, eager to preserve both their importance and, sadly, their bribes, could also gum up the works. Past incarnations of the one-stop shop issued only some of the required permits, often leaving companies in a state of semi-legality, says Amr Adly of the Carnegie Middle East Centre, a think-tank.

The bill’s lavish tax breaks may not play well politically when the government is facing a budget deficit of 10% of GDP. It has been forced to impose spending cuts, notably to fuel and bread subsidies.

To be sure, Egypt is, in other ways, making the right noises to show it is open for business. The cabinet approved the country’s first-ever bankruptcy law in January. Recent improvements to industrial licensing are supposed to reduce waiting times from a lethargic average of 634 days to a brisk month.

The most important reforms needed to attract investors were made six months ago, when the government, as part of a $12bn deal with the IMF, finally floated the pound. With Egypt released from artificially inflated exchange rates, foreign cash is starting to come back. The relaxation of constraints on capital movement have assuaged the fears of companies looking to repatriate profits. The risk of large-scale political unrest, which spooked investors during the country’s tumultuous years, now appears much lower.

But until now, clogged-up bureaucracy has remained a significant problem for investors keen to profit from Egypt’s cheap labour and large customer base. Big multinational companies like AXA, a French insurance company, and Kellogg’s, an American food giant, have taken to sidestepping licensing requirements by buying domestic firms and expanding them.

Abdel-Fattah al-Sisi, the country’s president, first announced his investment reforms at a glitzy conference on economic development at Sharm el-Sheikh in March 2015. Little has gone well since then. Many of the deals pledged at the conference never materialised. An IMF bail-out was needed to rescue the economy. Egypt hopes that its new investment law will be something to shout about after all that hooplah.