Wednesday، 17 April 2013 12:00 AM
Investment law No. 8 is enacted to attract foreign investors and thus applies only to a specific number of activities:-
• Reclamation and cultivation of barren and desert lands.
• Animal, poultry and fish production.
• Manufacturing and mining.
• Preparation and development of selected industrial zones.
• Hotels, motels, hotel apartments, tourist villages and tourist transportation.
• Refrigerated transportation of goods, refrigerators for the purposes of storing crops, manufactured products and foodstuffs, container stations and grain silos.
• Air transport and directly related services.
• Overseas maritime transport.
• Petroleum services in support of drilling, exploration as well as gas transport and delivery.
• Housing complexes for the purposes of full, unfurnished lease for noncommercial users.
• Infrastructure operation including potable water, sewage, electricity, roads and communications.
• Hospital, medical, and therapeutic centers that offer 10 per cent of their capacities free of charge.
• Financial leasing.
• Underwriting of subscription to securities.
• Venture capital.
• Production of computer programs or systems.
• Projects funded by the Social Fund for Development.
• Development of new urban zones
• Software designing and production.
• Establishment and management of technological zones.
• Credit classification.
• Establishment, management and operation or maintenance of river transportation for groups within and between new cities and urban communities.
• Performance management of industrial projects.
• Collecting garbage, waste disposal (whether of production or service activities), and waste treatment.
Investors engaged in sectors not covered by law 8 are subject to corporate law no 159 of 1981. In both cases, The General Authority for Investment (GAFI) acts as the official regulator for all incorporations and licenses.
Among the incentives and guarantees, are protection against expropriation and compulsory pricing, full right of profit and dividend repatriation, no export requirements, access to dispute resolution committees administered by GAFI, unfettered access to land in Upper Egypt.
Other incentives include a standard income tax rate of 20% (oil & gas sector companies at 40.55%), a 10 – year tax exemption for land cultivation and production activities related to livestock, poultry and fish, export duty ranging from 5 – 25% of the value of whole sales transactions, and import duties ranging from 2-32%..
Investment Zones were created under Law No. 19 of 2007, which introduced a new investment scheme never included before in the Investment Guarantees and Incentives Law, which is the Investment Zones system. The new law allowed the establishment of investment zones as per a Prime Minister decree to be specialized in whatever investment domain stipulated by the law, and the provisions of articles number 30, 31,38, 41, 42, 46 which are mentioned in the investment law are applied on these zones.
The Prime Minister's Decree No. 1675 of 2007 was issued to regulate work at investment zones.
• Establishing integrated clusters in all fields,
• Mandating the private sector to develop, manage and promote these zones,
• Widening the scope of economic and social development across the country with the best employment of the nation's competitive advantages,
• Investment Zones' activities are not limited to industrial activity but also include other activities as (Education & Scientific research – SME -Commercial Services – Tourism).
• Business homogeneousness in the single zone, offering competitive costs for operation and marketing thanks to industrial integration,
• Unique administration system that facilitates the application of all management procedures through dealing with one single regulator,
• No restrictions over projects' capital and legal form,
• Streamlined customs system for smoother importation and exportation for the projects at the zone,
• Availability of a package of logistic services for projects,
• Goods manufactured within investment zones enjoy the Egyptian origin feature as regards to bilateral agreements with Arab and African countries (COMESA - European Association),
• Projects established in the investment zones enjoy the incentives that are mentioned in the investment law,
• Projects established in the investment zones have the right to deal with the local market.
The entity willing to establish a zone fills in and submits an application form attached with other required documents.
The application is checked by the unit of investment zones to see if any of the required documents are missing.
The application is submitted to the committee in charge of examining the investment zones establishment applications.
GAFI - via that committee and jointly with the applicant – obtains approvals from the bodies concerned with the type of business or main types of business in the zone named in the application, and approvals from the Armed Forces Operations Authority, the National Center for Planning State Land Uses, the Supreme Council for Antiquities, Environmental Affairs Agency and the Civil Aviation Authority.
The committee submits the application to GAFI's board of directors for approval to establish the investment zone. Once obtained, GAFI's approval is referred to the Prime Minister in order to get a final decree on establishing the investment zone.
GAFI's chairman – according to GAFI's board of director's approval - issues a decree for forming a board of directors for the investment zone within two weeks at most as of the date the zone establishment decree was issued.
Pursuant to the Prime Minister's Decree No. 1675, the following documents must be obtained in order to issue an investment zone establishment decree:
• A description for the site needed to be transformed into an investment zone, including its area, location, coordinates, a recent cadastral map, and the legal nature of the site acquisition,
• A report on all already-existing and required utilities and infrastructure elements and a statement on how much water and energy is needed throughout the phases,
• The zone development and promotion strategy, including a general description of the type of projects likely to be attracted, how many projects, their capital and their estimated total employment opportunities,
• A layout of the zone, including the services to be provided by the developer,
• Information about the company making application, including its experience history, stockholders and capital structure,
• Time schedule for zone establishment and utilization,
• An affirmation from the applicant on their full compliance with all environment, health, security and safety standards and compliance with the zone establishment decree,
• The contract to be signed with willing-investors at the zone, including their compliance with standards and conditions specified in the previous paragraph, as well as conditions of land retrieval in case the land remained unused for a certain period of time.
