Egypt Country Profile
General Information
Political Climate
Prior to the revolutions that have swept North Africa and the Middle East, Egypt was ruled by former President Mubarak and the National Democratic Party since 1981, when a state of emergency was declared in Egypt and which has been in force ever since. Following protests that started on 25 January 2011, Mohammed Hosni Mubarak stepped down as President on 11 February 2011. The protests were a response to many grievances held by the Egyptian people, chief among them being police repression, lack of free elections and the rampant corruption that pervades Egyptian society. In fact, social media performed as a key player providing a forum for citizens to share their discontent and to organise the initial protests. Following the revolution, the military are now controlling the Egyptian government, promising to transfer power to a civilian government after six months or until elections are held, whichever comes first. Nevertheless, the deadline set for the transfer of power has long been expired and yet Egypt is still under military rule. Furthermore, military courts have been used since February to try civilians of whom thousands have been sentenced to prison terms. The ongoing situation led Egyptians, throughout July to September 2011, to the streets against protesting the military's grip on power. Responding to the unrest, the temporary government announced in September 2011 election dates. Parliamentary elections will be taking place throughout November 2011 and up till March 2012 culminating in the presidential election in March or April 2012. When elected, the new parliament will nominate a committee of 100 people to draft the new constitution, however, with the prospect of a Muslim Brotherhood majority in the Houses of Parliament, a September 2011 article by Associated Press writes, that a too strong Islamist influence in the drafting of the new constitution is feared. On 3 August 2011, the fallen symbol of authority in Egypt, ex-president Hosni Mubarak was wheeled into court in a hospital bed to face trial. Charged with corruption cases and ordering the killing of innocent demonstrators under the uprisings, an August 2011 article by BBC News states that Mubarak could face the death penalty if convicted. As the authoritarian regime was brought down by the people of Egypt many corruption cases surfaced. For instance, in the wake of the Mubarak's resignation, the former Interior Minister Habib el-Adly and two other former ministers have been arrested on corruption allegations. Steel tycoon Ahmed Ezz, once a prominent member of the former ruling NDP party, has also been arrested on corruption charges, according to an article from Al Jazeera. In March 2011, as reported by Global Integrity 2010, the European Union froze assets belonging to Mubarak and 18 members of his inner circle, including family and former cabinet members, aimed at preventing Mubarak from accessing any of his bank accounts abroad.
With the situation constantly changing, it is difficult to accurately describe the current landscape in relation to corruption. But, prior to the revolution observers agreed that corruption in Egypt was pervasive and that the use of wasta ('mediation' or 'influence' in Arabic) and facilitation payments were essential for doing business. The country will still face major challenges in combating both grand and petty corruption. In 2007, the government admitted that corruption is a serious problem and former Prime Minister Ahmed Nazif expressed his dedication to combating bribery, as reported by Transparency International Focus on Egypt. Yet, so far, the dedication to combating corruption does not seem to be paying off. The US Department of State 2010 report notes that the government of Egypt did not consistently and effectively implement anti-corruption laws and the media routinely report on low-level corruption. The report further states that anti-corruption agencies are not effective in their fight against corruption.
A number of initiatives to combat corruption have been launched by the government in recent years, such as the establishment of the National Committee to Combat Corruption in 2008 and the Transparency and Integrity Committee, set up within the Ministry of State for Administrative Development in 2007 with the aim of diminishing corruption in the public sector. However, it was a widely held perception that former President Mubarak controlled all existing anti-corruption initiatives and agencies, and that they served as tools for Mubarak's personal political agenda. This explains why corruption scandals involving the sale of public companies at under-valuated prices to affiliates of Mubarak have had few consequences for the parties involved. Furthermore, it seems that in cases where action has been taken against high-ranking officials involved in corruption, the officials in question had already fallen out of the government's favour. Accountability of the government and Parliament is generally weak, despite the fact that there are regulations to govern conflict of interest and asset disclosure for members of government and the head of state - these have proven to be largely ineffective. Global Integrity 2010 presents several examples of high-level politicians engaging in business relations with the state or fraud related to asset disclosure forms. More than half of the business executives surveyed by the Transparency International Bribe Payers Index 2008 distrust the government's efforts to fight corruption, perceiving them to be 'ineffective' or 'very ineffective', while about one-third perceive them to be 'effective' or 'very effective'. Egyptian citizens surveyed by the CIPE & Ahram Center for Political and Strategic Studies Egypt National Corruption Survey 2009 are also sceptical of the effectiveness of governmental anti-corruption institutions. Only 17% of the citizens surveyed stated that monitoring agencies play a principle role in combating corruption, while 29% mentioned religious clergy as the principal institution in the fight against corruption.
