Egypt readies bills to reform investment climate

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Legislation currently in the pipeline aims to develop and modernize non-banking financial services as well as the rules of state-owned asset management to meet changing economic conditions and requirements, with a focus on small and medium enterprises (SMEs) and microfinance.

Eight draft laws were prepared managing business procedures for public and private companies, licensing, mortgage finance, private insurance funds and voluntary pensions companies, healthcare firms, financial leasing and movable property registry, the investment ministry said.

"I think the proposed laws and legislative amendments aim to improve the legal infrastructure governing the business climate in Egypt," said Reham ElDesoki, senior economist at investment bank Beltone Financial in an emailed statement.

It also gives shareholders the freedom to increase companies' capital by "allowing them to issue preference shares and reducing fees on establishing companies in order to facilitate market entry and encourage investment."

According to the ministry, this step aims to integrate the informal economy into the formal economy.

This is one of the main areas of reform in Egypt, according to the seventh annual Egyptian Competitiveness Report (ECR) published in May by the Egyptian National Competitiveness Council (ENCC).

"Approximately 40 percent of the employed population is in the informal sector, and one-half of the wage-worker population is in the public sector," says the report.

Another draft law regulates the licensing of bodies operating in non-banking financial activities, standardizing rules granting licenses to companies, unifying rules for establishing unions for non-banking financial companies as well as administrative sanctions in case of violation.

"It also establishes rules and conditions for licensing microfinance companies, as well as companies working in financial lease and factoring," the ministry said.

In line with plans to promote mortgage finance, the law sets guidelines for mortgage refinance, financing real estate under construction, securitization of financial rights arising from mortgage finance, and reorganization of the license conditions.

At the recent Euromoney Egypt Housing and Real Estate Finance Conference, Advisor to the Minister of Investment Sherif Oteifa, highlighted that appropriate legislation as well as a new mortgage financing law is also needed to further develop the market.

At the conference, Investment Minister Mahmoud Mohieldin, said that Egypt plans on passing this new mortgage financing draft law in its next parliamentary session.

"We have a complete law ready to push forward the current mortgage regulations, to have better enforcement and enhance the efficiency of the sector," Reuters quoted Mohieldin as saying.

The new draft laws will also set up an organization responsible for the capital of holding companies, which comes after the minister announced that plans to settle public companies' debt to the banking system will be completed by the end of the fiscal year.

Omneia Helmy, deputy executive director of the Egyptian Center for Economic Studies, saw this as a good step towards restructuring the companies.

"If they succeed in paying back the debt, it will allow the Ministry of Investment to go forward with plans for the companies," said Helmy.

Another law will reorganize private insurance funds and allow the establishment of voluntary pension companies as well as another which will set the framework regulating the provision of healthcare.

Two of the proposed changes focused on improving the business of SMEs.

In the proposed changes, the financial lease law will be amended to develop a legal framework of financial lease in order to diversifying investors' funding sources, and increase the capital of financial lease companies.

The movable property registry draft law will establish a register to record all movable property, facilitating the process of obtaining funding for movable property, especially for SMEs.

At a conference organized last month to encourage funding for SMEs, experts said that 90 percent of the companies operating in Egypt are SMEs, contributing to 80 percent of the country's GDP and employing two-thirds of the labor force. Collectively, they pay 32 percent of all salaries and output 56 percent of industrial production in the country.

Nevertheless funding remains a problem for SMEs in Egypt.

"This is not an amicable environment for SMEs. This size of companies does not flourish in this country in any respect: lending, capital financing, capital raising," Basel El-Hini, managing director of Banque Du Caire said at the conference

"SMEs will not progress unless there's funding," he added.

© Daily News Egypt 2010