Administrative System of the Investment Zone
The investment zone will be run by a board of directors comprised of a representative of the General Authority for Investment (GAFI), a representative of the developer in charge of the zone's development, one or more investors in the zone, in addition to representatives of the Ministry of Finance, the governorate where the zone is located, and the bodies concerned with the licensed activities. The board shall develop standards, regulations and rules of investment in the zone.
The board will have an office within the investment zone, provided that the members of the Executive Office shall be from staff at GAFI. The Executive Office shall be responsible for the following:
Executive Office's Tasks
• Receiving applications from investors wishing to establish projects within the investment zone and presenting them to the board of directors for decision,
• Issuing all licenses for projects within investment zones after receiving the board's approval.
• Implementing the board of directors' resolutions,
• Ensuring compliance with the zone's general rules,
• Following up procedures for the entry and exit of goods,
• Engaging with external bodies in supervision and follow-up,
Role of the Developer of the Investment Zones
The investor or developer bears the main burden of the establishment of the zone, the implementation of infrastructure and also provide all the services to the zone, whether the developer is a private company or governmental authority.
Southern Egypt Development Program
The Egyptian government believes that Upper Egypt is a region that has the potential to develop into a new hub for both manufacturing and services projects. Governorates located in southern Egypt are equipped with many competitive advantages: 30% of Egypt's total population, abundant natural resources and a diversified economic base.
The government has put in place various initiatives to encourage investment in Upper Egypt; the establishment of chains, investment incentives and employment grants; free land to investors in Upper Egyptian governorates (with the exception of Fayoum); technical assistance through Egypt's Industrial Modernization Center (IMC); and technology centers and training.
The Upper Egypt Development Company is a company that has been established to encourage private-sector investment in Upper Egypt. The Company currently has two branches in Cairo and Assiut and has begun to launch projects in several governorates. A new road has been established to link Upper Egyptian governorates with Safaga Port and Sohag Airport.
Companies established within southern Egypt are incorporated in accordance with investment law 8 of 1997 or law 159 of 1981(Inland Investment).
Special Economic Zones (SEZ)
Law 83 of 2002 allowed the establishments of Special Economic Zones (SEZ) that provides significant incentives and competitive advantages for investors. Each of the zones is autonomous and has its own Board of Directors who handles incorporation, licensing procedures as well as other investor services.
The North West Suez Special Economic Zone was the first zone created under that law, and will serve as a model for the future development of other SEZs in Egypt. The North West Suez SEZ stretches over 20 square kilometers strategically located directly adjacent to the Sokhna Port about 45 kilometers southeast of Suez City near the southern entrance of the Suez Canal.
A Master Development Company (MDC) was established by the SEZ Authority in 2006 to create a master plan for the promotion and management SEZs.
Within close proximity to the North West Suez are several projects incorporated under the general land investment regime, which create an additional flow of commercial activities to the Sokhna Port.
The privately managed Red Sea Port of Sokhna is being hailed by the cargo industry as a quiet revolution in Egyptian logistics. The port will serve more than 20,000 vessels sailing through the Suez Canal each year. The Sokhna Port is strategically positioned to serve as a trade and logistics hub between the EU, the Far East and West Africa.
SEZ incentives and guarantees include a 5% flat rate on personal income tax; integrated custom administration, tax administration, dispute settlements, licensing as well as general investors services for projects incorporated within the zones; a 10% tax rate on all activities within the SEZ; and Egyptian certificates of origin for SEZ.
Qualifying Industrial Zones (QIZs)
The QIZ protocol between Egypt and the United States grants certain products manufactured in Egypt a preferential access to the United States as long as they satisfy the rules of origin related to local content. There are currently 19 QIZs located within four geographical areas: Greater Cairo, Middle Delta, Alexandria and the Suez Canal Zone,
Both Egyptian and Israeli companies must contribute and maintain at least 10.5 % of the minimum 35% local content required under the legislation in order to qualify duty-free access to the US.
Manufacturers on both sides must also contribute and maintain at least 20% of the total cost of production of goods eligible for duty/-free access, excluding profits, even if the cost can not be considered as a part of the 35% minimum content requirement.
For this purpose, cost may include originating materials, wages and salaries, design, research and development, depreciation of capital investment and overheads.