Business and Corruption
Companies wishing to invest in Egypt should be aware that several sources identify pervasive corruption as a major obstacle to doing business; according to an August 2011 article by Aljazeera, many in Egypt have raised the idea of re-nationalisation of land and state-owned assets due to the legacies of corruption that privatisation suffered. According to the World Bank & IFC Enterprise Surveys 2008, approximately 45% of companies identify corruption as a major constraint of doing business. The World Economic Forum Global Competitiveness Report 2011-2012 confirms this, identifying corruption as the sixth most problematic factor for doing business in Egypt. On the other hand, while acknowledging the existence of corrupt low-level officials, many US investors have not identified corruption as a major impediment to foreign investment, as reported by the US Commercial Service 2010.
According to the UNDP Project 2007-2011 Supporting the Ministry of Investment in Enhancing Transparency and Fighting Corruption, the civil service is marred by nepotism in hiring procedures and by general over-staffing. Companies are likely to encounter corruption in meetings with public officials, as officials in various government departments are known for bribery, embezzlement and tampering with official documents. According to the CIPE & Ahram Center for Political and Strategic Studies Egypt SME Survey Report 2009, 42% of the surveyed SMEs reported having paid bribes to obtain necessary licences in the establishment process, while 29% paid bribes to government officials during the operation of the company. On the other hand, the same study shows that those who did pay bribes spent more time establishing their companies and had to obtain more licences than those who did not bribe. This indicates that bribes were not paid to speed up procedures but to receive other benefits, such as being awarded a licence despite failing to meet legal requirements. According to the World Bank & IFC Enterprise Surveys 2008, a little more than 15% of companies expect to make unofficial payments to public officials to 'get things done'.
The Ministry of State for Administrative Development has specified several areas where corruption and bribery are commonly found, including public services, customs and taxes, public utilities, and procurement. Foreign companies should note that they are required to go through a local agent in order to bid directly on a government tender. The World Bank & IFC Enterprise Surveys 2008 report that 12.5% of companies surveyed expect to give gifts in order to secure a government contract. The CIPE & Ahram Center for Political and Strategic Studies Egypt SME Survey Report 2009 shows that 39% of respondents with public procurement experience report that bribes are paid to a great extent to win government contracts, while 40% state that bribery takes place to a limited extent. In this regard, companies are recommended to use a specialised public procurement due diligence tool in order to mitigate the corruption risks associated with public procurement in Egypt. Furthermore, companies are recommended to develop, implement and strengthen integrity systems and to conduct extensive due diligence when planning to do or when already doing business in Egypt.
Regulatory Environment
Egypt has in previous years been singled out as one of the world's top reformers by the World Bank & IFC Doing Business 2011. The country has dramatically improved its performance in a number of areas, including starting a company and trading across borders, areas in which Egypt performs impressively compared to regional averages. Starting a company in Egypt now requires the entrepreneur to go through just 6 procedures, taking an average of 7 days at a cost of only 5.6% of GNI per capita. Payment in minimum capital in regards to starting a company was eliminated in 2009. According to the World Economic Forum Global Competitiveness Report 2011-2012, Egypt holds a competitive advantage with regard to the time and number of procedures required to start a company. However, the same source also states that corruption is considered to be one of the most problematic factors for doing business in the country by business executives.
Despite Egypt's position as a top reformer in recent, numbers from the World Bank & IFC Doing Business 2011 shows that companies continue to face time-consuming procedures, particularly in relation to taxation, registering property, contract enforcement and dealing with construction permits. According to the same source, companies report that obtaining the necessary licences, permits and completing the required notifications and inspections requires 22 administrative steps and takes 218 days at a cost of more than 155% of income per capita - more cumbersome and time-consuming than the averages for both the OECD and the MENA region. The US Department of State 2011 stresses that excessive bureaucracy is an obstacle to investment, and notes that bureaucratic impediments are often imposed arbitrarily. Companies should know that Egypt's vast privatisation programme poses a licensing and entry barrier in certain sectors. Due to the privatisation process, no licences are issued for the establishment of new companies in the banking sector and the insurance sector. In effect, this means that companies can only enter into the insurance and banking market through acquisitions and mergers.
Egypt has established free zones and qualified industrial zones that are targeted to attract foreign investment, whereas the General Authority for Investment and Free Zones (GAFI) operates as a one-stop shop for investment that offers a range of services, including company registration, partner identification, contracts and licences acquisition. These services are provided free of charge for investors. The Ministry of Investment's Egyptian Investment Portal provides business information concerning investment and joint venture opportunities. The government's Business Services Portal presents business related legislation (mostly in Arabic). The Egyptian government has also prioritised investment dispute resolution and has succeeded in resolving some disputes with foreign investors. However, companies should note that the resolution of disputes in Egypt is both costly and time-consuming due to an inefficient judicial system. Companies can access the Investment Conflict Resolution Committee (in Arabic) for information regarding decisions on commercial disputes. Egypt is a signatory to the International Centre for the Settlement of Investment Disputes (ICSID) and the related framework regarding dispute settlement is in place. The US Department of State 2011 advises companies to include clauses in their contracts specifying provisions for binding international arbitration of disputes. The Cairo Regional Centre for International Commercial Arbitration provides access to arbitration laws and information and services to companies seeking international arbitration solutions to commercial disputes. Access the Lexadin World Law Guide for a collection of legislation in Egypt.