The QIZ protocol was signed in December 2004, and today there are 705 companies eligible to export under QIZ. QIZs are expected to help further develop Egypt's robust textile and garment industry as well as supporting sectors. QIZz incentives and guarantees include duty – free access to the US market for products that comply with the rules of origin requirements; flexible application of the requirements; no quotas on exported products; and open – ended validity, in that the QIZ protocol does not have an expiration date.
Egypt has been advocating the creation of Free Zones since the early 1970s in an attempt to increase exports, attract foreign investment, introduce advanced technology and create more job opportunities. Free Zones are located within national territory but are considered offshore areas. Investors operating inside the Free Zones must export more than 50% of their total production. To facilitate import/export procedures, Free Zones are usually located adjacent to sea ports and airports.
There are two different kinds of Free Zones; public and private. Egypt currently has nine Free Zones located in: Nasr City, Alexandria, Port Said, Suez, Ismailia, Damietta, Shebein El Kom, Media Production City and Keft. Two additional free zones are under development in Badr and East Port Said. Among the Free Zone incentives and guarantees are a lifetime exemption from all taxes and customs; exemption from all import/export regulations; the option to sell a certain percentage of production domestically if custom duties are paid; and limited exemptions from labor provisions. Tax incentives for energy intensive industries operating in Free Zones (fertilizers; iron and steel; petroleum production; and production, liquefaction and transportation of natural gas) have been abolished as of May 2008. In addition, all equipment, machinery and essential means of transport (excluding sedan cars) necessary for maintaining the licensed activities of a project are exempted from all customs,
Egypt's Free Zones Offer Competitive Utility Prices: A new pricing mechanism for electricity used by energy-intensive industrial sectors (above 50 million kilowatts) is currently being applied to all sectors with the exception of food processing and textiles. Electricity cost is approximately 4 cents/kilowatt (KW). Potable water cost is approximately 20-30 cents per-cubic-meter. Fees and Charges Applicable to Free-Zone Companies: Manufacturing or assembly projects pay an annual charge of 1% of the total value of their products excluding all raw materials. Storage facilities are to pay 1% of the value of goods entering the Free Zones while services projects pay 1% of total annual revenue. Goods in transit to specific destinations are exempt from any charges.
Land Rental Prices are as Follows: US$ 3.50 per square meter per year for industrial projects; US$ 7.00 per square meter per year for all other projects (storage and services). A reduction of 50% of the above rate is available in three of the nine public free zones: Ismailia (for industrial and services projects only), Damietta and Shebein El Kom.
Private Free Zones
In addition to public Free Zones, private zones may also be established, each limited to a single project. The same privileges and incentives granted to public free zones apply to private zones as well.
Public- Private Partnership (PPP)
Not only is the state encouraging more foreign and inland investment in the country's burgeoning industrial and services sectors, but they have also allowed the private sector to deepen its participation in the economic reform process through a public-private partnership (PPP) strategy that aims to enhance the quality of services available in the country while simultaneously decreasing the financial burden on the government.
In 2006, the Ministry of Investment initiated a comprehensive PPP promotion strategy, which included the creation of a legislative and institutional framework that will facilitate the execution of major PPP infrastructure projects and encourage more local and foreign investors to partner with the government in priority sectors including water, transportation, health and education.
On the legislative front, the Ministry of Finance is currently drafting new PPP legislation to govern the relationship between the government and the private sector detailing the responsibilities of each side.
On the institutional and capacity building fronts, a joint PPP Unit has been established by the Ministries of Investment and Finance. Sector specific regulatory agencies have also been established to deal directly with various projects that are already in the works.
Between 1990 and 2005, the private sector was involved with PPPs in four infrastructure domains, including telecommunication, transportation, water and sewage, carrying out 20 projects with a total investment of US$ 7.5 billion. The telecom sector accounted for the lion's share of investment at US$ 5.27 billion. This was, however just the beginning of a successful experiment that the government intends to replicate and vastly expand in the future. More recently, the government has tendered for the construction and operation of schools as part of program aiming to build 2,210 new schools; fresh and sewage water treatment projects in Cairo and Borg El Arab; and billions of dollars in new highway projects that will speed traffic between the nation's north and south, between industrial zones and ports.
Foreign companies have already placed sizable investments into Egyptian ports. Danish shipping and oil group AP Moller – Maersk signed an agreement with the Egyptian government to double the capacity of it s East Port Said terminal by 2011. In October 2007, Dubai port operator DP World acquired a 90% stake in the Egyptian Container Handling Co., located near the mouth of the Suez Canal for US$ 670 million.
In the field of education, the Egyptian Education Initiative (EEI) is a PPP between the government of Egypt, the World Economic Forum's IT member community and multinationals including Cisco, HP, Intel, Oracle, IBM, Microsoft, Siemens and Computer Associates. The initiative supports Egypt overall education reform efforts and maximizes the potential for a collaborative partnership. The main objectives of the initiatives are to improve the development of and delivery of education, to raise the quality of teacher training, to develop skills needed for a knowledge society and to provide education to a wider sector of the population.